Politics and policy
Direct tea exports threaten pricing at Mombasa auction
Posted Monday, December 12 2011 at 18:50
Direct sale of tea to international buyers has plucked off 30 per cent of the total export volume, sparking fears that it will undermine pricing at the centralised Mombasa tea auction.
Traditionally, only a fifth of tea exports is bought directly from farmers, as buyers seek top-ups for blending varieties from the auction.
The East Africa Tea Trade Association (EATTA) said increased direct transactions have reduced the number of buyers at the auction, leading to lower traded volumes.
Peter Kimanga, the Eatta chairman, said only 30 of the 70 registered exporters were active at the auction while about 18 per cent of tea remained unsold on a weekly basis despite reduced offers following the withdrawal of Tanzania and Malawi producers.
Mr Kimanga said stringent requirements for buyers and brokers were pushing them to look for deals outside the auction.
“Besides being asked to deposit Sh10 million, set up warehouses and pay taxes, buyers’ licences have to be renewed annually.
“This is prohibitive, for what happens should the government decide not to renew the licence? The investment goes to waste,” said Mr Kimanga.
Tea-producing countries are also pulling out of Mombasa in order to exploit the benefits of Everything But Arms Agreement (EBA) trade agreement which they have been missing out on due to reliance on the Mombasa auction.
EBA trade agreement provides duty and quota-free access for products exported to the European Union from countries on the UN Least Developed Countries list. Kenya does not enjoy the preferential agreement because it appears on the LDC list.
“If the number of buyers continues to fall at the auction, the reduced competition will lead to a price crash,” he said, blaming the exit of Malawi and Tanzania on tariff barriers.
Farmers would suffer from the lack of a price discovery mechanism, leading to poor earnings as happened in China.
The Chinese green tea industry is characterised by erratic prices because of speculation arising from the lack of a clear marketing structure. Unlike Kenya, Sri Lanka and India, China does not have an auction centre.
Tea auction systems are globally considered the best avenue for marketing.
There are 11 tea auctions centres in the world but Mombasa, Colombo in Sri Lanka and Calcutta in India are the market movers, handling half of the tea sold through auction.