Markets & Finance

Pain as tea prices hit six-year low

KTDA-pix

Workers load tea bags on factory conveyor belts at Chinga Tea Factory in Othaya on March 29, 2014. Tea prices dropped to a six-year low this week spelling more doom for farmers who have already been forced to take a pay cut in the wake of the sector’s dismal performance. Photo/JOSEPH KANYI

Tea prices dropped to a six-year low this week spelling more doom for farmers who have already been forced to take a pay cut in the wake of the sector’s dismal performance.

Prices at the weekly auction fell to $2 (Sh174) per kilogramme representing a 17 per cent drop from the $2.30 (Sh200) recorded in June last year as the market contends with oversupply.

Experts say the downward trend will persist with wet conditions expected in major growing areas around Mount Kenya and West of the Rift Valley. Favourable conditions have triggered an increase in production.

“The average tea price for this week’s sale was $1.90 per kilogramme. The prices have been low since end of April. We have an oversupply of 70 million kilogrammes due to favourable weather,” Mombasa Tea Auction managing director Edward Mudibo told the Nation.

Kenya Tea Growers Association said the current prices are below production charges and could significantly affect the industry.

“This is below the cost of production. There is currently high supply and some packers are still sitting on huge stock,” KTGA vice chairman Abdi Hussein, who is also a senior official of the Nandi Tea Estates, said Thursday.

Mr Peter Kimanga, a director at Global Tea & Commodities, which trades at the Mombasa auction, said some teas fetched below $2 per kilogramme while others were slightly higher.

Farmers have had to bear the brunt of the sector’s dwindling fortunes with reduced incomes courtesy of high supply among other reasons.

Small-scale growers, under the umbrella of the Kenya Tea Development Agency, already missed out on the regular mini bonus with their annual payout set to drop significantly.

Tea-producing companies have also recorded a drop in their earnings with Sasini last month issuing a profit warning for the year ending September.

The plantation firm, which deals in large scale tea and coffee farming, said its full year profit is expected to reduce by more than a quarter compared to last year.

It reported an 86 per cent decline in earnings for the six months through March citing a drop in tea prices which affected its revenues.

READ: Sasini issues profit warning after 86pc drop in half-year profit

KTDA said the prices could be further suppressed by low demand in the future given that traditional buyers are heading to summer when consumption is lower compared to winter.

Pakistan, Egypt, the UK, Sudan and Afghanistan are the major importers of Kenyan tea, accounting for three quarters of the 392 million kilogrammes produced and 95 per cent exports last year.

Tea is a source of livelihood for over 10 million Kenyans and the country’s biggest foreign income earner having raked in Sh109 billion last year.