Markets & Finance

Strong dollar earns tea farmers Sh64 billion

ktda

Kenya Tea Development Agency chairman Peter Kanyago (right), CEO Lerionka Tiampati and board member Jeffithah Karua (left) during announcement of bonus payment for farmers on September 22, 2015. PHOTO | DIANA NGILA

Tea farmers have earned close to Sh10 billion more from leaves delivered in the year ended June 2015, helped by a strong US dollar and high pricing of the commodity in the world market.

Latest industry performance data released Tuesday shows that growers affiliated to the Kenya Tea Development Agency (KTDA) have received Sh28.7 billion in the second round of payment for their produce compared to the Sh19 billion they earned in a similar period the previous year.

This brings to Sh63.6 billion the total earnings for the 2014/2015 financial year compared to the Sh52.6 billion earned in the 2013/2014 financial year. 

“Our performance this year has improved compared to last year mainly because of the strong dollar and good market prices,” said KTDA managing director Lerionka Tiampati.

The Kenyan shilling has been weakening against the US dollar since January and is currently trading at Sh105 against the greenback, bringing relief to the exporters.

Kenya sells 95 per cent of its tea leaves in the world market. Tea farmers have so far been paid Sh14.55 billion in preliminary disbursements priced at Sh14 per kilo every month. KTDA said the final payments – popularly known as bonuses, would be made next month.

The growth in tea revenues has been attributed to the decline in volumes of tea sold at the Mombasa auction, which helped to push demand for the beverage resulting to better prices.

A kilogramme of made tea fetched Sh260 in the year under review compared to Sh243 for the same quantity in the previous year.

Last year, tea farmers suffered a big blow as a heavy market glut pulled down international prices, leaving Kenya with the lowest earnings in six years.

READ: Tea prices hit 7-month high as demand at auction rises

A total of 240 million kilogrammes of made tea was produced in the financial year 2013/2014 compared to 256 million kilogrammes in  2014/2015. 

KTDA is paying 71 per cent of total earnings to the farmers compared to 67 per cent that they earned last year.

The agency said Central Kenya farmers were poised for better bonus earnings compared to the other regions.

On average, growers from Kiambu and Thika will get Sh8 billion while their counterparts in Nandi and Kitale will be paid Sh1.3 billion.

On Tuesday, North Rift farmers complained that the differences in bonus earnings were unfair given the fact that they all sell their tea at the Mombasa auction.

Even with the improved revenues, KTDA complained that increasing cost of production had eaten deeply into the farmers’ profit margins.

KTDA is consequently investing in small hydro-power stations that are expected to lower energy costs to tame soaring production costs.

“Cost of production has continued to rise due to high energy, labour, financing and transport costs. Energy is still the single largest contributor to high cost and that is why we are investing on hydro-power projects to reduce it,” said Mr Tiampati.

The International Finance Corporation (IFC) and the Global Agriculture Food Security Programme (GAFSP) have extended a Sh2.6 billion loan to finance the agency’s internal energy plan, which seeks to generate 16 megawatts.

The IFC and GAFSP have each committed to invest Sh1.3 billion in renewable power plants that comprise seven run-of-the-river small hydro-power plants (SHPs) and construction of transmission lines in various parts of the country.

Though the outlook for the current financial year remains impressive in light of the prices tea continues to fetch at the Mombasa tea auction, Mr Tiampati says the anticipated El Nino rains might reduce the earnings due to disruptions that the showers are likely to cause.

He said that the downpour is likely to wash the crop through soil erosions as well as cause power interruptions, which will result to stoppages in the factories.

The weather reports have indicated that the El Nino rains are expected to start next month, warning that they will cause damages to crops and property.