The decision to pay the mini-bonus was reached two weeks ago after industry players met President Uhuru Kenyatta who directed the Treasury to look into value added tax (VAT) and import duty levied on tea, which he said was hindering the growth of the sector.
Some tea factories could be forced to borrow to finance a mini-bonus that the Kenya Tea Development Agency (KTDA) promised would be paid to growers from the end of this month.
The mini-bonus is projected to be about 40 per cent less than what was paid last year, with some factory directors saying the companies would find it difficult to break even.
“We had not planned for this because in March KTDA had announced that it would not pay the mini-bonus to farmers as a result of the volatile tea prices that has seen some of our factories struggle financially,” said some KTDA officials who spoke to the Business Daily on condition of anonymity.
They said the affected factories would have to borrow the funds from financial institutions in order to meet the payments.
Farmers were last year paid a mini-bonus of Sh1.95 billion from 545 million kilogrammes that were delivered, according to KTDA. The pay out is usually done in April. In Region One and Region Four, factories affiliated to KTDA will pay farmers Sh3 as opposed to Sh5 that was paid to growers last year.
“We have settled on Sh3, which we will be paying farmers at the end of this month. Obviously this will be lower than what we paid them last year,” said Nathan Kirera, regional manager for Region One which covers 11 factories in Nyeri and parts of Kiambu.
The mini-bonus, said Mr Kirera, would be based on the number of kilogrammes of green leaf delivered to the factories in the six months to December last year.
However, some factories in western Kenya are yet to decide whether to pay the mini-bonus because of financial implications.
“We are in discussion with our board and other stakeholders on the amount to be paid, if at all. The decision to pay the mini-bonus is yet to be reached,” said Peter Munialo, the factory unit manager for Mudete.
The decision to pay the mini-bonus was reached two weeks ago after industry players met President Uhuru Kenyatta who directed the Treasury to look into value added tax (VAT) and import duty levied on tea, which he said was hindering the growth of the sector.
“Tea is one of our chief foreign exchange earners and we have to ensure that our farmers are comfortable and continue producing,” the President said.
Tea packers and exporters pay 16 per cent VAT for tea bought outside the auction yet that bought during the Tuesday fair is zero rated. The packers also want the import duty on value added teas increased from 25 per cent to 100 per cent.
Two weeks ago, tea prices dropped to a six-year low of $2 (Sh174) per kilogramme at the auction in Mombasa, representing a 13 per cent drop from the $2.30 (Sh200) during the corresponding auction last year due to oversupply of the commodity.
In contrast, prices in India – the world’s second-biggest producer – jumped on robust demand amid a drop in supplies due to dry weather in the top producing Assam State. Kenya Tea Growers Association (KTGA) 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,” said KTGA vice-chairman Abdi Hussein, who is also a senior official of the Nandi Tea Estates.
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.
More than 500,000 farmers farmers who sell their tea through KTDA will earn the lowest bonus in four years because of volatile global prices.
The growers were paid a record Sh69 billion for the 2013 crop season (July to June) beating the Sh61 billion that had been paid in each of the previous two years.
