Money Markets

Tea farmers to benefit from value addition deal with UK’s Marks and Spencer stores

Tea pluckers at work. Marks and Spencer, a major retail outlet in Britain, will start stocking packaged tea directly from a factory in Nyeri — a move that could mark increased partnership between Kenyan tea factories and retail outlets in Europe.
Tea pluckers at work. Marks and Spencer, a major retail outlet in Britain, will start stocking packaged tea directly from a factory in Nyeri — a move that could mark increased partnership between Kenyan tea factories and retail outlets in Europe. 

Marks and Spencer, a major retail outlet in Britain, will start stocking packaged tea directly from a factory in Nyeri — a move that could mark increased partnership between Kenyan tea factories and retail outlets in Europe.

Farmers from the little known Iriani Tea Factory, located four kilometres off the Othaya-Nyeri highway, are set to enjoy increased earnings following the launch of the tea value addition centre.

Marks and Spencer head of sourcing Louise Nicholls said the supermarket will boost speciality Kenyan tea consumption in Britain through its 700 branches.

Partnering with retail outlets boosts efforts to brand Kenyan tea and differentiate it from similar products from across the globe, creating a niche market for the country.

Kenya accounts for 24 per cent of the international tea market share. Facilitators of the transaction, Fairtrade Africa, said the success of the project between Marks and Spencer and Iriani tea will see other retailers, such as giant outlet Sainsbury, seek to enter similar arrangements, upholding the practice of ethical sourcing which is highly valued in Britain.

Under ethical sourcing, outlets seek partnerships that have impact on the lives of disadvantaged or developing communities, contributing to raising their welfare.

More than 21 million people visit Marks and Spencer’s over 700 stores in the UK annually. Over half of the retailer’s business is in the food business.

In the pilot project, Iriani Tea Factory will deliver 1,350 kilogrammes of value added and packaged tea to the outlet in what could culminate into a long term contract.

The first 10,000 packets, which bear the Fairtrade brand mark, leave the country on November 20.

High hopes

The farmers have high hopes that the product will be well received, warranting an official launch tentatively planned for February next year in Britain. Iriani Tea Factory is fully owned by 6,000 farmers who are also its source of raw materials.

This year, the factory received Sh536 million from tea deliveries with Sh402 million being paid out to farmers.

The members look forward to receiving higher returns from the sale of processed tea. Kenya exports most of its tea, 95 per cent, in bulk raw form at the Mombasa auction.

At the auction, a kilo of the beverage fetches an average of $2.50 (Sh250), but with the value addition it will fetch approximately $6 (Sh600) with $0.50 (Sh50) being premium earned for selling under the Fairtrade mark.

The shilling, which has been battered for the better part of the year, could benefit from such initiatives which would increase the value of our exports tilting our balance of payments to a favourable position.

Kenyan tea is normally blended with other brands, an activity that dilutes its quality and identity.

Ethiopian coffee

“This means that pure tea from Kenya is likely to fetch higher prices due to its high quality, just as Ethiopian coffee differentiates itself (fetching more money),” said Amos Thiong’o, regional manager Fairtrade Africa-East Africa.  

The project is funded by the British government through its aid arm, the Department for International Development (DFiD), to the tune of Sh7 million in a programme called FRICH. The number of private companies investing in tea value addition has been growing in the recent past.

Value addition is done by flavouring, colouring, and repackaging into required measures. Products such as green tea and white tea emerge from the process.

High taxation and costly imported paper for packaging have retarded growth of value addition centres, industry players said. To cut high transport costs, the few value addition firms in the country have set up bases around Mombasa, away from farmers who don’t benefit from them.

The number of active value addition companies could not be verified. Among the key investors in the market are Crown Gold Beverages Kenya Ltd, Kericho Gold, and Chai Trading Kenya Ltd.

New licence

Kenya is also seeking to increase the volume of its value added tea exports with a new licence for a processing plant in Nandi County.

Trade minister Chirau Ali Mwakwere gazetted 4.05 hectares of land south of Eldoret as an export processing zone (EPZ) to be used by investors to set up the plant.

“We expect it to start a value addition facility for tea exports having just met the first legal requirement of being officially gazetted,” said Export Processing Zone Authority public communications manager Jonathan Chifalu.

He said the investor’s choice of Nandi district was informed by availability of tea, adding that the investor did not want to go public about their identity or business structure.

The value addition initiative could see Kenya’s tea earnings rise beyond the Sh78 billion realised last year.

The Eldoret Export Processing Zone will become the 43rd in the country, in a race that began with only two such zones in Athi River and Mombasa.

The Eldoret tea plant is set to open new markets for farmers and create employment opportunities for thousands of jobless youth. It will also support Kenya’s long running campaign to diversify exports by shifting from raw materials to value added products. Leading importers of Kenyan tea are Egypt, Pakistan, Britain, and Afghanistan.

The Eldoret factory will, however, have to bear high transport costs being far from the Mombasa sea port. Most existing value addition centres are located at the coast to save on transport costs.

The move to woo local investors into EPZs comes at a time when the government’s figures point to growth of business in sectors that have traditionally been criticised for failing to use locally available resources to create quality employment.

Value of exports

The Economic Survey 2011 indicates a sharp rise in the value of exports from EPZs, boosting investor confidence even as industrialists blame the drastic drop in the number of jobs created on tough export market conditions.

Korean investors are currently running the Athi River-based Technology Development Centre, an institution that provides industrial and technical training to EPZ firms.

Kenya is seeking to boost its export base with rapid investment in industrial processing.

A significant volume of raw tea from Kenya ends up in Egypt, Pakistan, and Dubai for processing before it is distributed to other parts of the world.

The Tea Board of Kenya has hired a consultant to find ways of encouraging investors to put up value addition centres in the country. rotini@ke.nationmedia.com and gngigi@ke.nationmedia.com