Money Markets

Tea hawking cuts KTDA farmers’ bonus in the Rift

A woman plucks tea at Ruthiruini village in Othaya. Hawking of the leaf has reduced farmers’ gains as production costs eat into earnings. FILE
A woman plucks tea at Ruthiruini village in Othaya. Hawking of the leaf has reduced farmers’ gains as production costs eat into earnings. FILE  NATION MEDIA GROUP

Tea hawking has hampered the efficiency of factories in Rift Valley, forcing them to pay farmers as low as Sh6 of every Sh10 sale compared to a higher of more than Sh8 in the Mount Kenya area.

Data released by the Kenya Tea Development Agency (KTDA) on bonus —the final payment after monthly payout— per factory shows the percentage paid out to the farmers in relation to total revenues was lower in the Rift region, a factor attributed to higher operating costs than other areas.

Lower deliveries deny the tea companies raw material, which end up increasing the cost of production per unit as firms use same capacity to process less.

“In areas where there are private companies, there is tea hawking and the low delivery affects the total performance,” said Francis Muriuki, the KTDA group acting corporate affairs director.

Kapsara Tea Factory paid out the lowest part of its total revenues at 60 per cent while Imenti Factory in Meru County was the most efficient at 82 per cent payout.

In the year 2012 Kapsara spent 12 per cent of its revenues in administrative costs alone compared to five per cent used by Imenti Tea Factory in the same period.

“Some use furnace oil which is expensive than wood while others have mechanised their operations reducing their cost of labour; so they fetch better margins,” KTDA chairman Peter Kanyago said about the glaring discrepancies.

However, the use of the cheaper wood for fuel has been a subject of debate in the sector with some factories accused of indiscriminate felling of trees leading to deforestation.

Payments are also affected by a factory’s commitment to future development projects, like building new factories, and crop husbandry, said Mr Muriuki.

Farmers in Mount Kenya, however, operate in an environment of no private factories, allowing them to focus on quality and benefit from reduced production costs.

Imenti’s efficiency was buoyed by its access to cheaper energy, because it has a hydro-power project for own use with the excess sold to the power grid.

Many tea factories produce their own power with some in the same region pooling funds to set up power plants. Electricity is a huge cost element in the production chain second only to labour in Kenya.

Stronger shilling

The total payment to tea farmers this year is Sh51.3 billion, up 13.2 per cent from last year. This is expected to boost the cash position of saccos and retail banks that have a presence in the tea producing areas as the second payment of Sh35.6 billion is released to the farmers through these institutions.

The price per kilo is, however, lower compared to last year, which was attributed to currency exchange rate, unrest in Egypt and higher supply.

During the year, the Kenyan shilling was stronger at an average of Sh85 to the dollar compared to the previous period when it was at Sh89, with the weaker currency being favourable to exporters.

Egypt, which is a key importer of Kenyan tea taking up 30 per cent, has been in a political crisis.

Tea factories have also started selling directly to the consuming markets in Europe, giving them higher margins as they cut out the brokers.

Mr Kanyago said all factories were now marketing directly with at least 20 per cent of the produce sold through this channel.

The total production of green leaf increased to 1.1 billion kilogrammes up from 907 million kilos delivered in the previous year. On average, four kilogrammes of green leaf is used to produce a kilo of tea.