Markets & Finance

Tea prices hit one-year high at auction as drought bites

Tea-picking

A worker at a tea estate. High tea prices come as a boom to traders who have grappled with low prices at the Mombasa auction in the last two years. FILE PHOTO | NATION MEDIA GROUP

Tea prices at the Mombasa auction have hit a one-year high as severe drought continues to take a toll in the volumes of the country’s top foreign exchange earner.

In last week’s auction, a kilogramme of tea traded at $2.85 (Sh259) from $2.64 (Sh240) at the weekly auction, representing eight per cent increase.

About 5.8 million kilogrammes of tea were offered for sale in last week’s auction against 6.2 million kilogrammes in the previous week.

The drought has also affected other regional countries that sell their tea through the Mombasa auction. Last week, Uganda offered 940,000 kilogrammes of tea down from 1.03 million in the previous auction.

Bad weather in tea growing zones has forced a number of farmers to prune their crop at this time of the year even though the exercise is normally done in June. They have pruned in readiness for the rainy season.

READ: Tea shortage pushes up prices at Mombasa auction

“Farmers would prefer to prune their tea in June when there is a high likelihood of it being affected by frost,” said Kenya Tea Development Agency managing director Lerionka Tiampati.

Mr Tiampati added that the drought has been severe noting that it has led to a reduction in the supply of the green leaf in factories.

The price of tea was low last year due to an increase in production in the world market.

Kenya is the leading tea exporter of black tea in the world, selling 400 million kilogrammes to the global market annually, with only 25 million kilogrammes of the beverage consumed locally.

The high prices come as a boom to traders who have grappled with low prices at the auction in the last two years.

“We are happy that the prices have rebounded to a new high after dipping for the last two years,” said Mr Peter Kimanga of the Global Tea Holdings.

Tea farmers’ earnings dropped to Sh15.8 billion in bonus payment last year, which was the lowest in the past five years.

Total earnings for KTDA decreased from Sh69.2 billion in 2013 to Sh52.9 billion in 2014, representing a 23 per cent decline.

The government is in the process of establishing a commodity fund that will cushion tea farmers from fluctuating prices.

The State has contracted Jomo Kenyatta University of Agriculture and Technology to undertake a study and develop a model to guide on the minimum price payable to smallholder farmers for green leaf delivered and also recommend a sustainable model and modalities for establishing a price stabilisation fund.

The Ministry of Agriculture has said the study will take four months and the report is expected by the end of May.