Markets & Finance

Tea shortage pushes up prices at Mombasa auction

tea

Farmers pick fresh tea leaves at a plantation in Kericho. The price of the commodity has been rising since the beginning of the year, raising hopes of farmers who for the last two years have been grappling with low prices. PHOTO | FILE |

Tea prices have gone up by 30 per cent in the last three months as the shortage of green leaf in factories continue to be witnessed following the ongoing drought in most parts of the country.

A kilogramme of tea at the Mombasa auction traded at $2.64 (Sh240) in the latest sale last week, compared to a six-year low of $2.04 (Sh184) in December last year.

The price of the commodity has been rising since the beginning of the year, raising hopes of farmers who for the last two years have been grappling with low prices.

But Kenya Tea Development Authority (KTDA), which manages 66 factories for the small-scale farmers, said the increase in price will not have a huge impact on earnings.

KTDA said the current dry spell in tea growing areas may not last for long as production will relapse to normal with the onset of long rains in March /April.

READ: Tea earnings will remain low, KTDA cautions farmers

“The dry spell currently being experienced across the tea growing areas may have a slight impact on the earnings,” says KTDA in a statement.

In January, tea production dropped by 9.21 per cent from 117.3 million kilogrammes to 106.4 million kilogrammes, compared to the same period last year.

Made tea shrunk by 4.65 per cent to 26.1 million kilogrammes at the beginning of the year from 27.4 kilogrammes last year. The agency said that the weather observations made in January and February, indicate that the coming months will experience even lower tea production levels because of the dry spell.

Last month’s crop may be about 38 per cent lower than the same period last year, according to the KTDA.

Tea prices had plummeted on increased volumes, reducing farmers’ earnings and increasing operation costs in factories.

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.

Agriculture secretary Felix Koskei told the Business Daily that the consultancy work has started and the report is due in May this year.

“We are waiting for the report so that we can act on its recommendations,” Mr Koskei said in a recent interview.

KTDA is at the moment diversifying to orthodox teas (such as purple tea), which earns double the normal black tea in order to increase its income.

READ: KTDA to increase purple tea production despite protest