State to drop minimum tea prices as stocks pile up
Principal Secretary State Department for Investment Promotion Abubakar Hassan Abubakar speaking during DTB's third economic and sustainability engagement forum at Serena Hotel in Nairobi on February 14, 2024. PHOTO | LUCY WANJIRU | NMG
The government plans to drop the minimum price of $2.43 per kilogramme of tea sold at the Mombasa auction on continued outcry that sellers are stuck with stocks of unsold consignments of the green leaf.
The minimum price introduced in 2021 for tea sold by the Kenya Tea Development Agency (KTDA), with an estimated production market share of 65 percent, has a major influence on the auction.
Farmers in the tea-producing regions, including Nandi, Kericho and Kisii, own the KTDA.
Principal Secretary for Investments PromotionAbubakar Hassan Abubakar said on Wednesday the government would hold talks with tea sector players to start the process of repealing the regulations that introduced a reserve price of $2.43 (Sh380.80 at current exchange rate) per kilo.
The government, in July 2021, set the minimum tea price for produce from KTDA to lift the earnings for other suppliers of high-quality beverages, but this has resulted in buyers shunning teas they feel are highly-priced.
Mr Abubakar said in an economic and sustainability forum convened by DTB Group in Nairobi the unintended consequences of the reserve price will be addressed through “price liberalisation” to unlock auctions of the country’s second-highest foreign exchange earner.
“In terms of the stock, which is yet to be sold, it is because of the pricing control that was introduced to solve a problem, but it looks like it has brought unintended consequences. We are now going to have a conversation on how we will liberalise that,” said Mr Abubakar.
All the teas from regional countries are traded at the Mombasa auction by the East African Tea Traders Association before they are shipped out of the country for overseas markets.
Removing price control will be good news in unlocking trade based on demand and supply at the auction but could expose the farmers who had always felt their commodity was being sold at exploitative prices.
Mr Abubakar was responding to Flora Mutahi, founder and chief executive of Melvin Marsh International Ltd, which sells Melvins tea.
Ms Mutahi said, without giving figures, the glut at the Mombasa auction has worsened, leading to losses.
“We do have a crisis. There is a lot of tea sitting in the auction due to the reserve price. Prices are going down, and there is a conversation that needs to happen. Right now we are suffering,” she said.
“The law did not take into account that teas from the East and West of the Rift [Valley] do not sell at the same price. So, when you put tea at a price that the market does not value at that price, it keeps coming back. This is an area that needs to be sorted.”
The Mombasa auction runs on a two-day-a-week format where secondary-grade quality tea is sold on Mondays and premium-grade ones auctioned on Tuesdays.
Any tea not sold on a scheduled auction day is reprinted on a fresh catalogue and returned to the auction two weeks later. A seller can only bring back unsold crops to the auction twice.
Any crop unsold after two auction trials is relegated to a sale window referred to as a “passive window” where produce fetches low pricing on perceived poor quality.
