The price of tea has slowed down due to weak demand from top buyers.
The sufficient rains received by the country have helped tea yields rise significantly.
Tea farmers are facing a decline in earnings this year as prices of the beverage tumble at the weekly Mombasa auction, worsened by the growing volume of the produce rejected on quality concerns.
The sufficient rains received by the country starting in October last year have helped tea yields rise significantly, with the volume of Kenyan tea presented to the auction jumping to 145.5 million kilogrammes between January and April.
This is an increase of 20.7 percent compared to 120.53 million kilogrammes that were presented to the auction during the same period last year, even as tea production is expected to rise further in the coming months due to the ongoing rains.
However, prices of the beverage have slowed down due to weak demand from top buyers such as Pakistan, Egypt, Iran, and Russia and stiff competition from other top producers.
In Sale 14 of 2024 held last week, a kilogramme of tea was fetching an average price of $2.18 (Sh283.4).
This translates to a price drop of 6.8 percent from an average price of $2.34 (Sh304.2) on Sale 14 of 2023, according to data from Tea Brokers East Africa Limited (EATBL).
“There was reduced activity from Pakistan Packers, Bazaar, Afghanistan, Egyptian Packers, Yemen, and other Middle Eastern countries in view of the Eid-ul-Fitr festivities,” said the firm.
“Local packers reduced interest while Somalia maintained activity at the lower end of the market.”
In recent years, such as price drop was offset by the depreciation of the Kenya shilling, which led to increased earnings for farmers even if the unit price of the beverage fell.
But this year promises to be different due to the surprising strengthening of the local currency from a high of more than Sh161 against the US dollar to less than Sh130.
This means that tea farmers are poised to absorb a double blow of reduced unit prices and a strong local currency not only on their bonus payments but also monthly payments for their produce.
The reserve price the government introduced nearly three years ago has also come back to bite farmers as an increasing volume of tea at the auction fails to attract buyers.
Recently published data from the Africa Tea Brokers (ATB), for example, shows that sellers presented 72.08 million kilogrammes of Kenya’s tea to the auction in March but only 42.35 million kilogrammes were sold. The headache of unsold tea worsened from last year, when 37.3 percent of Kenya’s tea failed to attract buyers during the auctions held in March 2023.
The minimum price of $2.43 per kilo has been problematic since it was introduced by the government in July 2021 to lift the earnings of farmers. Yet, tea factories from the East of the Rift Valley fetch far higher prices – sometimes double – than those in the West of the Rift Valley fetch.
For example, in the most recent auction, tea from Kiegoi, a factory in Maua, fetched the highest average price of $3.29 (Sh427.7) per kilo.
In contrast, tea from Kapsara in Sibanga, Trans Nzoia, fetched the lowest price of $1.25 (Sh162.5) on average per kilo.
As a result, buyers shun low-quality teas, dealing a blow to farmers even as the government mulls interventions to improve the quality of tea presented to the auction.
The Kenya Tea Board (KTB), a State agency that regulates the tea sector, recently said it is developing standards for teas acceptable for processing to reduce the volume of rejected teas.
“The Tea Board of Kenya has been registering the green leaf transporters to the factory and is developing the standards of green leaf acceptable for processing,” it said.
This comes amid a push for reforms by the government in the tea, coffee, dairy, and sugarcane sub-sectors, which are key to the performance of the agricultural sector, which contributes nearly a quarter of the country’s economy.
The tea reforms led to the ouster of David Ichoho as the chairman of the Kenya Tea Development Agency following a stakeholders meeting in Kericho last year chaired by Deputy President Rigathi Gachagua.
Mr Ichoho was replaced by Enos Njeru who now chairs the board of the firm that represents more than 600,000 smallholder tea farmers from 54 factories.
As part of the reforms, Bomet Senator Hillary Sigei last year sponsored The Tea (Amendment) Bill, 2023, which seeks to amend certain provisions in the Tea Act 2020.
The Bill seeks to protect the tea growers' proceeds from mismanagement by factories and also aims to encourage value addition of tea by exempting value-added tea from payment of the tea levy.
All issue issues especially regarding prices and rejects signal that the sector will struggle to hit the highs of last year, when volumes – as well as a favourable exchange rate – pushed tea earnings by 31 percent to Sh180.57 billion up from Sh138.09 billion in the previous year.
