Kenya’s tea industry feels competition heat

The industry is increasingly coming under pressure because of failing to expand production methods. Photo/FILE
The industry is increasingly coming under pressure because of failing to expand production methods. Photo/FILE 

Kenya’s tea production has gone up this year on good rains, but its biggest market — the low quality — is collapsing on the back of new trade policies.

The domestic outlook is poor. Tea farmers have enjoyed a bumper year.

Production was up by almost 50 per cent in the first quarter to 37.7m kg compared with 25.4m kg a year earlier.

Sales at the Mombasa auction rose by 18 per cent to 94.5m kg from 79.8m kg last year on improved prices.

But the bounce-back from the drought comes against the backdrop of increasingly stiff competition for Kenya’s low-quality tea-bags and the erosion of many of its top markets behind shifting international trade policies.


Strong liquoring

Kenya is a known producer and exporter of black tea processed using the automated cut, tear and curl (CTC) method of crushing for use in bags.

All the leaves, buds and stems are ground to equal sizes, mostly dust and fannings, producing low quality but strong-liquoring teas.

This is in contrast to the orthodox teas, which are manufactured using the traditional method of rolling leaf into smaller particles to produce a higher quality, better-tasting tea suitable for multiple infusions.

Kenya’s fiercest competitors in the global tea market, India and Sri Lanka have developed industries in both CTC and orthodox production, giving them a strong showing in the large CTC markets of the UK, Pakistan and Egypt, as well as the huge orthodox market in the US.

But Kenyan tea producers remain wedded to CTC production, despite concerted efforts by the Kenya Tea Development Authority, in charge of the collection, processing and selling of tea leaves from small-scale farmers, to encourage orthodox tea production.

Kenya’s 314,875 small-scale tea farmers account for 60 per cent of production.

The plantations take the rest. However, the processing of the former lot is exclusively CTC.

Yet, according to the Tea Board of Kenya — the regulator — in 2007, 3,726m kgs of black CTC tea were produced, against world consumption of just 3,600m kgs, representing an oversupply of 126m kgs.

Kenya was hit heavily by the over-supply, suffering sharp falls in both export volumes and prices, even as competitor nations such as India enjoyed continuing growth in tea sales.

“Just because we have recorded impressive sales in the Mombasa Auction this year doesn’t mean it will remain so. We produce one type of tea which is facing fierce competition from other producers,” says John Bundi of Swift Commodity Enterprise, a leading exporter.

It’s a message echoed by the president of The Highland Tea Company, a wholesaler of Kenyan specialty teas and a member of the Specialty Tea Institute, based in New York City, Wanja Michuki: “Those that rely on one form of tea will always be scathed because you can’t quite predict international markets.”

Kenya also lacks the buffer zone of a vibrant domestic tea market. It is exporting 95 per cent of the 200m kg of tea it produces annually.

“The average consumption of Kenyan tea per person in Kenya is 400g compared to the UK where average consumption is 2kg,” says Mr Bundi. “This should explain why Kenyan tea continues to be in a volatile position.”

India, one of Kenya’s biggest rivals, produces most of its tea for local consumption.

In 2009, India produced 30 per cent of the world’s tea, but consumed 85 per cent of that on the local market. Kenya has also been hit by a string of new trading deals.

Pakistan was for a long time the largest importer of Kenyan CTC tea.

A few years ago, Pakistan’s embassy in Nairobi sought to establish a free trade area (FTA) with Kenya that would eliminate tariffs, quotas and preferences on most of the goods traded between the two countries, top among them tea.

But Kenya rebuffed the proposal, arguing it would conflict with the taxation regimes of the Common Market for Eastern and Southern Africa (Comesa), including the East African Community (EAC) trading bloc.

As a result, exports to Pakistan in 2008 fell by 43 per cent, and are yet to recover.

Afghanistan went ahead to enter into free trade with other tea exporters, including Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka under the South Asia Free Trade Area (SAFTA) and agreed to remove tariffs on goods traded among them.

Today, Sri Lanka, another fierce Kenyan competitor, enjoys duty-free market access for 206 products into the Pakistan market, with tea high on the list.

Special markets

Moreover, Pakistan is now in exploratory talks with Malawi and Rwanda seeking FTA status with alternative African tea-growing states.

“When such a major importer of tea finds new markets to explore, this has serious effects and places Kenya in a precarious position where a drop in demand from any one of these countries always has a major impact on revenues from Kenyan tea exports,” says Ms Michuki.

The Kenyan government is now pushing to end the overdependence on CTC teas.

Dr Romano Kiome, the Agriculture permanent secretary, said recently: “We need to develop special products for special markets. We need to put the consumer first, rather than the farmer, as has been the case.”

But it is a message that has yet to convert the 314,875 small-scale farmers. For now, the only hope can be that the rest of the world, or Kenya, start consuming a lot more teabags.

African Laughter