Financiers hit by defaults over falling tea prices

Tea farmers are bracing for more expensive credit after declining prices in the international market prompted massive defaults, forcing financiers to reschedule payments.

The most affected are financiers in rural areas where tea farmers account for more than half of the advances and a handful of banks that are exposed to the sector.

“We have been affected greatly by this move, a good number of farmers are unable to repay their loans. As a result, we have been forced to reschedule the loans by a year,” said Nandi Hekima Sacco chief executive officer Edwin Chepkwony, adding that the society was finding it difficult to advance more credit.

Kenya Tea Development Agency (KTDA) announced last month that it would not pay the mini-bonus because of poor prices caused by oversupply.

“Tea producers will be negatively affected by the drop in prices. This is expected to have a negative impact on tea earnings by farmers this year,” said KTDA chief executive officer Lerionka Tiampati.

Tea prices at the Mombasa auction have dropped by 30 per cent since July 2013.

During this week’s auction, a kilogramme of made tea sold at an average price of Sh172 ($2.2) for small holders at the auction against Sh258 ($3.15) the same period last year.

READ: Poor tea price persists at Mombasa auction

Mr Chepkwony said the Sacco had advanced Sh100 million to farmers in the current crop year at rates varying between 15 and 17 per cent.

In most Saccos growers are supposed to repay partly when they receive a mini-bonus around May and clear the balance with the final payment, commonly known as bonus, paid around October.

Farmers mostly commit the monthly payment of Sh12 per kilogramme to labour with tea pickers earning between Sh8 and Sh10 per kilogramme.

The financing crisis facing the sector has prompted the government to consider ways of stabilising prices and cushioning farmers and service providers in the value chain from business losses.

“The tea sector has not had regulations. Those we are developing now will be key in offering intervention in regard to the price of tea,” said Agriculture Principal Secretary Sicily Kariuki.

Mrs Kariuki said the current crisis is a global phenomenon which has affected the price of other commodities.

Current crisis

Last year, 4.8 billion kilogrammes of tea were produced globally against consumption of 4.6 billion, creating a surplus of 200 million kilogrammes which spilled over to the current year hence destabilising tea prices.

Listed tea companies have already issued a profit warning as a result of the low prices in the world market.

Kapchorua Tea Company announced that earnings for the year ending March 31 are expected to drop compared to last year’s earnings.

“The company currently forecasts that earnings for the year ending March 31, 2014 could be at least lower by 25 per cent than those of the year ended March 31, 2013,” read the report signed by the company’s secretary.

Limuru Tea Factory registered declined revenue of 10 per cent to Sh104 million in 2013 from Sh116 million in 2012.

The loss was attributed to a nine per cent drop in average prices of tea in 2013 which was at Sh215 in comparison to Sh236 per kilogramme of made tea in 2012.