Economy

High tea prices shield farmers from drop in output

tea

Strong global tea prices will see earnings by farmers hold steady this year, shielding them from declining production.

Strong global tea prices will see earnings by farmers hold steady this year, shielding them from declining production.

The earnings are expected to rise from Sh109 billion last year to Sh110 billion by year end on account of higher prices sparked by growing demand, the Tea Board of Kenya said on Monday.

“The reduction in supply which we estimate to be around 5 per cent for this year will be mitigated by stronger prices which have risen from Sh240 a kg to Sh280 a kg,” said Sicily Kariuki, the managing director of TBK.

Kenya’s tea output dropped by 22 million kg to 377 million in eight months to August this year, compared to the same period last year.

The stronger prices have also been supported by strong growth in emerging markets such as China and India whose demand has surpassed their domestic supply, prompting them to look for external supplies.

This means that the increase in bonus payout to farmers this year could be sustained or even increase. Bonus payout to farmers rose 12 per cent to Sh45.3 billion in the 2011/2012 year.

Black tea producers, of which Kenya is included, saw tea output drop by between 2 and 31 per cent in eight months to August due to a frost attack and dry and hot weather in Kenya and China even as severe monsoon and winter ravaged the crop in India and Sri Lanka.

Kenyan tea prices strengthened the most at the Mombasa auction to average at Sh252 a kg compared to other global auction centres such as Sri Lanka and India with Sh225 and Sh210 a kg respectively in the eight months to August 2012.

The tea exports, however, remain exposed to events in the international markets given that local consumption only accounts for 5 per cent of the total output.

The Food and Agricultural Organization (FAO) forecast strong tea prices in this decade in their latest report.

FAO says tea production has been growing by 1.87 per cent annually in recent year while consumption has also grown by 1.8 per cent helping to a delicate balance equilibrium that has seen prices stabilizes at a time when coffee prices have tumbled on excess output.