Tea farmers file Sh93bn suit against KTDA and brokers

Small-scale tea farmers have opened an epic legal battle to recover Sh93 billion they accuse their marketing agency of stealing over the past 15 years.

Kericho governor Paul Chepkwony is leading the farmers’ offensive in a suit that targets the Kenya Tea Development Agency (KTDA), big tea traders and brokers.

Mr Chepkwony accuses KTDA of using fixed and unfavourable industry conditions to appropriate a large quantity of the tea that farmers produce.

The suit, filed six months after the government promised to implement recommendations of a tea directorate that accused KTDA of similar sins, comes before Justice Hellen Ong’udi this Friday.

“The petitioner prays for a declaration that the actions of the respondents in colluding to fleece farmers of their rightful earnings and unreasonably delaying the payment of their meagre amounts expressly violates the Constitution,” says Mr Chepkwony in court papers.

The governor wants the court to compel KTDA to refund the billions that farmers have been charged in “unlawful taxes”. He is also seeking general and special damages for the losses farmers have suffered due to the alleged price fixing.

The tea traders are accused of colluding to charge farmers double taxes, fixing tea prices and blending their tea with cheap imports so as to maximise profits while locking out growers from earning their fair share.

The tea farmers have also enjoined the government in the suit — through the Agriculture and Fisheries Authorities and the East African Tea Trade Association (Eatta) — for failure to act on the alleged rot in the industry.

Mr Chepkwony wants to stop KTDA and Eatta from levying taxes on growers until a legal framework to support the charges is in place.

KTDA charges agricultural produce cess while Eatta appropriates one per cent of the farmers’ total income in ad valorem duty.

READ: Ministry proposes VAT waiver to spur tea earnings

The governor argues that only counties are allowed to tax growers within their jurisdiction, and that farmers should be refunded any levies paid after March last year when the county governments were established.

“I pray for a declaration that the levying of agricultural produce cess by KTDA and ad valorem duty at the point of export be stopped until such a time as supporting legal framework is enacted. Only a county government has constitutional authority to levy the cess.”

KTDA’s cess charge is in addition to an annual 40 per cent deduction on each farmer’s sales in operating expenses and a 2.5 per cent management fee on gross sales.

Chai Trading Company, a KTDA subsidiary, charges an additional 0.75 per cent of sales as brokerage fees.

Farmers are charged over 26 different taxes, which Mr Chepkwony reckons are exploitative and unfair.

Justice Ong’udi had in December directed the 28 respondents — KTDA, 14 top tea firms, brokers and the government — to respond to the suit before March 20 when the matter would be brought before her for further directions.

Mr Chepkwony holds that a section of KTDA officials own shares in some of the trading companies and brokerage firms that fix tea prices and blend farmers’ tea with cheap imports to maximise profits.

The suit is expected to serve up an interesting legal battle between senior counsels Tom Ojienda, who is representing the governor, and Ahmednasir Abdullahi, who is appearing for the respondents.

Lawyer Peter Wanyama initially led the farmers’ charge before Prof Ojienda was brought on board to lead the fight.

Prof Ojienda replaced Mr Abdullahi as the Law Society of Kenya representative to the Judicial Service Commission after beating him in an election in February last year.

The suit could lead to a decisive change in the all-important tea industry where the governor wants representation of small holders’ interests transferred to the Kenya Union of Small Scale Tea Owners Association (Kussto).

KTDA does not recognise the union, choosing instead to back the Kenya Small Scale Tea Growers Association (KSSTGA).

Kussto was formed in 1995 but was only registered in 2005, having been stalled for years by strong opposition from the KTDA-associated KSSTGA.

Mr Chepkwony alleges that KTDA is covertly deducting money from farmers to fund KSSTGA, a union he claims is defunct.

“KTDA has collected Sh500,000 from each factory and Sh10 from each farmer annually since 2000 to finance this puppet organisation. Most farmers are not aware of these deductions as KTDA has ensured that the same is not reflected in their receipts.”
Farmers claim that KTDA has taken over most functions that were devolved to them, including control of factories. They further fault the agency for not fighting for their rights and interests.

The farmers intend to use Kussto to champion their involvement in the tea industry. Mr Chepkwony wants the farmers to be involved in the decision-making processes and the determination of the various taxes and charges levied.

The farmers are expected to challenge the fixing of prices at the Eatta-run Mombasa tea auction — the sole avenue through which traders and brokers export their produce.

Prices at the auction are allegedly fixed so that large quantities can be bought at low prices, then blended with cheap imports which are then exported.

“This blended tea that is later exported amounts to four per cent of total KTDA sales, with the biggest beneficiaries being some KTDA directors and other powerful individuals who have formed brokerage firms to fleece small-scale farmers,” the governor claims.

He also wants the Competition Authority to investigate price fixing allegations at the auction between 2001 and 2015.

Justice Ong’udi is expected to set a hearing date on Friday.