Tea farmers are set to take a Sh15.8 billion cut in bonus earnings this year as a sharp drop in international prices reduced their pay to a six-year low.
Kenya Tea Development Agency (KTDA) announced Wednesday that more than 600,000 small-scale holders affiliated to the marketing agency would be paid a total bonus of Sh19.8 billion, a 44.3 per cent drop on the Sh35.6 billion paid last year.
The total earnings for KTDA decreased from Sh69.2 billion last year to Sh52.9 billion in the year under review, representing a 23 per cent decline.
“The favourable weather conditions experienced in 2013 through to 2014 led to an oversupply of tea triggering a significant reduction in prices,” said KTDA chief executive Lerionka Tiampati.
The announcement came at a time when the price of made tea at the Mombasa auction continues to register dismal performance, having hit a six-year low of Sh174 ($2) in last week’s auction.
Farmers have so far received initial payments of Sh15.74 billion through the preliminary disbursements of Sh14 per kilo every month and the remainder, popularly referred to as the bonus, will be released in October.
Announcing the KTDA results at a Nairobi Hotel, Mr Tiampati said the drop in earnings from the 2012-2013 financial year, was as a result of over-supply of tea in the market, leading to fluctuating global prices.
According to Mr Tiampati, tea growing areas experienced favourable weather conditions leading to a bumper crop in the year ending June 2014 where over 1.1 billion kilogrammes of green leaf was produced during this period, translating to 256 million kilogrammes of made tea.
Mr Tiampati noted that the outlook for the industry was unlikely to change in the wake of increased production, noting that the prices would likely remain the same.
He also attributed the drop in earnings on political instability in key markets such as Egypt and Sudan. He, however, pointed out that the volumes are now growing as the situation stabilises.
KTDA chairman Peter Kanyago said they were exploring new markets as they target new buyers for the country’s tea.
“We want to expand our markets beyond the traditional buyers and we have started with Malaysia who have already embraced our tea,” said Mr Kanyago.
Although farmers’ earnings were lower than the previous year, the CEO said tea volumes sold were good and majority of farmers would still meet their costs of production and make some profit.
He said the agency had taken steps to communicate with farmers affiliated to it regarding the impact of low prices on their earnings, noting that farmers were aware that their earnings would be lower this year.
To manage market challenges, KTDA has focused on cost management, efficiency enhancement and compliance to market requirements.
The agency has invested in automation and modernisation of factory processes, installed an integrated ICT platform and complied with global market requirements in order to remain competitive in the world market.
The firm is investing in energy cost saving projects, with the hydro-electric plant in Imenti currently producing one megawatt of electricity.
Kenya is the number three biggest tea producer in the world after China and India. It remains the leading country in export of the commodity given that the two leading nations consume nearly all of their made tea.
Tea consumption in the country is still low despite numerous campaigns by the tea directorate to promote the intake rate. Less than five percent of the made tea is consumed locally.
Tea exports from Kenya increased in 2013/2014 to 497 million kilogrammes compared to 467 million kilogrammes in the previous year.
The price volatility, which started last year, saw farmers’ mini-bonus decrease from what they earned last year, with some of the factories failing to meet the payment. The growers were paid a total of Sh3 from Sh5 the initial year, in a payment that is usually paid in April.