Tea prices rebound from five-year low on panic buying

Panic buying of tea at the Mombasa auction has helped to reverse a sharp decline in international auction prices from a five-year low.

The East Africa Tea Traders Association said on Thursday that the latest auction prices rose to Sh234.60 ($2.76) per kilogramme of processed leaf, from Sh187 ($2.2) that had remained constant in the past three months.

Tea prices is slowly picking up as a result of panic buying at the Mombasa tea auction after recording a low that was last witnessed in 2008.

The tea traders reported a rush in buying of the leaf attributed to a drop in supply and stocking up by buyers from countries in the Northern hemisphere that are preparing for the winter season.

Mr Peter Kimanga, a director at Global Tea & Commodities, a trading house, said the tea prices have improved by five to seven per cent in the past two weeks, expressing optimism that by next year they will have picked steadily.

“We have recorded an improvement in prices in the past two auctions and we expect the trend to continue in the coming days,” said Mr Kimanga in an interview.
Tea is a major foreign exchange earner and a source of livelihood for millions of Kenyan farmers.

Supplies at the auction houses are coming down affected by inadequate rain in most tea growing zones.

Increased supplies (up to 25 per cent) of green leaf produced in 2012/2013 saw revenue earned by the Kenya Tea Development Agency (KTDA) hit a record Sh69 billion.

READ: Kenya tea farmers to earn record Sh69 billion

During the period, farmers delivered 1.1 billion kilogrammes of green tea at the KTDA factories across the country, compared to 907 million kilogrammes that was delivered in 2011/2012 financial year. 

The high production depressed tea prices to levels last seen in 2008.

“For the first time in the past four years, production globally was higher than consumption and more so in the markets served by African teas,” said Mr Edward Mudibo, the managing director of East Africa Tea Traders Association.

But the good prices that are being registered currently might be dimmed by the drop in quality of the Kenyan tea, according to Mr Kimanga.

He said the Kenyan quality has reduced compared to what regional countries such as Rwanda are producing; a trend that he notes might reverse the gains expected from improved prices.

“We are losing a niche of our key markets because of the declining quality, this is a very dangerous trend that might make local made tea uncompetitive,” he said.

Quality is a factor of machines used in the processing factories and crop husbandry practices.