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Ideas & Debate

Why tea subsidy fund plan is premature

 

In the early 1990s, a new interdisciplinary approach known as evidence-based practice (EBP) was introduced to clinical practice.

It started in medicine as evidence-based medicine and spread to all other scientific fields. Today, virtually every field makes reference to EBP and of particular interest to this article is evidence-based policy making or evidence-based decision making.

Evidence-based policy is public policy process primed by rigorously established objective evidence. I use a recent policy pronouncement to illustrate my point.

In 2013, the Kenya Tea Development Agency (KTDA) raised the alarm over the falling prices of tea which it said will have a major impact on the local economy.

They warned growers that low tea prices would affect their earnings unless the government intervenes. And indeed the warning became a realty when they announced the 2014 earnings.

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What is more worrying is the fact that far-reaching, new policy pronouncements and decisions are being made without any evidence.

In the first place, the statements coming from a private enterprise like KTDA are misleading. At the very least such statements make the entire country look decadent.

What we needed most is evidence to inform us on the next steps. Let me explain why it makes all of us look like we never went to school.

According to the Tea Board of Kenya, production went up from 293 million kilos in 2003 to 432 million kilos in 2013, commanding about 10 per cent of the global production market share and approximately 24 per cent of the export market share.

It has been a steady increase. Unlike India where 80 per cent of its tea production is consumed locally, virtually all of Kenya’s tea is for the export market.

Much of Kenyan tea is used for blending. Its market reach has remained static as supply soars. If the problem is oversupply, then we need to ask how we can diversify from blending or, at the very least, how to increase local consumption.

Management should have predicted that if there was no diversification strategy, there would be a market glut which leads to depressed earnings.

Instead of commissioning a research to provide the much needed evidence, they formed a committee of fellow directors. As they deliberated on the way forward, they correctly blamed this year’s poor income on low prices in the global market arising from oversupply of the cash crop.

But their recommendation to roll out a price stabilisation fund to cushion farmers from price fluctuations is surprisingly a wrong prescription to the stated problem. And if there is any school of economics that makes such a recommendation, it should be shut down forthwith.

When a private enterprise intimidates government to take action in the event of low prices, it is a sign of too much power in form of a monopoly.

Monopolies are rarely creative or innovative when their power can work for them. Indeed, KTDA’s marketing monopoly is the problem.

It does not want to deal with more immediate problems such as demand side issues, escalating cost of production, resistance to leverage on technology and failure to assist micro producers understand production dynamics.

When supply surpasses demand, the alarm bells should lead management towards market expansion especially to local markets which the agency has to a large extent ignored. Its brands are counterfeited with impunity under the guise of liberalisation.

There has not been aggressive promotion of drinking tea as we see in beer for example. Kenya Breweries has made it a mantra to associate Tusker with the country.

We must see similar promotions in tea to discourage consumption of foreign beverages. There are lessons to learn from large scale tea producers like Finlay, who have diversified into other markets like introducing new tea varieties that are used in the production of pharmaceutical products.

It is only after the company has exhausted all means of dealing with demand and production cost (politically driven expansion of factories) that they can seek for subsidy to reduce supply in order to discourage dilution of market prices.

Farmers must be sensitised to the fact that the markets have limits.

In fact the agency should use this as an opportunity to effectively deal with micro producers who may never make money or break-even in tea due to their small farms.

There is need to give incentives to these farmers to shift production to other complementary but productive products such tea tree oils.

It is imperative that we always make our critical decisions based on evidence. Otherwise we continue to impoverish our people unnecessarily.

Philosopher David Hume said, “A wise man proportions his belief to the evidence.”

Dr Ndemo is a senior lecturer, University of Nairobi and a former permanent secretary, Ministry of Information and Communication.

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