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Columnists

Tea reforms must focus on value addition

Tea picking
Tea picking in Nandi. FILE PHOTO | NMG 

The tea industry is set to enter a period of regulatory uncertainty it has never experienced before.

The raft of proposed changes for the tea industry outlined by President Uhuru Kenyatta recommend an unprecedented shake-up of the industry.

I agree with Mr Kenyatta when he says that there are operational and governance challenges that need to be addressed in the industry.

The President’s concerns in areas such as conflict of interest among directors of Kenya Tea Development Agency (KTDA) factories and lack of clarity and transparency on determination of bonus payments and dividends may very well be legitimate.

But I also feel that policy makers in this country are yet to grasp the fundamentals of the tea industry, fail to distil and define the country’s long-term strategic interests and did a poor job of diagnosing the problems facing tea farmers.

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I have the feeling that as a country we have not thought strategically about what we should do to leverage our position as a world power in the tea industry. We are heavyweights in world production and exports.

The Mombasa Tea Auction is biggest on the globe. But instead of thinking about how to flex muscles to the advantage of our local producers, we are busy trying to tinker with the status quo. Many years ago, the London Tea Auction died when we withdrew our tea. That is how you exercise market power when you are a leading player on the global stage.

Every policy paper or task force report on the tea industry I have come across in the last 20 years has come up with the recommendation that the industry must focus on building capacity in value- addition.

I agree. But shouldn’t we be also looking at investing and getting engaged on the locality of the final consumer of our tea? Shouldn’t we be challenging KTDA to seek mergers and acquisition with some of the leading international brands and major buyers of our tea in Western capitals?

It is time we started behaving like the big boys in the tea industry. The problem is that we have allowed national policy to be driven too much by parochial and short-term concerns in an environment where what matters most are happenings in the international marketplace.

It has become tradition and practice that-whenever KTDA bonuses go south, we must brace for noise and politics.

We are not honest enough to appreciate that whenever KTDA prices are low, a similar effect and impact will be reflected in decline in the performance of multinational tea producers operating in this country.

I cannot count the number of politically-inspired task forces or audit reports that have been conducted on the operations of KTDA in the last ten year.

Last year, a proposal was made in Parliament that KTDA be returned to its former parastatal. Yet we all know that the current structure of KTDA came into existence as a result of painstaking planning, the principle aim of which was to create a vertically integrated corporate entity that can enjoy economies of scale.

The idea was to bring tea factories under one roof, manage high fixed costs, and have a balance sheet large enough to support the flow of long-term capital and credit in projects by small holder tea factories.

If we have to change the architecture as Mr Kenyatta has proposed, let us move very cautiously. KTDA is not a paragon of virtue. But I just feel that the broad range of reforms require more public discussion.

If you track the value output of tea sold by this country over a long period of time, you will realise that it has been more or less a constant figure for many years.

The more the quantity goes up, the more the prices come down. This is how commodity prices tend to behave. That is why the idea of value addition remains a value proposition. We need to go into value-addition in a major way, by processing, packaging, and branding our tea.

Secondly, we need to aggressively promote a big and viable domestic market for the commodity.

We forget that over-dependence on export markets almost killed our tourism industry. The moment the travel advisories started coming in everything went belly up.

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