How Russia-Ukraine war hurts Kenya tea exportsMonday August 29 2022
At the beginning of the year, it cost a tea exporter about Sh357,000 ($3,000) to ship a 40-foot container to Russia, Kenya's fifth biggest market for the beverage.
Today, it is about Sh952,000 to the nation and other neighbouring regions around the Black Sea.
Europe may be miles away from Kenya, but the impact of the ongoing Russia-Ukraine war is being felt by the local tea farmers.
The sharp rise in cost has been occasioned by the longer distance that the ships have to navigate to reach their final destination following the closure of the Black Sea route.
The war, which broke out towards the end of February, disrupted movement and cut demand for the beverage to several countries that used the Black Sea as their main shipping route.
The waning demand has seen the price of the beverage remain low at the auction with a kilo on average fetching $2.22 in the sale last week.
When the war broke out in late February, a kilo of tea at the Mombasa auction had hit a high of $2.53 and it has since been falling.
“If there is a sector that has been hit the hardest, it is tea. We have never witnessed such a huge jump in shipping cost in my history of exporting the beverage,” said Rodgers Lai, a Mombasa-based tea buyer.
Mr Lai said high shipping costs have made Kenyan tea expensive in the world market, hence cannot sell competitively globally as enormous shipping costs have made the country’s tea more expensive.
The exorbitant cost has impacted negatively on Kenya’s exports to that region, a move that has seen the demand for the commodity wane.
The volumes of tea exported to Russia and other neighbouring countries such as Kazakhstan, Kyrgyzstan, Uzbekistan and Azerbaijan have significantly dwindled.
The latest data from the Tea Board of Kenya, the sector regulator, shows the volume of tea exported to Russia declined by 15 percent between January and May, mainly attributed to the ongoing war.
Russia is Kenya’s fifth largest market in terms of exports, a market that the regulator says is key to Kenya’s produce.
The volumes exported to Kazakhstan, another of Kenya’s key markets, dropped by 40 percent to 3.2 million kilogrammes from 5.5 million kilos with quantities shipped to Uzbekistan and Kyrgyzstan dropping by 72 percent (695,802) and 39 percent (69,778) respectively between January and May this year.
Ralph Mwadime, a director with Cargill, said it now takes longer to ship tea to these countries and this could be one of the reasons the shipping cost has skyrocketed.
“Initially, it would take us 65 days to ship tea to Russia, now we are taking up to 90 days for the tea to reach its final destination,” said Mr Mwadime.
The board says the decline in exports is due to the Russia-Ukraine crisis that has reduced the spending power on Kenyan teas.
The global recession occasioned by the Russia-Ukraine crisis saw Kenyan tea export destinations shrinking to 40 in the review period compared to 51 during the same period last year.
“As a result of the crisis, most global economies are experiencing commodity shortages cutting on import quantities,” said the Tea Board of Kenya.
Since Moscow invaded Ukraine, it has been slapped with sanctions by European countries and the US.
Some sanctions include the exclusion of Moscow from SWIFT – a payment system that allows banks to transact with other financial institutions.
The US has also banned the Central Bank of Russia from trading in dollars, making it difficult for the country to trade commodities with the world market as most global trade is conducted using the greenback.
Tea Board of Kenya said the earnings from Russia declined by Sh598 million during that period as volumes dropped 74 percent to 686,072 from 2.6 million kilos that were achieved in the corresponding period last year.
The lower earnings experienced at the auction currently will have an impact on farmers in the 2022/2023 financial year.
Farmers allied to the Kenya Tea Development Agency Holdings (KTDA) saw their earnings rise 42.4 percent to Sh62.8 billion in the year ended June 2022 when the price of the commodity rose by double digits.
The company had paid the farmers Sh44.15 billion a year earlier.
The latest payout is the highest the growers have received in the past five years.