Tea multinationals on brink of closure as costs stay high

Multinational tea companies have warned of imminent closure if the high cost of production is not addressed, amid low prices of the commodity in a market where demand has been negatively affected by the Covid-19 pandemic.

The international firms said they cannot break even on tea that they are selling at the moment in the international market — with prices having remained below two dollars since January.

Kenya Tea Growers Association (KTGA), which is an umbrella body of the multinational firms, said the cost of production has remained high despite low prices as the international buyers have cut down on the volumes that they have been buying because of diminishing purchasing power.

“We cannot sustain business the way things are at the moment, yet the cost of production remains the same. We are looking at cutting cost by reducing the number of employees in the companies,” said Mr Apollo Kiarii, chief executive officer KTGA.

The firms had sought to lay off workers in order to mitigate the high cost of production, but the move was thwarted by a Nakuru court after a workers union sought orders.

One of the firms—Finlays Kenya—had planned to start laying off up to 719 employees starting this month, an exercise that would run up to January.

Previously, some of the multinational companies have threatened to leave Kenya because of the high cost of labour.

The prices at the weekly tea auction have been on a downward trend in the last couple of sales in what has been attributed to low demand of the commodity in the world market resulting from disruptions caused by Covid-19.

The low prices also resulted from increased volumes as farmers supplied more tea to the factories following favourable weather during the period.

Most of the tea importing countries are still battling with the effects of the coronavirus, slowing the purchases.