Tea prices continue to fall as Pakistan curbs imports

Tea prices continue to weaken at the auction as Pakistan buyers cut volumes in the wake of financial turmoil in Islamabad that has seen the State Bank of Pakistan (SBP) limit the use of letters of credit for imports.

The commodity declined for the third time in a row in the latest sale to hit a low of $2.21 (Sh261) from $2.24 (Sh262 in the previous sale.

Last month, the government of Pakistan — one of the biggest buyers of Kenyan tea — urged its citizens to cut the volume of tea that they consume and has moved ahead to limit the amount of money that importers can access from the banks to curb expensive imports in the wake of a weakening rupee.

“The Pakistani government has started capping the quantities that buyers can import by limiting the amount of money that a bank can pay an importer per day to $100,000 (Sh11.8 million),” said Peter Kimanga, a director with Global Tea Commodities.

Mr Kimanga said they have witnessed a decline in volumes of tea bought by the large buyers at the auction in the last couple of sales.

The Pakistani government imposed a ban on imports of non-essential goods in addition to imposing quota restrictions on other items like cars and mobile phone parts.

Pakistan's foreign currency reserves continue to fall rapidly - putting pressure on the government to cut high import costs and keep funds in the country. As of July 7, Pakistan’s gross official foreign exchange reserves stood at $9.7 billion – hardly enough to cover seven weeks of imports.

Auction organiser- the East African Tea Trade Association had earlier warned that should Pakistani buyers cut down on volumes, the prices at the weekly trading will decline because of reduced demand.

"Pakistan holds 40 percent of the total tea traded at the auction. The impact of reduced uptake from them will be low prices of the commodity at the market," said Edward Mudibo, managing director Eatta.

The low prices of the beverage at the auction saw over 30 percent of the total volumes offered for sale withdrawn at the trading floor in the latest sale.