Some factories affiliated with Kenya Tea Development Agency (KTDA) in the West Rift have been forced to revise their minimum price, by reviewing the cost at which they sell their teas to release thousands of kilos of the commodity held in the warehouses.
Last week, these factories, which are mainly in western Kenya saw half of the produce that they had offered for sale at the Mombasa auction withdrawn from the trading floor.
Of the 63,300 packages offered for sale, only 31,600 packages were absorbed in the trading, highlighting the adverse effect of the minimum price that has seen buyers concentrate on high-quality teas.
Towards the end of last year, Kapsara Tea Factory, which is West Rift and affiliated with KTDA, directed its teas to be sold at $2.30, way below the minimum price of $2.42 set by the State in 2020 to free thousands of kilogrammes of the beverage held in warehouses in Mombasa.
The board of directors was concerned that the levels of unsold teas, which were being withdrawn from the market, were going up significantly at the auction, impacting negatively on the cash flow.
“The board of directors of this factory has noted with concern the rising quantity of its unsold tea at the Mombasa auction. Some of these teas date as far back as July 2021,” the Kapsara board of directors in a resolution.
“To stop further losses in value and to alleviate the worsening factory cash flow position, the board has resolved that all manufactured tea between July 2021 and June 2022… be sold at a cost of $2.30.”
The teas from the East Rift, on the other hand, are fetching high prices with the absorption rate at the auction hitting as high as 90 percent. The beverages from these regions normally attract good prices because of desired attributes by the buyers.
The minimum price was introduced by former Agriculture Cabinet secretary Peter Munya two years ago to protect farmers’ earnings after the price of the beverage fell below the production price, subjecting growers to huge losses.
However, traders have argued that the move has hurt volumes of tea that is purchased at the auction as now buyers are keen on quality.
“Buyers cannot just pay higher prices to acquire any quality of tea. Because of the minimum price, they are selective on teas that they pay for,” said a tea broker at the auction.
The tea has been trading below the minimum price since August last year as demand for the commodity remains low at the auction.