Why NSE firms want unsold KTDA tea destroyed

Lorries line up to offload tea at a factory in Nyeri County on June 15, 2024.

Photo credit: Joseph Kanyi | Nation Media Group

Nairobi Securities Exchange-listed firms Williamson Tea and Kapchorua Tea have called for the destruction of huge stocks of unsold tea held by the giant Kenya Tea Development Agency (KTDA) to save the industry from being choked by excess supplies of the commodity which has hurt prices.

The two tea firms, which share majority owners, said in separate financial filings on Friday that tea prices have fallen to unsustainable levels as a result of market saturation, while also hitting out at the minimum pricing system that has hit producers who are unable to supply top grade tea.

In 2022, the State set a minimum price of $2.43(Sh 314.73) per kilogramme on KTDA to safeguard farmers’ earnings. Farmers affiliated with KTDA account for about 60 percent of Kenya’s tea production.

Improved production, coupled with a weaker shilling in 2023, helped Kapchorua and Williamson Tea book higher revenue in the year to March 2024, but they say that future profits are under threat due to the current situation at the auction.

Williamson Tea’s net profit for the period fell by 6.6 percent to Sh527 million, as higher costs ate into a 4.4 percent increase in revenue to Sh4.19 billion. Kapchorua’s net profit rose by 27 percent to Sh399.4 million, as its top-line revenue jumped 23.7 percent to Sh2.19 billion. Both are paying a final dividend of Sh15 per share, which when added to their interim dividends of Sh10 per share paid out earlier, brings their total dividend in the year to March to Sh25 per share.

“Despite the positive results of the period, the prospects for the company and Kenyan tea industry are dire. Tea prices have declined to unsustainable levels in the face of market saturation and the consequences of an estimated 200 million kilogrammes of unsold KTDA teas,” said Williamson Tea in its financial report for the year ended March 2024.

“Dramatic action is required to enable the market to return to a normal dynamic and for prospects to improve. The destruction of all unsold KTDA teas and the removal of the auction minimum pricing system is needed with immediate effect.”

The Mombasa auction runs on a two-day format where secondary-grade quality tea is sold on Mondays and premium-grade ones on Tuesdays.

Any tea that is not sold on a scheduled auction day is reprinted on a fresh auction catalogue and returned to the auction two weeks later. A seller is only allowed to bring back unsold crops to the auction twice.

Any crop unsold after two auction trials is relegated to a sale window referred to as a “passive window” where produce fetches low pricing on perceived low quality.

With the minimum price in place, buyers shun lower quality tea—which they are unwilling to buy at the higher minimum price— leading to a rise in unsold stock at a time when production has gone up due to favourable weather.

Industry estimates show in the second half of 2023, about 60 percent of stocks sent to the weekly sale went unsold and in warehouses even as additional larger consignments were shipped in on increased output.

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