In the coming days,
tea farmers across Kenya will receive the much-anticipated news of this year’s
final payment (popularly known as a bonus).
For many, this
announcement is more than a financial update.
It is a verdict on a
year of sweat, sacrifice, and hope. Yet, early indications point to lower
earnings compared to last year.
Understandably, this
is bound to stir discontent.
But before the anger
finds a target, we must step back and ask: what really determines tea prices,
and how can we, collectively, build a more resilient sector?
For decades, tea has
been the green lifeline of millions of Kenyan households, especially in the Central,
West of Rift and East of the Rift regions.
Kenya is the world’s
leading exporter of black tea, and the second largest producer after China.
But unlike China and
India, where farmers and governments have diversified tea into premium and
speciality products, Kenya has remained heavily reliant on bulk black tea
exports, sold in an auction, at Mombasa.
This, in my opinion,
is a system that is vulnerable to global market swings and prone to exploitation
by middlemen.
Key factors
That notwithstanding,
several factors, both local and global, shape the price of tea.
Global demand and
supply. When global tea production surges, as seen recently in India and Sri
Lanka, oversupply depresses prices across international auctions. Conversely,
poor harvests in competitor countries can push prices up.
Economic conditions
and geopolitics in consuming countries are also of impact. For example, the
recent economic strain and foreign exchange crisis in Pakistan, which is a key
market for Kenyan tea, significantly weakened its ability to import our tea. The
civil unrest in other key markets such as Sudan, Ukraine and Russia negatively
affects the tea market.
Exchange rate
fluctuations are another key factor. Tea is traded in dollars. Therefore, the
strength or weakness of the Kenyan shilling against the dollar directly affects
farmers’ payouts. Even if auction prices hold steady, a weaker shilling will
mean that each dollar earned from tea exports converts into more Kenyan
shillings, boosting the income received by farmers. On the other
hand, a weaker shilling translates to higher prices of imported agricultural
inputs such as fertiliser.
Production and input
costs are also a factor. Luckily, the farmers were cushioned from rising costs of
fertiliser through subsidy from the government, where they paid Sh2,500 per 50 kg instead of Sh3,400.
Climate change is also a factor. Changes in the climatic conditions continue to threaten the viability of the tea sector. In Kenya, tea farming relies almost 100% on rainfall. In recent times, the patterns have changed drastically, with longer dry seasons being witnessed over the years.
Even more worrisome, experts (Ethical
Tea Partnership, 2021; Jayasinghe & Kumar, 2020; Kramer & Ware, 2021) are
predicting that yields will decrease by 5% in China, 14% in Sri Lanka, and 25%
in Kenya by 2050 due to climate change.
Value addition and product type play another
role. Kenya exports nearly 95% of its tea in bulk form. Yet speciality teas such
as green, purple, orthodox teas, command premium prices on global shelves. The
reality is simple: until Kenya significantly shifts towards value addition, it
will remain at the mercy of commodity pricing.
Global
Lessons
Kenya is not alone in
grappling with the volatility of tea pricing. There are lessons we can draw
from other tea-producing nations.
Despite political
upheavals, Sri Lanka has managed to carve a niche by positioning its own
branded tea - “Ceylon Tea” as a premium global brand.
Strict quality
controls and heavy investment in branding have ensured their tea attracts
higher prices per kilo than Kenya’s.
China, the world’s
largest producer, has mastered diversification. Beyond black and green tea,
China has popularized white, oolong, and speciality teas, fetching very good
prices in niche markets. This strategy shields their farmers from the lows of
bulk pricing.
With strong domestic
consumption, India’s tea sector is less exposed to the vagaries of
international markets. By cultivating a robust local tea culture, they
guarantee farmers a steady demand base.
For Kenya, the lesson
is clear. While we cannot control global forces, we can reposition ourselves.
Developing a strong
“Brand Kenya Tea” identity, expanding into speciality markets, and promoting
local consumption could cushion farmers against global volatility.
KTDA
Role
No discussion about
tea in Kenya is complete without the mention of the Kenya Tea Development
Agency (KTDA), which is owned by farmers and manages over 55% of tea production
in Kenya.
The factories cut
across different geographical locations in Kenya, and operational costs and
prices for the teas are varied in the marketplace. This leads to differences
in pay for farmers in different factories.
The new KTDA
leadership under Chairman Chege Kirundi, who has been in the sector for more
than 20 years, has embraced a new Mantra: Farmers First. None to be left
behind.
This is commendable. Farmers are looking for
action.
They want a timely
supply of inputs, lower operational costs, transparency in auction processes,
and innovative approaches to marketing.
Leadership is key, and the new direction from
the chairman is a pointer in the right direction
Everyone
Has a Role to Play
It is easy to point
fingers, but building a stronger tea sector requires a shared responsibility.
Farmers need to
embrace better agronomic practices and improve in quality.
They should also adopt
new technologies and efficiency to cut operational costs. Factories must cut
inefficiencies.
Government, on the
other hand, must play an enabling role by investing in infrastructure,
negotiating better trade deals, and supporting value addition initiatives.
Consumers
have a duty to increase local consumption. Kenyan only consume 5% of the tea
produced, unlike India and China.
Hard
Truth
Yes, the bonus this
year will likely be lower. But the question we should ask is not just why
bonuses are down, but what we can do differently.
Are we willing to
invest in branding and value addition? Are our institutions ready to walk the
talk on reforms?
Kenya’s tea sector is
at a crossroads. We can either continue with business as usual, locked in
cycles of global shocks and vulnerability, or we can choose a path of
reinvention.
The best-case
scenario is not out of reach: a sector that pays farmers fairly, competes
globally with premium brands, will sustains Kenya’s place as a global tea
giant.
The population is growing globally, and so is the market, expected to grow.
