Kenya Small Growers Opt for Private Buyers

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Features

By Shem Oirere

Annah Bisieri, a tea farmer in Kenya’s western Kisii county, had contracted with the Kenya Tea Development Agency (KTDA) for more than 30 years until 2010 when she opted for alternatives ways to market her tea.

The publicly funded KTDA was founded in 1964 after Kenya gained independence to address the shortage of processing facilities evident since the 1950s when tea production became widespread. KTDA (the agency) was reorganized in 2000 as a private venture that provides comprehensive services to more than 565,000 small tea growers. KTDA is owned by 54 tea companies that operate 66 factories. Services include agri-extension and training, transportation, warehousing, processing, financing, and marketing.

In this high-density region, Bisieri’s two-acre farm (.85 hectares) is double the size of her neighbors. Subdivisions have turned tea and other farming activities into uneconomical ventures, she says.

“For many years I delivered my green leaf to the KTDA factory, where I was a shareholder, but I later decided to sell the produce to private buyers because of the many challenges we faced as tea small holder,” said Bisieri. These challenges include delays in the collection of green leaf from buying centers, lower payments compared to what private factories offer, and allegations of falsification of weighed kilograms by KTDA tea buying clerks.

“In some instances, we had to wait three to four agonizing days for a KTDA vehicle to collect our produce, and by the time it comes the tea’s weight and quality is already compromised,” she said.

Nearly 35% of tea production by small holder farmers is sold to middlemen who then sell it to private factories and multinationals in Kericho and Bomet counties.

Small holders are happy to find a buyer. They are not engaged in marketing their green leaf, a responsibility that is carried out by the private processing factories in partnership with different tea brokers or at the Mombasa auction.

For tea farmers affiliated to KTDA, the agency has several subsidiaries including Kenya Tea Packers (KETEPA), which blends, packs and distributes the processed tea locally and in the world market. KTDA also owns Chai Trading Company which deals with warehousing, blending, and trading tea destined for export.

Private leaf factories expand production

The diversion of green leaf to private tea processing companies in recent years has reduced the crushing capacity of KTDA factories across the country where private tea buyers are active.

Critics of private tea business argue the diversion of green leaf to private tea processing factories will reduce the volumes delivered to KTDA and lead to the Agency’s factories to operate below optimum processing quantities.  Underutilization of factory personnel and delays in machinery upgrades and repairs for lack of adequate earnings from factory sales are a recipe for excessively high production costs.

Last year 56% of Kenya’s tea production was by smallholder growers. Large-scale producers and multinational companies produce an estimated 44% of the country’s 430 million kilos.

Bisieri, 63, said: “One of the incentives to sell our tea to middlemen who later sell to private tea processing factories is the instant cash that we get to help us take care of day to day needs.”

“In addition, when you pluck more than two leaves and a bud, the KTDA factory will not accept your green leaf so we find it better to sell to private buyers,” she said.

The amount she receives is sometimes less than what KTDA offers “but I do not have to struggle to get my tea weighed, collected, and sold since the middlemen have lesser demands and do not always insist on two leaves and a bud as does KTDA.”

The RAO farm in Nyamira County, also in western Kenya, is one of the companies that buy tea from smallholder tea growers for delivery to private tea processing factories in neighboring Kericho and Bomet counties, where most of Kenya’s tea is grown.

Clifford Ogonyo of RAO farm said “we have been buying tea from small tea growers for more than 15 years. There are several arrangements with tea farmers who supply us with green leaf.”

Since  RAO farm does not have a processing factory of its own, the tea it buys is sold to private tea processing factories such as Mogeni in Nyamira, Sasini, and Sotik Tea.

“Although KTDA argues we are involved in tea hawking that is not entirely true. Some of the private tea buyers have actually leased land from farmers who had abandoned tea farming because of the challenges they had with the agency,” he said.

“Private tea buyers have ensured that tea production by small-scale tea growers continues despite the poor pay and difficulties they have been facing,” said Ogonyo. 

Kenya licenses 39 private large-scale tea producers and processors including James Finlay, Nandi Tea Estates, Tinderet Tea Estates, Kipkebe Ltd, Kapchorua Tea, Kaisugu Ltd, Mogusii Farmers, Kerumbe Farm, Karirana Ltd, and Gakoe Tea Estates among others.

In addition, an estimated 8% of the tea produced in Kenya comes from independent growers who do not belong to either KTDA or the Kenya Tea Growers Association (KTGA).

“We can buy tea directly from a farmer and pay on the spot. Sometimes we lease land from these farmers so that the tea harvested is sold to us and we pay the farmers on a monthly basis,” explained Ogonyo. The RAO farm does not pay farmers KTDA’s annual bonus.

This year KTDA paid a bonus of at least 30% to the more than 560,000 small-scale farmers. Bonus payments totaled $756 million in two installments in 2017, up from $597 million for the previous year. Despite the increase in overall payment, the second installment, which comes at the end of the year, dropped to $405 million from the $424 million in 2016.

The bonus is based on production which is estimated at 976.3 million kilograms compared to the 1.235 billion kilograms sold during the previous production period.

According to the Kenya Institute for Public Policy Research and Analysis (KIPPRA), the country’s bonus payments have not matched those of the competition in the global market because the East African nation specializes in selling the tea produce in bulk instead of boosting its value before export. KIPPRA estimates that only 14% of the Kenya tea exports are “value added” which costs the country estimated $12 per a kilogram of tea.

Locally produced tea is found in village markets but domestic consumption is minimal. Kenya exports 95% of its tea.

“Despite Kenya being the leading exporter of tea in terms of volumes, the country receives low earnings compared to other exporting countries due to low-value addition,” said KIPPRA in its 2017 analysis ‘Transforming Agribusiness, Trade and Leadership:  A Capacity Needs Assessment of the Tea Value Chain in Kenya’. The analysis cites the payments for 2013 when “Kenya exported 131 metric tonnes more than Sri Lanka but it earned $0.3 billion less.”

“This is because Sri Lanka has concentrated on niche marketing and product differentiation as opposed to bulk marketing adopted in Kenya,” said KIPPRA.

The study further observed that “Sri Lanka’s earning from branded teas was $720,000 which is 63% more than Kenya’s earning from branded teas.