Kenya’s small tea growers rejoiced two years ago after receiving record green-leaf bonuses averaging KSh 50.18 per kilo, a sharp increase compared to the previous year’s KSh 35 average payouts.
Good fortune followed in 2023 when tea growers received an increase in monthly payments from KSh 21 to KSh 25 per kilo for green leaf as favorable weather and ample fertilizer led to a 450 million kilo bounty of tea in 2023.
In 2024, instead of splurging for the holidays, the 600,000 Kenya Tea Development Authority smallholders relying on the year-end payout now share a widespread concern that the year-end bonus they received for the past two years was paid with borrowed money.
These concerns are voiced against a backdrop of pride in achieving a 30% increase in tea production amid a surplus of at least 100 million kilos.
The precise amount of the surplus is unknown but Kenya’s Principal Secretary of Agriculture estimates KSh 32 billion worth of tea remains unsold.
In its most recent earning call Williamson Tea estimates the surplus at 200 million kilos. Williamson Tea has a 4.3% market share. KTDA controls 48.8% of the combined export and domestic tea market.
Hon. Paul Chirchir writes that he traveled 500 kilometers visiting tea factories from Kericho to Mombasa on a fact-finding mission. “I have confirmed over 100 million kgs of tea from Kericho, Bomet and other areas have not been sold for over two years.”
KTDA announced this week that it will again borrow as much as required to make the annual payout due in October. Officials warned that KTDA debts would make additional borrowing expensive and likely require a consortium of banks to share risk.
In 2022, KTDA mortgaged its shares for KSh 18.2 billion (about $140.5 million) to pay an early bonus to farmers before the national election. In 2023, KTDA borrowed an additional KSh 4 billion to shore up underperforming factories through an inter-factory lending program. The board also obtained KSh 50 million from banks, according to a report in Business Day Africa.
KTDA’s final bonus totaled KSh 37.11 billion. Combined with monthly payments of KSh 26 billion, the fiscal year 2021/22 payout was a record KSh 63 billion – an increase of 42.4%, amounting to nearly KSh 20 billion—the highest ever paid farmers in a year.
In the harvest year 2021/22, global production was down sharply, and prices spiked—Indian tea sold for 70% higher than in 2020. KTDA announced that green leaf production by its affiliate factories grew by 28.5% for the year ended June 30, 2020. Yields set a record of 1.45 billion kilos, up from 1.13 billion kilos during the same period in 2019.
The situation is very different today, according to attendees called to an August 1 government meeting to address the crisis. The gathering was attended by KTDA, the East African Tea Trade Association (EATTA), Tea Buyers, and Tea Brokers. Dr. Kipronoh Rono, Principal Secretary of Agriculture outline nine steps to be undertaken to sell the surplus.
These include:
- Tea brokers and buyers agree to purchase 100 million kilos of old stock within a month.
- Reduce the quantity of unsold teas from smallholder factories managed by KTDA.
- Review (and possibly repeal) the reserve price mechanism.
- Amend the Tea Act 2020 to allow all tea producers to conduct Direct Sales Overseas (DSOs).
- Establish a Common User Facility (CUF) to enhance value addition from 5% of the teas produced in Kenya to more than 22%.
- The government of Kenya will market tea to enhance international sales and increase local consumption from 5% to 10% of production.
- All tea producers, including small factories, shall adhere to agreed quality standards.
- Diversify teas from traditional black CTC to include orthodox and specialty teas.
- Tea traders must desist from publishing unverified information.
SEE: Too Much Tea