Producers in Kenya, the world's top exporter of black tea, experienced minimal interruption from coronavirus during the spring harvest. Domestic output is projected to rise 15%, and auction prices are firming, yet there is concern among overseas tea buyers over substantive reforms mandated by President Uhuru Kenyatta.
Kenyatta's reforms, announced last week by Agriculture Cabinet Secretary Peter Munya, require that “all teas processed and manufactured in Kenya for the export market with the exception of orthodox and purple teas shall, within (2) months… be offered for sale exclusively at the tea auction floor.”
Secretary Munya accused The Kenya Tea Development Agency (KTDA) of abusing its power and capped management fees at 2% while requiring KTDA to pay farmers at least 50% of the value of green leaf within 30 days of delivery. The remainder is due as a consolidated year-end bonus. To ensure transparency, the government requires growers to deliver green leaf exclusively to a nearby factory.
Buyers must submit a bank guarantee equal to 10% of the estimated value of the tea with the balance due before export. Factories may auction their tea without a broker. Brokers are limited in the number of factories they represent (no more than 15).
KTDA considers “unconstitutional” regulations that limit its fees to 2% of the value of tea sold in a year. KTDA, which employs 10,000 and operates 66 tea factories, represents the collective interests of 600,000 growers and five million dependents.
The regulations take effect in 60 days.
The government regulations outlawing "overseas contracts" raised concerns voiced by the East African Tea Trade Association (EATTA), which manages auction and direct tea sales in Mombasa.
“Exporters who have long-term contracts with international buyers might have to review those contracts, and we don’t know how this is going to affect the market,” EATTA Managing Director Edward Mudibo told Business Daily.
Electronic trading at the Mombasa Tea Auction is welcome, and a long-overdue reform, but limiting direct sales could dampen interest by overseas buyers. The government counters that transparency will curb abuses along the supply chain. Critics of the existing rules maintain that Kenya teas are undercut by the reliance on middlemen and the repackaging by different countries, losing the brand identity.
Estates and grower cooperatives in India, Sri Lanka, and China earn top dollar for premium grades tailored to the specific market preferences of buyers in France, Germany, Japan, and the United States. That is why Kenya developed the purple tea cultivar, which is rich in antioxidants, to compete in this specialty segment.
In 2017 Los Angeles-based International Tea Importers (ITI) partnered with the Kenya Tea Directorate to purchase large quantities of purple leaf tea for distribution in the U.S. and Canada. ITI sent a tea expert to Kenya to work with farmers to ensure the tea they produce meets U.S. and ITI standards. Relationships of this type have increased sales and established good reputations at origin for gardens such as the farmer-direct teas from the Nandi Hills marketed by JusTea in Vancouver, British Columbia.
Paul Bain, Tea Captain at JusTea, said that his company has worked exclusively with small-scale Kenyan tea farmers for the past seven years.
“We are relieved that this will not impact our direct-trade partnership with Tumoi Teas in Nandi Hills Kenya. In January, the Mombasa auction announced it would expand its traditional trade to include premium, whole leaf tea. Currently, around 60% of the tea shipped from Mombasa is black fannings, 12% dust (the lowest grade), and about 12% is broken leaf. The main buyers at the auctions are Pakistan, Egypt, and the U.K.
The government recognizes the demand for low-end fannings, and broken-leaf tea is in decline. Prices are soft, and there is an overabundance in the market due to production by smallholders in India.
SEE: Mombasa Tea Auction: Premiumization at Last
The first Mombasa tea auction of 2020 saw the first-ever sale of a Kenya premium orthodox tea. This marks a significant step in the national industry's priority to escape the commodity trap of intensifying global competition in the CTC black tea market that is also characterized by falling prices, rising costs, and overcapacity.
Purple tea is a good example. Since 2017 the purple leaf cultivar has commanded a price that is seven times the black tea average.
Kenya recorded only 465 cases of coronavirus through May 1, mainly in Nairobi and Mombasa. Testing is aggressive, and lockdowns are likely in hot spots, but the entire continent reported fewer than 25,000 confirmed cases and 900 deaths (as of May 3). Globally more than 250,000 have perished. In Kenya, COVID-19 deaths number 24.