Mombasa Tea Auction: Premiumization at Last
Kenya Mombasa tea auction
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 marked by falling prices, rising costs, and overcapacity.
The sale was a specialty brand from Empire Kenya EPZ Ltd., auctioned for shipment to Sri Lanka. The package distinguished it from the standard bulk teas, showing the “Big Five” wild animals associated with Kenya and aimed at helping promote tourism in Kenya. The price is not available from public reports, but a survey published in late 2017 showed that some green and purple teas were selling for $15.00-300.00 a kilogram. Orthodox black teas are at a market premium of 20% or more.
The success of purple tea has been a signal of the need for premiumization. In early 2020, Rwanda CTC black tea commanded a price of $3.18 a kilogram. Kenya’s sold for $2.23 a kilo. Since 2017, purple tea has commanded a price that is seven times the black tea average. (The high startup investments and processing costs have offset some of this advantage.)
Around 60% of the tea shipped from Mombasa is black fannings, 12% dust (the lowest grade), and around 12% is broken-leaf. The main buyers at the auctions are Pakistan, Egypt, and the UK. Growth in Pakistan is flat on long-term trends. Exports to Egypt fell 15% in 2017. Since 2012, UK purchases have been down, while that of Rwanda tea has increased 21%.
There’s just no future in low-end fannings and broken-leaf black tea.
The new premium teas have largely been sold direct, bypassing the auction. Milima Estate black tea, for example, is an outstanding specialty product, sold by Harney. Kenya is at a market disadvantage due to the lack of international agreements in Africa to ease the many taxes and tariffs. For example, there is a 15% tax on packaged teas imposed by major export customer nations.
The role of the Mombasa Auction in premiumization is unclear; the major target of opportunity is the US market. The managing director of the East Africa Tea Traders Association, Edward Mudibo, highlighted how the high ranking of Kenya teas is undercut by the reliance on middlemen and the repackaging by different countries, losing the brand identity. He argues that auctioning premium teas at Mombasa will be an asset in attracting US buyers. He says, “At the moment, companies trading orthodox tea sell direct to markets abroad since the volumes to auction on a weekly basis have not reached the required threshold, but we are holding talks to set required standards even as we encourage more suppliers to maintain consistency in supply.”