LOW RETURNS

Tea prices depressed below 2-dollar mark as year ends

It sold at an average $1.85 this week with low prices set to affect farmers' earnings.

In Summary

•It has averaged $1.7 (Sh189.7) a kilo for the better part of the year compared to $2.20 (Sh245.5) it fetched on average last year.

•The low prices witnessed this year have been pegged on among others; over-production and supply of green leaf and Covid-19 disruption on export market.

Farmers picking tea in Kangaita village
Farmers picking tea in Kangaita village
Image: FILE

Tea farmers will get lower returns from this year’s produce due to low prices at the weekly Mombasa auction.

With two weeks to the end of the year 2020, average price per kilo has continued to trade below the traditional two-dollar mark for the last 16 weeks, translating to lower earnings for the farmers, whose bonuses are affected by the final prices at the auction.

The commodity sold at an average $1.85 (Sh206.5) in this week’s sale, which is lower, compared to the $2.12 (Sh236.6) it traded at in a similar sale last year, according to  East African Tea Trade Association (EATTA) data.

It has averaged $1.7 (Sh189.7) a kilo for the better part of the year compared to $2.20 (Sh245.5) it fetched on average last year, meaning this year returns will be low.It fetched an average $1.82 (Sh203.1) last week.

However,the weakening shilling against the US dollar comes could cushion armers from depressed earnings as exports fetch more when the shilling falls against major global currencies.

The local currency which averaged 101.9 against the dollar last year hit a new historic low this week, trading at an average 111.1 units to the US dollar.

The local currency has been on a downward trend since the country reported the first coronavirus case in mid-March when it was trading in the range of 101-103.

Yesterday, commercial banks were selling  the dollar at an average 111.7 against the shilling.

“It is a boon for the farmers’ income but it is also a hit on those who import machinery, papers for packaging and those who have to expatriate their funds, it’s a good for some but also hit to others,”EATTA managing director Edward Mudibo told the Star in a telephone interview.

The association has attributed the low prices to disruption in the global export market, which saw a number of consuming countries such as Pakistan go into a lockdown over the Covid-19 pandemic.

This led to oversupply hence a drop in prices.

“Pakistan had a lockdown and it is one of our key consumers taking about 38 per cent of our export market share, if they are affected our sales go down,” Mudibo explained.

The reduced demand during the pandemic against high production, supply and competition from markets such as Sri Lanka and India, top global tea producers, further added pressure on the Kenyan tea.

“At some point these countries had challenges selling their tea because of lockdowns , at that point we had an advantage because buyers shifted to what is available, that made our prices go up, when things nornmalised, competition was back,” Mudibo told the Star.

This week, the total volume traded was 660,108 kilos more than last week, where out of 175,608 packages (11,508,545 kilos) available for sale, 148,669 packages (9,770,857 Kilos) were sold. 15.34 per cent packages remained unsold.

“Pakistan Packers lent more and strong interest while Kazakhstan and other CIS nations showed increased and strong support,” EATTA says in its weekly report.

There were also more enquiries from Egyptian Packers, Sudan and Bazaar with Yemen, other Middle Eastern countries, UK and Russia remaining active.

“Afghanistan showed more interest while Iran were quieter with Local Packers active on account of price. Somalia were active at the lower end of the market,” Mudibo explained.

It is only in 10 sales, out of 52 so far, where a kilo of tea has sold at above two dollars on average, though some categories including teas from Rwanda have fetched higher prices of up to Sh300 a kilo.

Rwanda’s produce is considered of higher quality thanks to the very high altitude, soil full of volcanic rock and the mild temperature all year round averaging between 16 to 21 degrees, factors that are favourable for high quality tea.

“We have been struggling to reach the two dollars,” Mudibo said, “anything below two dollars is not good.”

Meanwhile, the low prices on the Kenyan tea witnessed this year have also been pegged on over-production and supply of green leaf in the wake of favourable weather conditions, with a depressed export market affecting buying decisions.

On the onset of the Covid-19 pandemic, buyers also stocked their warehouses for fear of a supply cut, EATTA notes, a move that slowed buying of new stocks, hence the low price margins.

Kenya Tea Development Agency (KTDA) Holdings announced green leaf production by its affiliate factories grew by 28.5 per cent for the year ended June 30, 2020.

The 54 tea factory companies managed by the KTDA in October released Sh27.62 billion, being the final payment, popularly known as “bonus”, to tea farmers.

This is for the Financial Year ended June 30, 2020.

It took the total payment for the year to Sh51.85 billion; up from Sh46.48 billion last year.