DROP

Tea prices shed 6% in 2020 amid Covid, oversupply

The commodity has averaged below two-dollars for the better part of the year

In Summary

•Anything below two dollars "is not good" according to the East African Tea Trade Association.

•A weak shilling against the US dollar, seen this year, is however a relief for farmers as the commodity trades on the greenback. 

A tea estate in Bomet owned by a multinational company
WHOSE CUP OF TEA? A tea estate in Bomet owned by a multinational company
Image: Felix Kipkemoi

Average tea auction prices shed some six per cent this year compared too last year, as high production and depressed market occasioned by Covid-19 affected the commodity.

The country's key export commodity fetched an average $1.93 (Sh210.76) at the Mombasa weekly auction this year, a drop compared to last year's average of $2.05 (Sh223.86).

This came amid a 9.8 per cent growth on volumes availed for sale this year which closed at a total 486.5 million kilos (486,581,381) compared to 433.3 million kilos (433,336, 303) last year, occasioned by overproduction of the green leaf by farmers.

AT the close of this year's auction, the commodity traded at an average $1.87 (Sh204.20) compared to $2.12 (Sh231.50) it fetched in a similar sale last year, signaling low returns for farmers as the year comes to a close.

The highest prices this year was marked at the beginning of the year (sale 1) when the average auction prices was $2.23 (Sh243.52) with the lowest being $1.73 (Sh188.92) at around July, when the impact of Covid-19 was being felt across global markets.

About 17.2 per cent of teas availed for sale this year remained unsold compared to 16.5 per cent last year.

The total volume traded last week was however 527, 874 kilos more than the previous sale, market data by the East African Tea Trade Association (EATTA) indicates.

Out of 178,719 packages (11,730,375 kilos) available for sale, 156,639 packages (10,298,731 Kilos) were sold. 12.35 per cent packages remained unsold.

The was increased and strong support from Pakistan Packers with more and strong inquiry from Kazakhstan, other CIS states and UK while Egyptian Packers lent useful interest,”EATTA managing director Edward Mudibo notes.

Sudan showed more activity with Yemen, other Middle Eastern countries and Russia active while Bazaar were active but at lower levels.

Afghanistan showed selective interest while Iran were subdued. Local Packers lent support on account of price. Somalia were active at the lower end of the market, he adds.

However,the weakening shilling against the US dollar could cushion farmers 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 in December , 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.

It has however started to strengthen, thanks to among others, an inflow of dollars into the country during the festive period by visitors among them Kenyans living abroad coming to visit.

According to Mudibo, a weak shilling is “a boon for the farmers’ income” but also a hit on those who import machinery, papers for packaging and those who have to expatriate their funds.

It is good for some but also hit to others,”Mudibo said during an interview with the Star.

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 normalised, competition was back,” Mudibo says.

At home, there has seen over-production and oversupply 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, 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.