Tea auction prices rise after dismal 2020 performance

A kilo fetched $1.94 in this year's first auction from $1.87 last year.

In Summary

•East African Tea Trade Association has expressed optimism of good prices and returns to farmers this year compared to last year.

•High production and depressed market occasioned by Covid-19 affected the commodity's prices last year.

Tea packages ready for export at one of the warehouses in Shimanzi, Mombasa/FILE
TEA PRICES Tea packages ready for export at one of the warehouses in Shimanzi, Mombasa/FILE

Tea farmers in the country could receive higher earnings this year as auction prices pick compared to last year's average.

This year's first sale saw the commodity fetch, on average, $1.94 (Sh212.62 ) per kilo, up from $1.87 (Sh204.95 ) at the close of last year's auction.

This is higher than 2020's full-year average price of $1.80 (Sh197.28 ) with industry players, led by the auction managersEast African Tea Trade Association (EATTA), anticipating better prices and returns to the farmers. 

Average tea auction prices shed some six per cent last year compared to the previous year, as high production and a depressed market occasioned by Covid-19 affected demand.

In 2019, it fetched an average $2.05  at the Mombasa weekly auction, with above the two-dollars a kilo being the preferred price mark.

The good start however came with a drop in traded volumes which were 1.1 million kilos less than the last sale of 2020.

Out of 162,380 packages (10,629,244 kilos) available for sale, 140,400 packages (9,170,946 kilos) were sold with 13.54 per cent of the packages  unsold, EATTA data shows.

“Pakistan Packers were forceful and lent more and strong support with increased and strong interest from Kazakhstan, other CIS nations, Yemen, other Middle Eastern countries and UK,” the association's report states.

Bazaar showed more and strong interest with Egyptian Packers, Sudan and Russia active while Afghanistan were selective.

Local packers participated in line with price, Iran were selective while Somalia maintained activity at the lower end of the market.

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

Farmer's earnings were however cushioned by a stronger dollar to the Kenyan Shilling as the commodity trades on the US currency, with the shilling hitting a historic low of an average 111.1 units to the US dollar in December.

It has however started to strengthen, trading at 109.5 to the dollar yesterday–Central Bank of Kenya data.

EATTA managing director Edward Mudibo said this year's prices will be highly driven by climatic conditions and demand in core markets of Pakistan which takes up 38 per cent of Kenya's tea exports, Egypt, the UK and Sudan.

Over supply of the commodity, in case of favourable weather, will however affect prices in case of low demand.

“We are however optimistic prices on average will be better than what we saw last year,” Mudibo told the Star in a telephone interview, and was optimistic the average price will go above two dollars in the near future.

The year's second major auction takes place today.

A price of below two dollars is considered low and affects farmers' earnings.

Last year, there was 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 the previous year.

Meanwhile, reforms in the tea sector driven by the Tea Bill of 2018,are expected to help improve farmers' earnings .

President Uhuru Kenyatta signed into law of the Bill on December 23, last year, setting pace for its implementation.

The Bill introduces a raft of measures among them revival of the Tea Board of Kenya, changes in the auction process and export, limiting the number of tea factory board members and a new levy among others.

Generally, the new law creates an environment that encourages development of the tea sub-sector. In the long run, this will be beneficial to the smallholder tea farmer,” said Alfred Njagi, Kenya Tea Development Agency Managing Director for Management Services.

The agency has however poked holes on a number of sections of the bill, which they have warned could crush the commodity's prices, increase factories' operational costs and reverse gains made in the past to cushion farmers from high taxation, that ends up eating into their earnings.

The new law provides that all tea processed and manufactured in Kenya for export, with exception of orthodox and specialty teas, be offered for sale exclusively at the auction floor.

This denies Kenyan producers access to the direct sales market that on average delivers higher prices than the auction,

A blockage on direct sale is also likely to see buyers relocate to neighbouring countries to service their needs at the detriment of Kenyan producers, KTDA argues.

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