Tea prices dip 12% in March as high volumes persist

Persistent high production and a global oversupply have pushed down the average tea prices for factories managed by Kenya Tea Development Agency to $2.22  (Sh236.47) in the nine months to March, a 12 per cent drop.

The average price dropped from $2.52 (Sh269.60) for a similar nine-month period in the previous financial year while tea production dropped by 8.6 per cent.

KTDA data shows that the factories processed 218.9 million kilos of tea during the period compared to 239.6 million kilos a year earlier.

Despite the drop in price, KTDA prices over the same period have been 17 per cent higher than the average Mombasa auction price for all teas, which averaged $1.9 (Sh203.3).

KTDA and other regional producers have been grappling with poor prices over the last three years as global oversupply, high production, and economic weaknesses in key market countries exert pressure on the tea trade.

“Despite the slight decrease in production, the teas stuck in the global supply chain are still quite high and these are having an adverse effect on pricing, not just in Kenya but also other tea auctions around the world,” said KTDA Management Services managing director Alfred Njagi.

The Agriculture and Food Authority has also cited the Covid-19 pandemic as a major driver to the continued price depression.

“Demand has also been affected to some extent by reduced consumer purchasing power due to the effect of the global economic recession that is perpetuated by the Covid-19 pandemic as well as devaluation of some foreign currencies against the US Dollar,” AFA said in a Tea Industry performance report for February.

It further noted that the huge amount of stocks and high production continue to exert pressure on prices but expects the amount of tea coming from factories to ease up this year.

“Notably, since the weather patterns expected this year may differ from that of last year, lower production trend recorded in the first two months is likely to continue throughout the rest of the year,” the Authority said.

Farmers are, however, likely to get a slight reprieve from the favourable exchange rate with the Kenyan shilling having depreciated to an average of Sh109.05 to the US dollar during the nine months compared to Sh102.62 a year earlier.

Tea exports are made in US dollar and the weaker exchange rate will thus yield slightly more in shillings.

The high tea production in Kenya is majorly a result of favourable weather conditions during the period, besides the rapid expansion of acreage under tea over the years.

Data from the Kenya National Bureau of Statistics (2020) shows that smallholder farmers across the country, including those delivering to KTDA-managed factories, have been increasing acreage under tea, which stood at 163,000 hectares (2019), up from 141,800 hectares (2018), which has contributed to the increase in tea volumes on offer in the market.

In the last financial year (2019-20), smallholder farmers under KTDA produced 1.454 billion kilogrammes of green leaf, up from 1.13 billion kilogrammes the previous year (2018-19).

This represents a 22 per cent increase in production. The interplay between crop production and realised prices is also evident in other tea-producing countries.

According to industry data, during the same period, Rwanda’s production increased slightly by three per cent and as expected, their prices remained flat. India and Sri Lanka’s production also increased by single digits with a negative effect on prices, further illustrating the effect of production on price.

Global oversupply of the beverage coupled with market disruptions from the Covid-19 pandemic has seen prices continue on a downward trend for a third consecutive year.

In 2018, projections from the Food and Agriculture Organization indicated continued pressure on tea prices as a result of increased world production above demand.

Edited by Josephine M. Mayuya