•Signals low returns for farmers amid a strengthening shilling against the US dollar.
•The drip comes amid oversupply in the global markets.
Tea farmers in the country are staring at poor returns this year as auction prices remain subdued, hitting a two-year low at this week's sale.
This comes amid a strengthening shilling against the US dollar which is likely to wipe out gains that come with the greenback.
A kilo at the Mombasa weekly auction averaged $1.74 (Sh187.52) down from $1.82 (Sh196.20) last week, even as volumes traded reduced.
Average hammer prices have been $1.80 (Sh194.04) since January with the highest price recorded around March when the commodity fetched $2 (Sh215) a kilo.
“There was reduced support at lower rates from Egyptian Packers, Pakistan Packers, Yemen, other Middle Eastern countries, Kazakhstan, other CIS states, Sudan, Russia, UK and BazaarEast African Tea Trade Association
Anything below two dollars is considered “not good” according to auction managers–East African Tea Trade Association (EATTA).
The total volume traded this week was 148,391 kilos less than last week as buyers remained reluctant to bid.
Out of 186,974 packages (12,294,419 kilos) available for sale, 158,739 packages (10,441,436 kilos) were sold. 15.10 per cent packages remained unsold, EATTA notes in its weekly report.
“There was reduced support at lower rates from Egyptian Packers, Pakistan Packers, Yemen, other Middle Eastern countries, Kazakhstan, other CIS states, Sudan, Russia, UK and Bazaar,” EATTA managing director Edward Mudibo notes.
Afghanistan were more selective. However, Iran showed more interest.
“Local Packers lent good activity on account of price. Somalia were active at the lower end of the market,” Mudibo says.
This year is likely to be worse compared to last year when average auction prices fell by six per cent compared to the previous year, blamed on the high production and a depressed market occasioned by the Covid-19 pandemic.
2020's full-year average price was $1.80 (Sh194.04), which was lower compared to 2019, when it fetched an average $2.05 (Sh220.99) at the auction.
A stronger dollar however cushioned farmers last year as the commodity trades on the US currency, with the shilling slumping below the 110 mark in November to sell at 110.06.
This was after a period of sustained depreciation which started in March last year.
On Friday, the local currency exchanged at 107.7 against the dollar.
Persistent high production and a global oversupply has pushed down the average tea prices, according to the Kenya Tea Development Agency which represents more than 620,000 individual tea farmers in the country, with 54 Tea Factory Companies.
Top 10 tea exporting countries are China, India, Kenya, Sri Lanka, Turkey, Indonesia, Vietnam, Japan, Iran and Argentina.
Mombasa auction is one of the largest in the world where teas from Kenya, Uganda, Rwanda, Tanzania, Malawi, Ethiopia and the Democratic Republic of Congo are traded.
In April, smallholder tea farmers affiliated with KTDA-managed factories received Sh734 million in dividends, paid to shareholders for the financial year ending June 30, 2020.
The payment was a 7.4 per cent increase from the previous financial year when farmers were paid dividends of Sh683 million.
This was after a total of Sh27.62 billion final payment (bonus) in October which took took the total payment for the year to Sh51.85 billion, up from Sh46.48 billion the previous year.