POSITIVE RESULTS

Tea price reserve regime starts to bear fruits

KTDA set the minimum reserve price for processed tea in an unprecedented move aimed at cushioning smallholder farmers

In Summary
  • In this week’s auction, the absorption rate of offered teas improved to 19 per cent, while the average price appreciated by 22 per cent.
  • Absorption in upcoming auctions is further expected to improve as the market aligns itself to the new prices.

The recently introduced price reserve has started bearing fruits, and the volume for smallholder tea factories managed by the Kenya Tea Development Agency reflect a positive response.

In this week’s auction, the absorption rate of offered teas improved to 19 per cent, while the average price appreciated by 22 per cent from $1.99 to $2.43/KG for the specific gardens that sold.

This reflects a growth of $0.44 USD (Sh47) per Kilogram compared to auction in the week when the reserve price had not been introduced.

In auction number 28, which took place on July 12 2021, the volumes of tea sold by KTDA managed factories dropped by 89 per cent compared to auction 27, attaining an absorption rate of 8 per cent of offered teas.

While the average price improved by 25 per cent from $2.04/Kg to $2.57/KG for the specific gardens that sold, a growth of $0.52 (Sh56) per Kilogram. 

The Kenya Tea Development Agency (KTDA) in the beginning of July set the minimum reserve price for processed tea at the Mombasa auction in an unprecedented move aimed at cushioning smallholder farmers.

As a result, auction tea prices shall not fall below Sh268 (US$2.43) per kilo.

While introducing the reserve price, the KTDA board and the CS Ministry of Agriculture noted that tea prices have declined below production cost, negatively impacting the tea sector and, most importantly, the smallholder tea farmer.

Absorption in upcoming auctions is further expected to improve as the market aligns itself to the new prices.

Commenting on this new development, the Chairman of the KTDA board, David Ichoho, said that his board is committed to ensuring that the smallholder tea farmer gets the best from their tea business despite the challenging market environment which has been marked by increased tea volumes and a depressed global market ravaged by Covid-19 pandemic.

Ichoho added that the board is working with the government and other stakeholders, including tea buyers and brokers, to ensure the farmer gets the full benefit from the tea investment.

“The positive response from the market is an indication that we are on the right track, and I thank the government for relentlessly dedicating its effort through tea reforms which are geared towards streamlining the sector,” Ichoho said.

At the same time, the Board Chairman said that KTDA had disbursed a mini bonus of Sh1.31billion which will be paid together with the June green leaf monthly delivery. 

The Chairman noted that his board is very thankful to the stakeholders who have supported the reforms in the tea sector.

In the last five years tea prices have been on a steady decline with the price dropping to an all-time low of Sh195 ($ 1.80) in the last few weeks.

The industry supports over 650,000 farmers and over 6.5 million people and also earns the country over Sh120 billion annually.