RETURNS

Low tea prices, strong dollar play out in tea farmers' 2021 bonuses

The commodity has averaged $1.70 dollars for the better part of the year.

In Summary

•The preferred auction price is above $2 per kilo.

•Last week, directors from the 54 KTDA-managed factories started to hold meetings to review annual audited accounts, to be followed by declaration of bonuses.

Farmers at a tea collection point in Chepilat, Nyamira/FILE
Farmers at a tea collection point in Chepilat, Nyamira/FILE

Tea farmers in the country have a mixed bag of return on investment this year as exchange rates and low prices move to influence their earnings.

While the weak shilling against the dollar (favourable exchange rate) is expected to cushion farmers from low earnings, the crop has performed averagely poor this year, selling at the preferred two-dollar a kilo only five times.

It averaged $2.10 (Sh232.01) last week picking slightly from $2.04 (Sh225.38) the previous week.

However, it has averaged $1.70 (Sh187.82) for the better part of this year, as impact of Covid-19 on international trade, coupled with competition from other tea exporting countries shaping markets and prices.

Last week, the total volume traded was 280,961kilos more than the previous week, East African Tea Trade Association (EATTA) notes in its latest weekly update.

There was good demand at irregular levels for the 123,777 packages (8,101,559.00 kilos) available for sale with 94,532 packages (6,159,143 kilos) being sold. 23.98 per cent packages remained unsold,” EATTA managing director Edward Mudibo notes.

Pakistan Packers lent more and strong support with increased activity from Yemen, other Middle Eastern countries and UK while Egyptian Packers and Sudan showed useful interest.

Russia and Bazaar were active, but the latter were selective, EATTA says, while Kazakhstan and other CIS states were selective.

“Afghanistan and Iran were subdued. There was less interest from Local Packers on account of price. Somalia were active at the lower end of the market,” the report states.

According to Kenya Tea Development Agency Holdings (KTDA) the average price for the financial year ending June 2021 dropped compared to the previous financial year, but this was buoyed by favourable exchange rate.

The average exchange rate (dollar)as 109 compared to 104 in the previous year.

Factories in the East of Rift Valley region increased their monthly payment from Sh16 to 21 meaning that the farmers earned more money upfront compared to last year.

BONUS MEETINGS

Last Monday, factory directors from the 54 KTDA-managed factories started to hold meetings to review and approve the factories’ annual audited accounts for the 2020-21 financial year.

The meetings will be followed by a formal declaration of the second payment (bonus) that will be communicated to farmers through their respective factory companies.

Speaking ahead of the meetings, KTDA acting Group CEO Wilson Muthaura urged farmers to be patient as they wait for factory directors to complete the process.

Factory directors, as required by law, will meet to discuss the performance of their respective factory companies after which declarations on second payment rates to farmers will be formally announced,” he added.

The performance of the factory companies comes on the backdrop of a nine per cent drop in CTC tea prices at the Mombasa Tea Auction from an average of $2.38 (Sh262.94) financial year (2019-2020), to $2.18 (Sh240.85 ) in the 2020-2021 financial year ending 30th June, 2021.

During the financial year under review, farmers delivered 1.28 billion kilos of green leaf to factories, a 14 per cent drop from the record production of 1.45 billion kilogrammes in the previous year (July 2019 to June 2020).

The drop in prices in the period under review was a continuation of a downward trend witnessed since 2018, as high production over the years has seen supply outstrip demand and tea processors carrying forward unsold tea stocks.

Factory companies pay different second payment rate per kilogramme of tea delivered to the factory.

This rate depends on the factory income for the year, costs of production and other related costs, as well as the average price of tea that the factory fetched at the market.

The price is also dependent on the quality of leaf delivered to the factory.

REFORMS

The government has been pushing for a number of reforms in the tea sector, mainly touching on the auction and KTDA undertakings.

KTDA is the largest small-scale farmer umbrella body in the world with over 650,000 farmers.

It recently announced increased leaf pay-out for farmers in the Rift Valley and Western Kenya as reforms in the sector continue.

The increase approved by the KTDA board will benefit KTDA's regions five, six, and seven.

The prices will go up by between Sh2 and Sh3, in what KTDA says is a move to enhance farmers’ monthly earnings.

Farmers in KTDA region five, which covers factories in Kericho and Bomet counties will earn Sh 20 per kilo of green leaf delivered, up from Sh18 previously.

Farmers in both region six– factories in Kisii and Nyamira counties, and region seven– Nandi, Trans-Nzoia and Vihiga counties, will now earn Sh 20 per kilo of green leaf, up from Sh17 previously. 

The pay increment is effective from July 1, 2021, KTDA said , coinciding with the beginning of KTDA’s new financial year. 

The decision follows a similar move that was approved by factories in KTDA regions one to four, covering central and eastern regions, which resolved to increase their monthly green leaf payment to farmers from Sh16 per kilo to Sh21 starting January this year.

To mitigate against Kenya’s market concentration risk on black teas as well as over reliance on the four main markets of Pakistan, Egypt, UK and Sudan which account for 70 per cent of our tea exports, KTDA-managed factories have embarked on production of orthodox teas that are gaining global popularity and fetching better prices.

There has also been a reserve price introduced recently by the government.

Since the introduction of reserve price at the auction by KTDA working together with the government,  prices have gone up by an average of 40 per cent.The future for the sector is brighter,” KTDA Holdings Group Head of Corporate Affairs, Ndiga Kithae, told the Star.

Agriculture CS Peter Munya has been keen to succeed in President Uhuru Kenyatta's agenda on tea, where the governed is keen to improve farmer's earnings from the crop, which is leading export commodity for Kenya.

According to the CS, tea sub-sector plays a strategic role in the socio-economic development of the country by supporting over six million Kenyans directly and indirectly.

It generates over Sh130 billion annually in export earnings.

However, the sub-sector has been experiencing a myriad of challenges that have affected returns to the tea growers and the livelihoods of many Kenyans who depend on tea, the CS notes.

For instance, payment to the smallholder tea growers through the factories managed by KTDA have declined from Sh58.76 per kg of greenleaf in 2016/17 to 36.64 per kg in 2019/20.

“In order to reverse this worrying trend, the government through my Ministry and in collaboration with other government agencies and KTDA has been spearheading implementation of various policy, regulatory and administrative reforms in the tea sub-sector,” Munya said.

To address delay in payments to tea growers, the Tea Act requires a tea factory to pay at least 50 per cent of payment due for green leaf delivered every month within 30 days of receipt of the proceeds of the sale of tea, and the balance within three months from the end of financial year.

In July 2021, a mini-bonus for the last financial year amounting to Sh1.3 billion was paid to the smallholder tea growers.