Tea prices’ good run spills into 2023 as farmers gain from dollar

Auction remains positive with a kilo this week averaging $2.23.

In Summary

•Meanwhile, the strong dollar to the shilling comes as a blessing to farmers and traders as they continue to earn more.

•Farmers affiliated to KTDA also reaping from reforms. 

Packaged tea for export at warehouses in Shimanzi, Mombasa/FILE
Packaged tea for export at warehouses in Shimanzi, Mombasa/FILE

Tea prices at the weekly Mombasa Auction have remained above the two-dollar mark in the first two weeks of trading, as last year’s good run continues.

This week, a kilo averaged $2.23 (Sh276.19) amid good demand despite irregular levels with prices following quality for the 14.4 million kilos on offer. 

About 9.9 million kilos were sold with 30.04 per cent of the packages remaining unsold, auction managers-East African Tea Trade Association (EATTA) notes.

Kazakhstan, other CIS states, Iran and Sudan lent more and strong support with Egyptian Packers and Pakistan Packers active but at lower levels.

“Yemen, other Middle Eastern countries, and UK maintained inquiry while Afghanistan and Russia were active but selective. Bazaar reduced activity with Local Packers outbid. Somalia was active at the, lower end of the market,” managing director Edward Mudibo said. 

While this week’s price is a slight reduction of nine US dollar cents compared to the $2.25 (Sh278.66) recorded in the first sale of the year (last week), it signals a strong performance picking from last year, when prices hit a four-year high of $2.65 (Sh328.20).

Meanwhile, the strong dollar to the shilling comes as a blessing to farmers and traders as they continue to earn more.

Central Bank of Kenya (CBK) on Friday quoted the local currency’s exchange rate at an average 123.83 to the dollar, as the losing streak witnessed last year continues.

“We expect the shilling to remain under pressure in the week ahead with central bank support likely to prevent a steeper decline,” said Terry Karanja, Senior Treasury Associate at currency trading solutions provider, AZA Finance.

Apart from tea, exporters of coffee, flowers and other fresh produces and commodities are reaping big from the weak shilling.

KTDA farmers 

Meanwhile, the Kenya Tea Development Agency (KTDA) managed factories are expected to disburse Sh5.5 billion as payment to their smallholder tea farmers for the December 2022 green leaf deliveries, inclusive of mini-bonuses for the half-year ending December 31, 2022. 

"Farmers can expect to receive payment into their accounts in the next few days based on respective banks’ processes and timelines," KTDA says.

Of this amount, Sh2.7 billion is payment with respect to mini bonuses for the factories, whose directors passed resolutions to pay mini bonuses to their farmers.

The balance of Sh2.8 billion will go towards paying farmers for the December green leaf delivered to factories.

Farmers will be paid between Sh5 and Sh10 as a mini bonus per kilo of green leaf delivered to their factories for the six months up to December 31.

The Sh2.7 billion mini bonus payment represents 449 million kilos of green leaf delivered to KTDA-managed factories over the six-month period.

During the same period, average tea prices for KTDA at the auction stood at Sh326 per kilogram of made tea, compared to Sh306 over the same period in the 2020/2021 financial year.

“Farmers have been waiting for this payment and we have made it right before schools open, to enable our farmers meet their back-to-school obligations alongside other personal obligations,” KTDA Holdings Chairman David Ichoho said.

He said as part of reforms promised to farmers, KTDA has also ensured they receive their pay by the fifth of the month.

"We have delayed slightly this month to enable us to compute the proper amounts to pay to farmers,” Ichoho said.

Funds to cater to the payments have been generated through the sale of tea over the period under consideration, the chairman said.

Only farmers in factories in Zones 1 – 9 will be receiving the mini bonuses, with those in Zones 10 to 12 traditionally holding off from paying, instead making a singular payment as part of the final payment (bonus) later in the year.

KTDA operates a two-step payment model where farmers are paid monthly, and an additional interim payment (mini bonus) and a final payment (bonus) based on the performance of each factory.

This model allows farmers to spread their earnings throughout the year to cater to their needs.

Early payment of farmers’ dues is part of reforms being instituted by the KTDA Holdings Board, the introduction of the reserve price for teas from KTDA-managed factories of $2.43 per kilo of made tea.

Other changes introduced by the board include an increase in monthly pay to Sh20 per kilo for growers in regions five, six and seven, and Sh21 for regions one to four.

KTDA has also been key in the importation of fertiliser and the successful lobbying for a fertiliser subsidy from the state.

It has also seen the reduction of interest rates charged by Greenland Fedha (KTDA’s microfinance institution) to eight per cent per annum to boost affordable credit access, and reduce the burden of the loans for tea farmers.

Tea prices at the Mombasa auction hit a four-year high this week amid a rise on demand in key global markets.

A kilo averaged $2.65 (Sh301.17 ), up from from Sh2.55 (Sh 289.81 ) in the past two weeks, the East African Tea Trade Association (EATTA) weekly report shows.

The last time the commodity sold above the 2.6-dollar mark was in 2017-18.

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