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November 16, 2018

Tea and the economic impact of faraway events

Tea faces serious competition
Tea faces serious competition

Late last year I travelled to Rwanda. And while there, I learned that the magnificent new Kigali Convention Centre had received a massive boost in bookings as a direct result of cancellations for conferences initially intended for Kenya.

Apparently, our election-driven political uncertainties had made some major conference organisers a little wary about bringing their people to Kenya.

This Rwandan conference facility — which some Kenyans I know had dismissed as a white elephant — may yet turn out to have received just the boost it needs to rival our own Kenyatta International Convention Centre, which has dominated this region’s conference circuit since the 1970s.

And this is something that happens more often than you would think, in the life of a nation: One country profiting from the misfortune of another, even where there is no ill will between them.

To illustrate what I mean, consider the case of Kenya’s tea industry. For now, at least, tea remains one of our few cash crops, profitable enough to enable small-scale tea farmers to make a decent living.

Indeed, unlike the previously prosperous sugarcane farmers who we now read of as “watching their sugar cane rotting in the fields”; or the destitute coffee farmers who regularly receive empty promises of salvation to come; the only headlines we read concerning tea is when it is reported that “twilight girls have flocked to Nyeri (or Kericho) upon reports that the tea bonus is about to be paid.”

And yet luck has played a major role in this too — just as in the case of the Kigali Convention Centre.

Look at the list of the world’s top tea producers and you will find that China leads the pack (with about a million tonnes of tea produced annually) closely followed by India. Kenya is third with just about 30 per cent of what India and China produce, closely followed by Sri Lanka.

Yet when you look at the top tea exporters, it is Kenya which takes the cup. Why is this?

Well, it is largely because both India and China have very large populations, within which there is a sizeable middle-class. Hence plenty of tea-drinkers within the country itself, who can afford to drink as much tea as they want — leaving very little for export.

In Kenya, by contrast, we only consume about five per cent of the tea produced annually, leaving 95 per cent available for export.

The only real competition for Kenya among nations which primarily export their tea are Sri Lanka and Vietnam. Like Kenya, they are top producers who do not consume the greater part of their annual produce, but export it to other tea-drinking nations.

Now if you like reading contemporary history, you will already have figured out where I am going with this: Both Sri Lanka and Vietnam suffered from catastrophic wars within living memory.

In Vietnam we had the decades-long wars, first for their independence from France (the First Indochina War of 1946 to 1954 ); immediately thereafter came the US military involvement which did not end until 1973; and finally, a civil war until 1975. That’s about 30 years of almost continuous war, which left behind a totally devastated nation, and economic stagnation in the tea-growing regions.

And in Sri Lanka, there was an incredibly vicious civil war that lasted from 1983 all the way to 2009. No outside intervention, just the locals butchering each other. This decimated Sri Lankan tea production.

So, a strong case can be made that the real reason why the Kenyan tea subsector has flourished over the past decades is that the countries that would have provided us with serious competition were either drinking most of their tea or bogged down in terrible conflicts.

And thus, the question that we Kenyans have to consider is this: If both Sri Lanka and Vietnam continue to expand their tea production, will this escalating supply of tea on the world market lead to a collapse in prices?

And would this price collapse then end up in tea being yet another previously profitable cash crop, which only yields a harvest of poverty and misery for all who grow it?

Poll of the day