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FALLING PRICES

Real problem in the tea industry

Oversupply on the global market.

In Summary
  • The oversupply of any commodity always leads to lower prices.
  • But this is Kenya, where we tend to assume that if there is any drop at all in farmers’ earnings, this can only be due to corruption.

Tea growers have long been one of the outstanding success stories of Kenyan agriculture.

Where coffee growers in Central Kenya have long taken to uprooting their previously valuable coffee trees; where cashewnut farmers at the Coast now burn their trees to produce charcoal; and where sugarcane farmers in Western Kenya have for years now been destitute; tea growers continued to receive a decent return on their labour in the picturesque rolling tea fields of Central Kenya and the Rift Valley.

But all that seems set to change. It would appear that the tea growers’ luck has run out.

 

Now, newspaper headlines are not in themselves a sufficient guide to what is happening at any one time. You have to actually read the report or analysis to get an understanding of such events.

But when two newspaper headlines seem to be at odds, then it may be worthwhile to consider what is really going on, and where this conflict arises.

Such were my thoughts when on September 24, just a week ago, I came across this headline in the authoritative ‘Wall Street Journal’ website, ‘You’re Stuck at Home, Drinking a Ton of Tea—and Prices Are Rising’: ‘Prices of wholesale tea leaves have jumped 50% since March’.

The “Big Four” in global tea production are China, India, Sri Lanka, and Kenya. If one of them suffers a massive drop in production due to a destructive civil war that lasts 26 years, then that is bound to create an opportunity for the other big tea exporters. We would see a demand-driven expansion of tea growing in the remaining tea producers.

You would think that this would be good news for Kenyan farmers. But before we go into that, a little of the details supplied in this article:

“The world’s most popular beverage is becoming more expensive. Remote working arrangements and other home routines established during the coronavirus pandemic have led more people to reach for cups of tea, which is consumed in larger amounts world-wide than any drink other than water. But supplies of tea leaves are tightening, due to bad weather in some producer countries, labor shortages, port closures and other logistical issues.”

So, if indeed “the world’s most popular beverage is becoming more expensive” then surely that is good news for Kenyan tea farmers. Yes? Actually, No.

Here is the headline I had read in a local newspaper on September 23, just a day earlier: ‘Tea Farmers to get lower bonuses.’

 

And here is what was reported in the article:

“Farmers will receive lower bonuses this season due to a glut that reduced prices in the international market. Overproduction of green leaf has caused prices to plummet, Kenya Tea Development Agency (KTDA) chairman Peter Kanyago warned...”

So, what are we to make of it all?

And when that country – ie Sri Lanka – finally settles down, post-civil war, and comes back into the market, then it can only be a matter of time before there is an oversupply of tea globally. The oversupply of any commodity always leads to lower prices.

This is where my earlier caution about reading too much into headlines comes in. The article in the WSJ went on to explain that this recent increase in the price of tea, actually signalled an end to a previous years-long downward spiral in tea prices:

“Prices of wholesale tea leaves have jumped 50% since March, when they tumbled to their lowest levels in more than a decade due to oversupply. At $3.16 a kilogram recently, they are at levels last seen in November 2017, according to World Bank data.”

This seemed to support Kanyago’s assertion about the oversupply on the global market.

Indeed, such an oversupply was inevitable from the moment the Sri Lanka civil war ended in 2009.

The “Big Four” in global tea production are China, India, Sri Lanka, and Kenya. If one of them suffers a massive drop in production due to a destructive civil war that lasts 26 years, then that is bound to create an opportunity for the other big tea exporters. We would see a demand-driven expansion of tea growing in the remaining tea producers.

And when that country – ie Sri Lanka – finally settles down, post-civil war, and comes back into the market, then it can only be a matter of time before there is an oversupply of tea globally. The oversupply of any commodity always leads to lower prices.

But this is Kenya, where we tend to assume that if there is any drop at all in farmers’ earnings, this can only be due to corruption.

Hence the latest newspaper headline on this subject, dated Monday, September 28: ‘Farmers threaten to boycott tea picking: They also want KTDA chairman and directors kicked out of office’.