In my last article, I highlighted that the tea industry is at a crossroads, juggling concerns and opportunities, especially with the supply side of the tea value chain affecting smallholder farmers.
Many tea farmers long for the good old days when bonus would be paid and their fortunes would change overnight. With the cost of living hitting the roof, this can only happen if they earn more per kg of green leaf, enough to cover the inflationary pressures. All actors along the value chain need to do everything possible to cut costs while improving on the export prices.
In the just-released Tea Industry Performance Report 2023, export unit price dropped to $2.47 per kg compared to $2.62 per kg in 2022. Luckily the exchange rate was favourable at 139.85 in 2023 compared to 117.87 in 2022, making the unit price per kg Sh345.32 compared to Sh306.64 in 2022.
The drop in average export prices in dollar terms should be a worry to the tea industry, calling for appropriate explanations on why this happened and the measures being put in place to prevent further drop.
The bumper harvest of 570 million kg following favourable weather calls for even more concerted efforts to ensure all the teas get a market. Encouragingly, these production levels have been achieved in the past with successful offloading into the market.
Price follows quality, especially in the tea industry. There have been claims that the quality of teas being offered in the market has dropped. There is need for the Tea Board of Kenya, the Agriculture ministry and other relevant public institutions to drive a national tea quality improvement programme using measurable values with clear quality targets and roadmaps. Modern science confirms this is doable.
The industry must not lose any opportunity to cut costs by creating efficiencies and improving on productivity. Sadly, it takes over 60 days to convert tea into money after production, yet nothing else is done to that tea apart from putting it on a trading platform for buyers to bid.
Modern science can be used to cut this time cycle to under 20 days, saving tea farmers from unnecessary heavy commercial borrowing to meet cashflow needs. The cost price for this at the current interest rates is so high and, in my view, avoidable.
The 2023 tea production figures confirm that government initiatives in lowering fertiliser prices and effective distribution to farmers paid off with improved productivity. This should continue, in addition to extension services, so optimal productivity levels are attained. Labour costs still remain a killer on the farm. Other challengess include replacing old tea bushes with more productive varieties.
Factory production must be aligned to market expectations in pursuit of value, especially the quality perspective as it translates to value and prices. Modern science makes this easy to do, with measurable values to set targets against each parameter of importance.
Further, making a profit is important, which leads to the need for optimising capacity utilisation, labour deployment and wages, and transportation. The regulator, as a matter of policy, needs to establish acceptable leaf quality standards and enforce compliance. The same should also apply for machinery and equipment used in leaf-processing.
The trade must embrace more transparent approaches that promote competition and efficiency in price discovery. The current price volatility brings a lot of uncertainty for tea farmers. Conflict among trade actors must be eliminated in law and practice by ensuring the trading floor organiser is not a player in the selling process to avoid compromises.
The ambitions of the tea industry are clear and valid. But they will never be realised without taking the bull by the horns and addressing in totality the challenges noted by the regulator at the launch of the Tea Industry Performance Report 2023.
These include strategic tea quality improvement programme, reducing the tea outlets quantities at the auction, addressing governance challenges facing tea industry institutions, incentivising tea value addition and product diversification, enhancing market access to new and emerging markets and reducing the costs of production borne by the tea farmers. Addressing governance and visioning in the key institutions will be key.
