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Tea farmers stand to gain in current set up

Tea is one of the country’s biggest foreign exchange earners, coming after diaspora remittances, horticulture and tourism.

In Summary

• Claim that tea farmers are living in servitude of KTDA cannot pass the ultimate test of fact, bearing in mind that the services of the managing agent are overseen by a board directors for a respective factory that has been duly elected by tea farmers.

• This is a governance move aimed at protecting the interests of the farmer in factory management. 

KenyaTea Development Agency tea taster during the process of tea grading at KTDA
KenyaTea Development Agency tea taster during the process of tea grading at KTDA
Image: FILE

Kibisu Kabatesi’s article, published in this esteemed paper on Sunday, May 24,  titled ‘Tea farmers’ servitude reprieve with new reform broom’, rightly launches by confirming the importance of the tea crop to the economy of Kenya.

Tea is one of the country’s biggest foreign exchange earners, coming after diaspora remittances, horticulture and tourism. 

This vantage position enjoyed by tea has been pillared on good management by industry players as the whole, but most important of whom has been the Kenya Tea Development Agency, a private management agency that accounts for about 60 per cent of the country’s tea production. 

 
 
 

The article soon after the introduction, however, goes off tangent, exposing the author’s lack of knowledge on how the industry operates.

This invites an opportunity to explain how the smallholder tea industry model operates, with attendant benefits to farmers like him.

Factories, being corporate entities in themselves, appoint a managing agent on a contractual basis, to undertake a number of duties, chief among them to manage the growing of, collection, processing and sale of tea, and remit the farmer a fair income following a sales process that is determined by market forces. 

The managing agent also sources for input such as fertiliser, and manages support services, including transport and storage, accounting, finance management and negotiation of favourable interest rates with financial institutions to fund business operations. 

The tea is sold at the Mombasa Auction in an open, independent and transparent manner bereft of the alleged malpractices.

The tea price discovery at the auction is an intricate play between the forces of supply and demand and its effect on prices, which upstream is reliant on the quality of the teas. 

Monies accrued from the sale of tea is paid back to factories within 14 days at the fall of the hammer at the auction. Farmers are paid in a two-stage model: Monthly, at a rate of between Sh16 - Sh18 per kilo of leaf, and a further second payment, popularly known as ‘ bonus’.

 

The ‘bonus’ is a payment of the entire factory income comprising tea revenues and any other income (such as dividends, interest income etc), less operating expenses, taxes, advances (mini bonus) and the initial green leaf payment.

All these services are offered at a fee. In this case, KTDA, a management agent, charges a fee of 2.5 per cent for a wide range of services not limited to the aforementioned.

The world over, managing agents have injected professionalism in the management of commodities.

In Kenya, the sugar industry in Western Kenya was previously managed by Booker Tate, a managing agent of repute. 

 
 

Therefore, the author’s claim that tea farmers are living in servitude of the managing agent (KTDA) cannot pass the ultimate test of fact, bearing in mind that the services of the agent are overseen by a board of directors for a respective factory that has been duly elected by the tea farmers.

This is a governance move aimed at protecting the interests of the farmer in factory management. 

This agency model is anchored on the idea that smallholder farmers will benefit more in large numbers by taking advantage of economies of scale and procure necessary input at cheaper rates.

It explains how KTDA has for many years now, managed to import fertiliser at lower than market rates and pass on the benefits to farmers.

It is impractical that an ordinary farmer, given the size, would have the wherewithal to professionally perform all these functions yet still return profits. 

At the local level, the author, himself a farmer, details a litany of problems touching on his factory, Mudete.

Usually, the cost of labour at the farm is borne by the farmer. The factory has no control over this external factor. That said, we would advise against payment of day rates without reference to the amount of leaf plucked.

WET TEA PROBLEM

However, being privy to the goings-on in the Mudete catchment, the rampant delivery of ‘wet’ tea has become a nagging problem.

This is where some farmers, in a bid to increase the weight of their leaf, soak the leaf in water.

Not only does this raise ethical and hygiene issues, it destroys the inherent quality of the leaf, affecting the quality of the end product, and ultimately reducing the price value at the market. 

For Mudete farmers to see improved earning, this practice has to stop.

 Farmers must follow the advice given by the managing agent, and avoid dealing with the so-called ‘M-Pesa buying’, which gives farmers instant access to income, though at a lower rate than if they sold their leaf under the current payment model.

Still on Mudete, a plain reading of the factory’s books shows that in 2019, there were 12,227 farmers delivering tea to the factory, which earned them a net income of Sh502 million.

It, therefore, begs the question whether the author making the claim that the factory earned Sh225 million has lost his sense of sight or is simply playing mischief. 

The serious question of shrinking landholding must be addressed in the catchment.

Most farmers hold less than half of an acre of land under tea.

Considering escalating costs of production and falling tea prices at the global markets, should tea farmers be looking for better models of growing their crop?

In the sunset of his article, the author supports the recently gazetted tea regulations. 

KTDA’s opposition to the rules is on record. The regulations will introduce more bureaucracies, contrary to the laws anchoring the sector.

Egadwa Mudoga is KTDA Corporate Communications manager. Views expressed here are his own.