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Kenya: Unilever Goes for Value Addition in New Profit Drive
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Business Daily (Nairobi)
30 April 2008
Posted to the web 30 April 2008
Allan Odhiambo
Unilever Tea Kenya Limited, is banking on value added products and certified teas to recover from a Sh110 million management and staff restructuring charge that ate into its profits last year.
The firm's books of account for the year ended December 2007 show it posted a loss of Sh104 million. The management has attributed this to a fluctuating local currency, high cost of wages and the restructuring that saw 25 per cent of its staff laid off.
"Based on the 2007 financial performance, directors do not recommend payment of a dividend," the company secretary, Antoinette Absaloms said.
For a return to profitability, the management is focusing on improved global prices, increased sale of value added products and certified teas produced under ethical and environmentally sustainable practices.
Market analysts said the firming prices are a result of suppressed supplies from producers such as Kenya over the first quarter of this year. Kenya's tea output during this period suffered from drought and violence linked to the disputed December 2007 presidential elections.
Statistics from the Tea Board of Kenya (TBK) showed production for the first quarter of 2008 dropped 35 per cent to 70 million kg compared to the same period last year with the highest drop in Rift Valley.
The suppressed production in the first quarter was captured at the Mombasa auction where only 62.6 million kg of Kenyan tea was offered for sale compared to 75.9 million kg last year, representing a 17 per cent drop.
The company targets increased profits from the sales of tea produced under the certified programme.
Unilever Kenya's mother company, Unilever, early last year committed to purchasing tea from sustainable, ethical sources. It also commissioned world renowned NGO, Rain Forest Alliance (RA), to audit and certify its tea farms and suppliers in Africa.
Rainforest Alliance certifies coffee, chocolate and bananas in products worth over $1 billion annually, including leading global brands such as Starbucks, McDonald's, Chiquita, Innocent and Kenco.
In the certification arrangement, the world's largest tea company's estate in Kericho was the first to be audited with the programme set to be rolled out to thousands of other farms in Tanzania, Malawi, Indonesia, India, Argentina and Sri Lanka.
Farms in the rest of Africa, South America and South East Asia are also targeted. Unilever is the world's largest buyer of black tea, currently purchasing around 12 per cent of the world's black tea supply.
"This decision will transform the tea industry, which has been suffering for many years from oversupply and under performance. It will not be achieved overnight, but we are committed to doing it because we believe it is the right thing to do for the people who drink our tea, the people along the entire length of our supply chain and for our business," Unilever CEO, Patrick Cescau, said when he announced the certification plans.
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According to Cesacau Unilever Lipton, the world's best-selling tea brand, and PG Tips, the UK's leading tea, will be the first brands to contain certified tea.
The company aims to have all Lipton yellow label and PG tips tea bags sold in Western Europe certified by 2010 and all Lipton tea bags sold globally by 2015.
Unilever said, based on Rainforest Alliance experience with other crops, it is expected that its certified tea would command higher prices at various auctions, and estimates that it will be paying farmers around two million euros more for its tea by 2010 and around five million euros more by 2015.
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