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Kenya: Tea Farmers Face Hard Times As Mini Bonus Comes Under Threat
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Business Daily (Nairobi)
19 May 2008
Posted to the web 20 May 2008
Zeddy Sambu
Nairobi
The future of interim payments to farmers allied to Kenya Tea Development Agency factories has been thrown into uncertainty because of the effects of a strong shilling and rising cost of inputs.
Factory directors now have the discretion to delay the monthly payment of Sh10.50 per kilogramme and the half-year payment known as "mini bonus."
"Respective factory boards can decide not to pay mini-bonus and wait for the main bonus in October," KTDA corporate affairs manager, Mr Charles Kimathi, told the Business Daily.
The mini (interim) bonus is an advance payment of the main earnings usually paid in October. If the mini bonus is delayed, it could have a negative impact in tea production because farmers may not have enough money to buy inputs and run their farms.
Though the advance payments are known as bonus, they represent an early settlement of receivables for the sale of tea by the central marketing agency to ease the cashflow crunch that usually results from the highly irregular payment.
The nature of the tea industry under the collective marketing system is such that factories can only determine their true sales from their tea deliveries at the end of the year when the final payments are made.
Already, there are concerns in some factories over the low payment for the "mini-bonus." The amount, according to KTDA, depends on the ability of a factory to pay as determined by sales proceeds and factory commitments.
Traditionally, the mini bonus has been set at Sh5 per kilogramme of leaf delivered, but the affected factories receive only Sh3 per kilogramme, a 40 per cent reduction. "The mini bonus ranged from zero in some factories to Sh5 per kilogramme," said KTDA officials.
A small scale farmers lobby, however, said there was more to the issue.
"The payment were delayed and when they came, there were also several deductions effected especially for our members to the West of the Rift growing areas.
We are not happy about this state of affairs," said Mr George Kinyua, of the Kenya Union of Small Scale Tea Owners Association (Kusstoa).
But KTDA said in a statement: "Farmers can only be paid from income generated from the sale of tea as we have no other sources of funds."
There are already signs that the effects of a strong shilling, rising fuel bills, will also grossly undermine the main bonus and wages.
Last year, 430,000 farmers affiliated to the 54 factories managed by the agency earned Sh17.4billion.
Coming just two weeks after KTDA conducted a highly controversial election of 108 directors, the fall in earnings has sparked fears in the small scale tea sector that the interim payments could be terminated altogether.
KUSSTOA said the agency was toying with the idea of scrapping the mid year payments. "We will seek the intervention of the Government in this matter which we understand is being discussed by the KTDA board," Mr Kinyua said.
The agency last week said tea sales had been hurt by increased cost of production, particularly labour, electricity and fuel and the strong currency which reduces the amount of shillings received from dollars.
"The amount to be paid is determined by factory company cashflows, since the payment is a factor of money generated from tea sales," Mr Kimathi said. As a result, most farmers to the West of the Rift Valley did not receive a single cent in the interim bonus payment, with factories in the greater Kisii the worst affected. In most of the company's 12 zones, the farmers earned Sh3 per kilogramme of tea.
The mini-bonus paid by respective factory companies has recently varied depending on each plant's financial ability. Payment of the mini bonus was started in 2,000 following agreements reached in 1999 when the authority was still a state firm.
In 2007 bonus, KTDA's affiliate factories earned a gross income of Sh24.8 billion compared to Sh26.2 billion in 2006. Up to a third of the earnings are channeled to cover costs of production and marketing.
Farmers last year sold 217 million kilogrammes of leaf, representing a growth of about 43 million kilogrammes mainly due to improved and favourable weather conditions in most growing areas.
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The effect of this glut in production has sharply been felt at the weekly auction in Mombasa where prices have taken a knock. Analysts say while prices have been declining consistently, the cost of production has been rising.
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