Catherine Riungu
12 October 2008
Nairobi — Amid the controversy and uncertainty that has rocked Kenya's tea industry this year, the sector has fetched its best prices in two-and-a half decades, despite some farmers in parts of the country uprooting the crop because of poor returns.
The good prices have surprised many, coming as they do at a time when production costs are at an all-time high.
The principal players in the smallholder segment -- the Tea Board of Kenya and the Kenya Tea Development Agency -- have been sending mixed signals for the better part of the year, issuing reports pointing to decreased earnings attributed to high fuel costs, a strong shilling and global overproduction, which they said would erode meaningful earnings.
Speaking to The EastAfrican in August when farmers in Central Kenya began uprooting bushes, KTDA managing director Lerionka Tiampati said that all indications pointed to this year's prices being higher than last year's, but the gains would be reversed by a strong shilling and spiralling fuel costs, which had pushed production costs higher by almost 30 per cent.
He said farmers should not expect better payments. The shilling was then trading at Ksh66 against the US dollar. It is currently at Ksh72.
Last week, the Tea Board was playing a different tune as managing director Sicily Kariuki released performance reports for the first nine months of 2008 indicating that prices had hit a record high following a historical drop in Kenya's production, reduced supplies at the Mombasa tea auction and a rise in international market prices.
Kenyan tea is used for blending with other teas and is always in high demand internationally.
Although the board said what it has been saying since April -- that production would increase with the onset of rains -- the third quarter of the year recorded an increase of 7 per cent over a similar period last year, compared with the steepest drop in production, of 35 per cent, for the first quarter of 2008.
Although the drop has been linked to the post-election violence that hit the country early in the year, Mrs Kariuki has consistently said that the clashes made only insignificant contribution to the decline, blaming it instead on harsh weather that has prevailed in the country most of the year.
The situation worsened during the period July to September, when cold weather stunted growth.
According to a report published in the Sunday Times of London mid this year, export earnings from tea and rubber increased significantly at the global level and are poised to go higher.
"In 2007, agricultural export earnings were a record $1.5 billion, a 16.6 per cent growth, owing to the increased export earnings from these two crops. Tea, the main agricultural export that accounted for over two thirds of agricultural exports, exceeded the $1 billion mark."
The report indicated that a lower volume of exports from Kenya due to a decline in tea production is an important contributory factor in increasing international tea prices. The demand for tea from oil-producing Middle East countries, Russia and East Europe was cited as another significant factor in the increase in tea prices.
According to the Tea Board, export earnings from the tea industry are projected to hit a record Ksh50 billion ($714 million) this year, following the rise in price and the weakening of the shilling.
This would be a marked improvement over the Ksh43 billion ($614 million) earned last year, which was a decline over the 2005 figure of Ksh49 billion ($700 million).
Buoyed by these two factors, the industry's earnings over the first eight months of the year hit Ksh38 billion ($542 million) compared with Ksh30 billion ($428 million) in the same period in 2007.
The regulator said the situation would remain constant during the last quarter of the season. Industry statistics showed that for the period January-August, tea prices were at an average of $2.42 per kg against $1.72 per kg registered in the same period of 2007.
"Due to lower quantity of tea offered for sale, the average tea price for the month of August was higher at $2.75 per kg against the $1.75 per kg recorded in August last year. This is the highest average price ever recorded over the past two-and-a-half decades," Mrs Kariuki said.
For instance, in August, 14.7 million kilogrammes of leaf was turned in for trade compared with 17 million kg over the same period in 2007 -- reflecting the tight demand-supply situation that led to the record prices as buyers scrambled for the few quality offers available.
The cumulative amount of tea offered for sale over at the weekly auction in Mombasa between January and August also stood at 161 million kilogrammes, compared with 202 million over the same period last year, increasing concerns over depressed supplies.
"With most tea growing parts of the country expecting to receive well distributed rainfall in October to December, according to projections by Meteorological department, the industry expects improved production during the fourth quarter of the year," Mrs Kariuki said.
Overall production for 2008 is however expected to drop by about 34 million kilogrammes compared with last year due to adverse weather conditions experienced in some growing areas.
"Total production for the year will not surpass the 2007 record of 369 million kilograms but is projected to stand at 335 million kilograms, which will be 9 per cent less," she said.
Egypt remains the main export destination for Kenyan tea, taking up a record 10.2 million kilograms, almost doubling its purchases from 4.5 million over a similar period in 2007.
Other key destinations were Pakistan that took up 7.3 million kilograms, the UK with 7.1 million, Afghanistan 2.5 million and Sudan at 2.4 million kilogrammes.
"During the January-August period, Egypt also imported the highest quantity of Kenyan tea amounting to 61 million kilograms, accounting for 24 per cent of the total export volume. Egypt is currently the lead buyer, taking the place from Pakistan, after the latter's loss of interest in the lower end market players, which was occasioned by higher prices," Mrs Kariuki said.
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