Nairobi — Small scale tea farmers are banking on improved auction prices to earn more despite prolonged drought that has led to significantly reduced output.

Kenya Tea Development Agency (KTDA) managing director Lerionka Tiampati says that the impact of the drought was felt most to the east of the Rift Valley where production fell by as much as 30 per cent.

"The drought affected virtually all tea growing countries including Sri Lanka, China and India leading to depressed volumes in the international market," said Mr Tiampati.

He said increased demand led to improved prices at the auction and since direct sales are often pegged to auction prices, the earnings were generally good across the board.

There was, however, a slight drop in exports to markets such as Pakistan during the holy month of Ramadhan.

Improved prices

Figures indicate that prices have increased by up to 30 per cent in the last one year, averaging $2.50 per kilogramme of made tea and reaching a high of over $3.50 per kilogramme of some primary grades at recent auctions.

This, combined with a favourable exchange rate regime, Mr Tiampati says, could see tea farmers generally earn more than the previous years.

He, however, points out that since the overall earnings were dependent on the volumes sold, the severe drought had denied farmers an opportunity to take full advantage of the improved prices.

KTDA, which manages 60 tea factories spread across the country representing some 500,000 small scale tea farmers, says future projections depend on how long the current climatic conditions last.

"Should the rains come as predicted by the Meteorological Department, it will take about a month for tea bushes to recover from the prolonged stress. An increase in volume could lead to decreased demand and a lowering of auction prices globally," says Mr Tiampati.

The agency has had to diversify its operations outside tea processing and marketing in order to stay afloat in a constantly changing market.

In June, it signed a power purchase agreement with the Kenya Power and Lighting Company to enable Imenti Tea Factory, which it manages, to sell surplus power from its mini-hydro project to the national grid.

KTDA is also in the process of developing a 17MW power project on Gura River in Nyeri that will directly benefit four tea factory companies.

Ten other sites, whose feasibility studies were sponsored by the Ministry of Energy, are also being considered for development.

To consolidate these efforts and lead the push for alternative energy generation, the agency has announced the formation of a subsidiary dealing specifically in power generation.

KTDA also recently registered a microfinance firm, Greenland Fedha Ltd, a non-deposit-taking limited liability company with an initial share capital of Sh160 million.

Although the move was met with stiff opposition from other players, the firm shall offer loans to tea farmers at an interest rate of 8.31 per cent per annum.

The profits from these initiatives, if any, will be paid out as dividends to small scale tea farmers.