25 January 2014

Kenya: Price Dip to Hurt Tea Farmers' Earnings

Mombasa tea auctions averaged $2.40 (Sh206.16) per kilogramme in 2013, which was lower than annual averages in the previous two years, latest World Bank commodities price data show.

This signals farmers may earn slightly less in full-year totals despite high production in the year. A kilo of tea at the Mombasa auction averaged $2.72 (Sh233.65) and $2.88 (Sh246.53) in 2011 and 2012 respectively.

On a quarterly basis, the average price has been declining steadily, settling at $2.13 a kilo in October-December from a high of $2.87 in January-March. The price averaged $2.35 and $2.23 a kilo in April-June and July-September respectively.

The data - an average of weekly quotes for all tea at the Mombasa auctions - show the $2.13 average price in the fourth quarter was 29 per cent lower than the $3 a kilo recorded a year before.

However, monthly averages in the fourth quarter were on an upward swing, rising from $2 a kilo in October to $2.09 and $2.31 in November and December respectively.

The World Bank data corroborates the Kenya Tea Development Agency's December 18 report which noted that tea prices in the month were 30 per cent lower than July's, a trend "likely to impact negatively on earnings".

"The drop in prices has been occasioned by increased supply of teas in the market and favourable weather," KTDA said.

Provisional data from the Kenya National Bureau of Statistics show the quantity of tea produced in 10 months to end of October amounted to 355,271 tonnes. The value of tea exports in the 10 months was Sh88.82 billion, slightly higher than the Sh85.14 billion in a corresponding period in 2012.

KTDA said a kilo of made tea sold at an average $2.38 between July and November compared to $3.65 in a similar period a year before.

"This is the lowest price registered since October 2008 when the price of tea per kilo sold at $2.05," it said.

Fluctuating foreign exchange rates, rising fuel prices, decreasing smallholder farm sizes, climate change and political instability in key markets such as Egypt are among myriad challenges facing the country's tea industry.

KTDA chairman Peter Kanyago said taxes imposed on the sector have also raised operational costs and made the sector uncompetitive. An Ad Volerum Tax of one per cent is charge on tea, besides the 16 per cent Value Added Tax.

Kenya is the world's largest exporter of black tea, making the crop a major foreign exchange earner besides tourism and horticulture.

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