Kenya: Tea Auction Sees Ksh2 Billion Loss Despite Minimum Price Cut

Tea worth Ksh2 billion was withdrawn from the market in the latest sale, as the Kenya Tea Development Agency (KTDA) sought to stimulate demand by reducing the minimum price of the beverage and releasing older stocks.

In sale 16, buyers declined at least 7.3 million kilograms of tea offered for trading at the Mombasa auction by KTDA, despite the agency's adjustment of the minimum price to an average of $2, down from $2.43, the official reserve price for smallholder farmers.

However, the reduced minimum price resulted in a decrease in the volume of tea withdrawn from the market, dropping from the previous 52 percent to 46 percent in the sale under review.

In the previous sale, KTDA directed brokers to sell the beverage at the reserved price, prompting traders to reject millions of kilos of the commodity offered for sale.

"A variety of prices were set by KTDA for different years and grades to attract buyers in sale 16," noted a tea broker.

However, the broker highlighted persistent concerns over the disparity between price and quality, leading traders to opt for other premium teas.

Last month, the agency initiated the release of aged tea stocks into the market at prices below the government-mandated minimum, aiming to alleviate warehouse congestion and boost liquidity.

Exceeding 70 million kilogrammes, the tea reserves within KTDA's warehouses and facilities have remained stagnant due to their uncompetitive pricing, stemming from the enforced minimum price at the auction.

Critics contend that anchoring the minimum price to production expenses rather than the intrinsic value of tea was imprudent.

Furthermore, industry experts emphasise the impracticality of establishing a uniform market price due to the varied quality of teas sourced from distinct regions.

"Auction prices should reflect the inherent disparities in quality between teas originating from the eastern and western regions of the Rift," said a tea trader, highlighting the inequity perpetuated by the current pricing structure.

Consequently, the inflexibility of the minimum price regime has prompted buyers to favor alternative high-quality teas over KTDA offerings, exacerbating the volume of tea left unsold at the auction.

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