The Uhuru Kenyatta administration disrupted the tea sector by introducing a minimum price and borrowing billions to pay an early enhanced bonus, aiming to sway producers to vote for Raila Odinga in the 2022 general election.
The sector has struggled to recover, relying on expensive loans to meet obligations. The Kenya Tea Development Agency (KTDA), representing small-scale farmers and controlling over 60 percent of the country's tea production, may need to borrow over KSh20 billion this year to pay the second payment, commonly referred to as the bonus, if the 100 million kilogrammes of tea held in Mombasa warehouses remain unsold.
Buyers have been rejecting KTDA teas at auctions, leading to significant withdrawals from the trading floors before reintroduction for fresh bids after two weeks.
KTDA mortgaged its shares for Sh18.2 billion to pay an early bonus to farmers before the election in 2022.
Last year, KTDA borrowed KSh4 billion from its factories through inter-factory lending to support struggling ones and KSh50 million from banks.
The borrowings primarily affected factories West of the Rift, where teas have suffered the most due to the minimum price of $2.43 introduced by then Agriculture Cabinet Secretary Peter Munya.
Critics argue that linking the minimum price to production expenses rather than the intrinsic value of tea was unwise. Industry experts also highlight the difficulty of establishing a uniform market price due to the varied quality of teas from different regions.
KTDA has been dealing with over 100 million kilogrammes of tea as carryover stocks, dating back two years, due to the minimum price discouraging buyers from purchasing the expensive beverage.
The Kenyan government held an urgent meeting with traders and KTDA last week to assess the situation and find a solution.
The 2022 loan was guaranteed by KTDA Management Service, a subsidiary of KTDA Holdings. KTDA typically closes its books on June 30, with the bonus payment approved in September and disbursed in October.
However, the 2021/2022 bonus was paid at the beginning of July. The funds were borrowed from multiple banks, including NCBA and Standard Chartered Bank Kenya.
