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December 17, 2008

Kenya tea stockpiles increase as buyers struggle to find trade finance

Kenya Tea Stockpiles Expand as Buyers Struggle to Finance Trade

Warehouses in the Kenyan port city of Mombasa, host to the world’s biggest tea auction, are filling up with the crop as buyers struggle to secure financing for cargoes, broker Africa Tea Brokers Ltd. said.

Kenya is the world’s largest black-tea exporter. Pakistani, Sudanese, Egyptian and other Middle Eastern buyers are among those who can’t access finance, David Mwashumbe, an official at Africa Tea Brokers, said by phone.

“Prices have been really, really bad because buying countries don’t have access to dollars,” Mwashumbe said from Mombasa. Prices have dropped by about 50 percent in a month, he said.

The supply of trade finance is “shrinking” and its cost is rising, Pascal Lamy, director general of the World Trade Organization, said in an interview Nov. 13. Of the $13.6 trillion of goods traded worldwide, 90 percent rely on letters of credit or related forms of financing and guarantees, according to the Geneva-based group.

While tea can be stored for as long as two years, the aromas that make it more valuable diminish with time, Mwashumbe said. Companies that purchase tea and blend it for sale to western supermarkets are “buying less,” although not because they can’t get finance, he said.

Bloomberg

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