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August 31, 2008

Depressed prices may reduce Kenyan tea production

by Catherine Riungu

Faced with falling tea prices, Kenya, one of the world’s largest producers, may be forced to cut down production.

Lerionka Tiampati, the managing director of the Kenya Tea Development Agency (KTDA), the apex body for 57 tea factories across the country, said that unless Kenya controls production, reduced earnings are here to stay.

“If we do not drastically reduce the amount of tea we are churning out, we have to wait for the markets to determine the direction tea prices will take,” he said, ruling out the collapse of the industry which, he said, is one of the world’s most traded commodities.

His views come in the wake of reports that smallholder farmers are uprooting tea bushes over shrinking fortunes.

Tea Board of Kenya managing director Sicily Kariuki, while not totally disagreeing with Mr Tiampati, said there is no piecemeal approach that would work without all actors being brought together. She said that plans to restructure and introduce new changes were at an advanced stage, aimed at taking the tea industry to a sustainable level. Details will be released soon, she said.

According to Mr Tiampati, Kenya planted the problem in 1992 when the tea sector, like many other industries, was liberalised. Before then, growing of tea was controlled. Farmers were restricted to growing a minimum of 800 bushes, which was considered commercially viable. After 1992, anybody was allowed to grow tea anywhere and with time, the crop found its way into unsuitable areas while too many farmers subdivided their existing crop to their children, creating very many small units.

Many more people shifted to tea production as other industries collapsed. Tea production grew faster than processing capacity and tea started going to waste. The Kenya Tea Development Authority, whose responsibility it was to develop the smallholders, responded by building factories to cope with the demand. The more factories were put up, the more production expanded.

In the meantime, other countries had started noticing that there was a growing demand for tea in the world and that Kenya was doing well. They started visiting the country to learn how the crop was managed by KTDA and soon, they too started putting their tea in the same markets.

In 2005, all hell broke loose on the international scene. Suddenly, there was too much tea and the prices started going down.

The exchange rate too went wild with the strengthening of the Kenya shilling and earnings received a further beating. The erratic exchange rate persisted through 2006 and only began to stabilise this year. However, the gains have been eroded by the high cost of electricity, fuel and fertilisers.

Amid all this, tea prices have not changed over the past three years because of overproduction, which currently stands at 200 million tonnes.

Kenya is responsible for 22 per cent of the world’s total output and is being blamed for the glut. According to available statistics, Kenya, though not the world’s largest producer, is the biggest seller. It exports 96 per cent of its production, unlike the other main producers — Sri Lanka, India, Vietnam and China — which offload less than 5 per cent of their production while the rest is consumed locally.

Kenya’s tea, though considered to be of the highest quality, has not been able to sell at its highest prices because there is too much of it in the market, Mr Tiampati said.

“If we reduced the quantities, our tea could sell for much higher than it is selling now because it is used to blend other low quality teas,” he said.

The East African

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