Glut, automation threaten to cut tea sector earnings
Kenyan tea farmers and traders are staring at hundreds of millions in losses as a glut in the produce has seen tens of millions of kilograms of the ready produce going unsold.
The glut can partly be attributed to the state subsidized fertilizer scheme, coupled with a spell of favourable weather that together led to record tea production last year.
The flip side of this has been a glut in the local market, with Lindah Oluoch, CEO of the Kenya Tea Growers Association, pointing to mounting stocks of unsold tea.
“The outlook for 2023 looks positive, but we are concerned about the pile-up of tea. At the auction currently, the situation is dire. For the industry, 2024 does not look very promising,” Lindah told Maudhui House in an exclusive interview.
Over 100 million kilos of tea remain unsold
According to the Tea Board of Kenya’s annual report for 2023, 40 percent of teas offered for sale last year remained unsold, translating to roughly over 100 million kilos.
Additionally, data from the East Africa Tea Trade Association indicate that as of 7th March, 2024, a total volume of 11,565,746 kilos of tea remains unsold. This means the tea was offered for sale at the auction but was not bought.
Lindah explains that the total value indicates a grim figure. “Assuming the teas were to be sold even at the 2023 average auction price of US$2.24, this would be approximately US$25.9 million. However, with time, the tea is also losing value while incurring additional warehouse storage charges.”
The inability to open new market destinations for Kenyan teas has further exacerbated the issue, complicating the outlook for the industry in the months ahead.
In the past 12 months, however, new destination markets for Kenyan tea in Africa including Chad, Nigeria, Ghana, Benin as well as other economies in West Africa are opening up and buying Kenyan tea.
Lindah notes that these economies present a great start for Kenya, especially riding on the growth opportunities presented by the 2018 African Continental Free Trade Area (AfCFTA) agreement. AfCFTA offers a great opportunity for producers in Kenya to engage with buyers in target markets, thereby growing markets for producers.
Automation in Kenya’s tea fields
Adding to the industry’s changing dynamics is the wave of automation that has swept through large-scale tea fields. While mechanization has brought about increased efficiency and lower production costs, it has also contributed to a shift in the jobs landscape.
Interestingly, this transition has opened up new opportunities, particularly for women, who have shown adeptness in operating modern harvesting machinery better than men, highlighting emerging employment patterns within the sector.
With the mechanization of operations, Lindah notes that tea producers have been able to manage business costs effectively due to increased predictability in production. This contrasts with hand plucking operations, where producers often faced international lawsuits over injuries incurred during operations.
Overall, across Kenya’s large-scale tea industry, which brings together about 20 companies employing over 14,000 workers under KTGA, “about 85 percent of harvesting operations of large-scale producers are mechanized,” notes Lindah.
In a Cabinet Despatch dated March 7th, 2024, the Government gave the green light to automation, with a move to review the National Mechanization Policy and initiate the promotion of mechanization practices as the cornerstone of Kenyan agriculture.
“The proposed policy will facilitate technology transfer and promote modern mechanization practices as the cornerstone of Kenyan agriculture,” the Cabinet brief explained, noting that this strategy will increase land and human labour productivity.
To drive this transition forward, the National Industrial Training Authority (NITA) has developed a curriculum aimed at recognizing the knowledge and skills required to operate machinery within the tea industry, facilitating a smoother transition for employees seeking new opportunities.
Lindah notes that this initiative underscores a shift towards mechanization in Kenya’s tea sector, which not only enhances operational efficiency but also opens doors for decent incomes for workers and investment in machine production locally.
Currently, Kenya imports these machines from India, a situation that also presents a diplomatic avenue for the Ministry of Trade to negotiate better market access for Kenyan tea in the Indian sub-continent.
“Kenya, which enjoys tea production throughout the year, can be a key source of tea for India.”
Moreover, automation is enabling Kenyan tea producers to compete more effectively on price at the Mombasa Tea Auction, marking a great stride towards leveling the playing field with lower-cost producers from the neighbouring countries.
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Growing Kenya’s tea markets
To elevate Kenya’s tea industry on the global stage, KTGA underscores the need for a holistic marketing strategy. The Association is already advocating for Kenyan foreign missions to serve as ambassadors for Kenya’s tea industry, Lindah said.
This approach, coupled with a supportive policy and legal framework that drives increased local consumption, would empower producers to directly tap into new markets effectively.
Addressing the high production costs through building infrastructure such as the proposed extension of the Standard Gauge Railway to tea-growing regions. Producers are already tapping into green energy to cut their reliance on grid electricity
This strategic focus on marketing, policy support, and cost management, including addressing the challenge of high taxes on packaging materials, could revitalize Kenya’s industry, boost income for investors and farmers, and substantially increase the sector’s impact on communities.
For years, it has been easier to export tea in bulk for value addition at the destination markets for instance Egypt largely because the cost of packaging in those countries is lower.
The recent re-establishment of the Tea Board of Kenya, aiming to pinpoint and address emerging industry challenges, is a step in the right direction for enhancing tea production and ensuring the sector’s sustainability and growth.
Overall, as Kenya’s tea sector grapples with these concurrent challenges, but the path forward requires a concerted effort from all stakeholders, including policymakers in government, to navigate the storm.
Embracing mechanization while fostering new job opportunities, expanding market outreach, and leveraging government support for infrastructural improvements are essential steps toward stabilizing the industry and ensuring its continued growth.
In doing so, Kenya’s tea sector can weather the current storm and emerge stronger, ready to capitalize on its undeniable potential on the global stage.
