Monday, April 8, 2013

Global tea firm eyes impressive returns

There is a bullish mood among small scale tea farmers due to growth in demand by one of the key buyers. Photo| File

There is a bullish mood among small scale tea farmers due to growth in demand by one of the key buyers. Photo| File 

By MUCHIRI GITONGA [email protected]

A reported market growth of a key buyer of Kenyan tea has triggered a bullish mood among small-scale growers in the Mt Kenya region.

Demand for Lipton teas — a subsidiary of Unilever — is said to be growing at a rate of 10 per cent annually. This has triggered an expansion drive by farmers, particularly in Nyeri County, over the past few months.

“Lipton called us last year saying demand for their teas was growing at a rate of 10 per cent per year. They wanted to know if we can sustain supply and we assured them that we can,” Kenya Tea Development Agency chairman Peter Kanyago said.

Lately, Nyeri County has experienced expansion of tea bushes by small-scale farmers, especially in Muhoyas location near Nyeri Hill. Despite the area being climatically suitable for growing the crop, most farmers had for ages shunned it in favour of dairy production, which has almost immediate returns.

Good returns have in the past few years attracted new farmers, the chairman of Gathuthi Tea Factory, Mr Geoffrey Kagondu, said. Tea from the region has been leading in fetching the best prices.

This has been as a result of high returns since many growers, according to Mr Kagondu, have embraced good agricultural practices following introduction of farmer field schools.

“Our farmers are now practising sustainable agriculture since every factory has a field school. This has improved the quality of tea leading to better prices,” he said.

However, the local industry’s biggest catch is the Catholic Archdiocese of Nyeri, which has put approximately 500 acres under tea, serving as a pointer of where the sub-sector is heading. With prospects of increased production, some farmers are proposing the setting up of another tea factory around Muhoyas area. But both Mr Kanyago and Mr Kagondu insist that a new factory would not be viable.

“Setting up a new factory would cost millions of shillings, yet Gathuthi still has unutilised capacity and it is nearby,” said Mr Kanyago.
The factory, which has cut a niche in the global industry as a producer of high quality teas, currently handles an average of 12.5 million kilogrammes of green leaf annually against a capacity of 15 million kilogrammes.

If need be, Mr Kanyago said, the plant could be expanded to handle higher production at a fairly lower cost compared to what farmers would spend in setting up a new factory.

As farmers rush to plant more tea, the demand for seedlings has also gone up.
“We have now asked the factories to reopen tea nurseries that had been closed so that farmers can get enough planting materials,” said Mr Kanyago.

The future could even be better for tea farmers in the county once a 5-megawatt hydro-power plant which they are constructing is commissioned.

Gura hydro-power plant is a joint venture between Gathuthi, Gitugi, Iriaini, and Chinga tea factories and is expected to save farmers millions of shillings in energy costs which account for 30 per cent of operation expenses.

Additional revenue

Many factories spend up to Sh40 million on power bills annually. In addition, farmers in Nyeri will earn around Sh204 million annually from the sale of surplus electricity to Kenya Power.

The plant is also expected to earn additional revenue from carbon credits since the executive board of the Clean Development Mechanism registered it in September last year as a green energy project.

Construction of the Sh1.3 billion plant was commissioned last December. The project is expected to generate 30 million kilowatt hours every year and the power producer agreement pegs the rate at Sh6.80.

Farmers raised 35 per cent equity while KTDA Holdings has guaranteed loans amounting to $8.5 million (approximately Sh722 million).

The chairman of the KTDA power company, Mr Erastus Gakuya, said the firm would roll out 12 similar plants across the country to reduce the cost of energy.

The firm is targeting a combined capacity of 24 megawatts, which could turn small-scale tea farmers into key players in the energy production business.

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