Tea agency loss of focus hurting small producers, says new report

The Kenya Tea Development Agency has lost focus and adopted unclear mandate to the detriment of farmers, a new study says.

The Deloitte Consulting report questions that the role of the Kenya Tea Development Agency, the umbrella arm for small-scale farmers.

The audit firm’s study also casts doubt on the business of East African Tea Traders Association, which runs the weekly tea auction in Mombasa.

The Competition Authority of Kenya, which commissioned the Benchmarking/Market Inquiry for the Tea Sector study will rule on the findings.

“Currently, agency is involved in insurance, microfinance, banking, real estate development, tea trade, tea packaging, electricity generation, secretarial services, warehousing and consultancy. This is in addition to its core services — extension services, green leaf logistics, tea processing, tea sales and marketing,” the report notes.

Competition Authority director-general Francis Kariuki said the survey factored anti-competitive behaviours, reports about prevalence of cartels and price manipulation at the tea auction. Tea prices have declined to a six-year low.

“Based on the findings, we will, if necessary, employ our enforcement mandate,” Mr Kariuki told the Nation.

POLICY INTERVENTION
The report takes issue with near monopoly status of the tea agency, saying its ownership wards off possible competition.

It is telling that 14 years since the liberalisation of the industry, no new entity has been able to serve any of the 65 small-scale tea factories in Kenya.

“Where there is a near-natural monopoly such as KTDA, there is need to regulate. There is an urgent need to govern payment to farmers for green leaf by the factories,” the report adds.

The weekly auction is the main outlet for Kenyan tea and was found to be in the hands of only a few buyers. Some regulations of the tea traders association hinder competition.

For instance, the number of brokers is capped at 12, the fee charged is fixed at 0.5 per cent of the auction volumes while producers cannot become brokers.

“Information is shared with its trading members but very little is given to producers. There is need to invest in an electronic auction in order to follow-up on the bids offered as a source of information when investigating collusion or other malpractices,” the report states.

While the volume of tea auctioned has been rising, there has been little to support expansion, leading to a rushed auction. This worsens during high production seasons where only a short time is available for price discovery (about 20 to 30 seconds per lot).

“The association’s approach of discouraging offering smaller tea lots discourages smaller buyers. The option that allows buyers to share the big lots at the auction may also in itself constitute a possible compromise on price discovery,” it says.