Best way to end the storm brewing in tea

The tea sector has been thrown into a crisis after the Industrial Court last week ruled that workers should be offered 30 percent pay increase. This decision, however, has been opposed by tea growers, noting the rise is unsustainable. The stalemate has led to industrial action. Rachel Kibui spoke to Apollo Kiarii, the CEO of Kenya Tea Growers Association on the raging matter.

Why are tea growers unwilling to implement the salary rise yet they were part of the court process?

We made our case in court and it ruled the way it did but in the prevailing economic environment, it is difficult for us to sustain the pay rise.

Only an increase that compensates the employees against the cost of living would be affordable.

There are claims that tea growers make a fortune while their employees earn peanuts. Is that the case?

That’s incorrect. The tea industry has been hit by high production costs, which outstrip the unit price of tea at the auction.

We are barely breaking even. The unit cost of production was about $1.9 per kilo between 2013–2014 while the auction price of tea was about $1.7 and the trend hasn’t changed significantly to date.

How will the court ruling affect the tea industry?

From 2009 to the last agreed CBA in 2013, the total wage increase has been 54 per cent. This has now shot to 84 per cent with the latest court order issued on June 20.

Such a runaway wage increase cannot be sustained by any company in Kenya. The Kenyan economy as a whole will be negatively affected by the ruling in a number of ways.

To begin with, the tax collection by Kenya Revenue Authority will diminish substantially as a result of declining profitability and lower corporation tax; Kenya’s image as a destination for foreign investment will be tarnished; investment in the tea sector will reduce resulting in negative business for local suppliers and contractors, and creation of fewer jobs and lastly, smallholder farmers competing with commercial tea farms for the same pool of labour will have to pay more to attract hired workers.

The tea industry is struggling to operate under very difficult circumstances. The challenges include declining tea prices, multiplicity of taxes – ad valorem, county levies and VAT on locally sold teas, high land rates, resistance to innovations and mechanisation, high fuel and electricity costs and increasing cost of farm inputs.

What should be the cost of labour on average?

In any enterprise, labour cost shouldn’t exceed 40 per cent of the total expenses and that’s what the tea industry should strive to achieve if it has to remain in business and be competitive with other tea producing countries.

Labour is the single most expensive component in tea production and it constitutes 50-60 per cent of the total production cost not to mention the other indirect benefits workers get like free water, electricity, housing, medical insurance and service gratuity that add a further 30 per cent on the employment costs.

Do you think that use of machinery as opposed to human labour could solve the current and future employer-employees differences?
Productivity from manual harvesting has been stretched to the maximum.

High labour cost has rendered many low-yielding fields unprofitable and farmers have had to be innovative by introducing mechanised harvesting as well as factory processing besides uprooting old tea bushes and replanting with higher yielding clones and improving their crop husbandry practices to break even.

Assuming long term tea prices of $1.85 a kilo, exchange rate of Sh100 to a dollar, today without investing in mechanisation, 36 per cent of the tea fields in Kenya would not be unviable under hand plucking.

If the shilling was to strengthen back to Sh90 against the dollar, 88 per cent of the fields would be unviable under current model.

Mechanisation and automation of processes are the only way to ensure cost reduction, high productivity and profitability.

Do you think that the government is doing enough for the sector?
The government in an effort to cushion farmers subsidised the cost of NPK fertiliser in June, 2015. Government has further in the 2016/2017 budget proposed to remove the infamous ad valorem levy, which was one of the taxes that farmers have been up against.

The move is welcome. However, more needs to be done to address the issues of VAT refunds, land lease processes and adopting a single tax regime.

How has devolution affected the tea industry?
County fees and charges including land rates, single business permits, tea produce cess and cross-county levies have changed drastically upwards while tea management policies and regulations haven’t been finalised.

Are you planning to appeal against the 30 percent pay rise High Court ruling?
Yes, a notice of motion to appeal has been filed as well as an application for stay of implementation of the judgement pending appeal.

What is the way forward now that the crisis is deepening with the workers’ downing tools?
With an injunction in place, we expect the workers to respect the employers’ right to appeal and resume duties while the legal process is pursued.

Workers must appreciate that downing their tools and destroying property will not sort out the problem and in the event the industry collapses, the jobs that they have will disappear.

We must all work together to keep the industry on its feet for the prosperity of all stakeholders.

****

Get it Quick

Key Sector

• The industry plays a key role in the country’s economy with tea output contributing about 11 per cent of the agriculture sector’s contribution of 25 per cent to the Gross Domestic Product.
• Tea, therefore, is the highest foreign exchange earner.
• Stakeholders calling for affirmative action by government to reign on the high cost of production so that tea can remain competitive in the world market.