Tea glut eats farmers’ bonuses

A sharp drop in international prices of tea has affected bonuses for Kenyan farmers.

Kenya Tea Development Agency (KTDA) chief executive Lerionka Tiampati said at a media briefing to announce the bonus results that market the glut had dampened prices “just like for all major commodities”.

The low price has seen a majority of listed tea companies register significantly reduced profits.

“There is an oversupply of tea, which affects all commodities, including coffee and maize. Tea is no exception,” he said.

A Kenyan tea farmer spends about Sh14.20 to produce a kilogramme of green leaf, with plucking accounting for half the total expenses. At Sh8 a kilo, this is the single largest cost.

HIGHEST-PAID FARMER

Fertiliser expense Sh3.2 a kilo, pruning cess (Sh1) and tea cess (Sh0.32). Other costs are tipping and weeding at Sh0.36 a kilo.

The current bonus payouts will see the highest paid farmer net an average of Sh26.22 a kilo and the lowest Sh8.50. Add this to the monthly rate of Sh14 a kilo and the highest paid farmer takes home Sh40 per kilo of green leaf at most and Sh22.50 at least.

Average payments to farmers will be Sh17.61 per kilo, down from Sh31.7 a year ago.

Prices at the auction stood at $2.43 (Sh213), down from $3.26 (Sh286), a 28 per cent drop from last year and the lowest in the past five years.

Payments are made according to the quantity of green leaf a farmer delivered. An average 4kg of green leaf yields 1kg of made tea. Over 1.1 billion kilos of green leaf was produced, translating to 256 million kilos of made tea.

However, Mr Tiampati said that while the outlook remained bleak for the short term and that prices dropped steeply over the past year, tea growing was still a profitable venture. “Our investment in subsidiaries has also added value to farmers.”

Blaming market dynamics for low prices, he said: “We should not isolate one player for no good reason.”

The KTDA boss said in reference to official reports that increased production coupled with management issues at the Mombasa auction depressed prices to the extent that the agency did not pay the Sh5 per kilo mini-bonus to most farmers.

A total of Sh19.8 billion will be paid out to about 560 000 farmers in 14 tea-growing counties. This is a 44 per cent drop from last year’s Sh35.6 billion.

THE BIGGEST LOSERS

Farmers will also receive 67 per cent of total earnings, 13 per cent down from last year as higher labour, financing, electricity, packaging and management costs ate into the meagre earnings.

Farmers west of the Rift Valley were the biggest losers with their pay falling by up to 40 per cent while their counterparts in central Kenya recorded a 29 per cent drop from 2013.  

Farmers in Kiambu were the highest paid while those in the Nandi/Trans Nzoia belt were the lowest.

Various reasons, including the soil types around Mount Kenya, have been cited for the superior quality of teas from central Kenya.

“Because of the soil differences, the quality of Mt Kenya tea supersedes western Kenya’s. Traditionally, central Kenya teas fetch more,” Murang’a farmer John Mwangi said.

KTDA is the leading tea producer in Kenya with eight subsidiaries. In 2012/13, the company’s after-tax profits were Sh1.3 billion on net sales of Sh59.92 billion. Management also took home Sh1.663 billion.