Tea, coffee farmers warned of hard times as prices dip

Tea and coffee prices have dropped in recent weeks, hitting a new low and setting off alarm bells among farmers.

Experts have warned growers to expect further price shifts in line with changes in the global market. The turmoil in key markets — Egypt, Pakistan, Afghanistan, and South Sudan — has worsened the situation.

The production levels of the two crops in other countries, the strength of the shilling, and political crises in key markets are expected to affect prices.

The two sectors are among the top foreign exchange earners for Kenya, therefore their performance affects the strength of the local currency.
Tea prices have dropped to an average of $2 from $3 in 2012. And as an indicator of the hard times ahead, the mini-bonus for farmers in May has not been paid.

“The market at the moment is very bad. The first quarter saw a drop of four per cent in tea production, giving hope that there will be lower production than the 432 million kilos recorded last year, which would have meant higher prices.

But rains in April indicate we are likely to have even higher production which also comes with low quality and prices,” said East African Tea Traders Association vice-chairman Peter Kamanga. The association manages the Mombasa tea auction.

The organisation has asked for government intervention through a review of levies to cushion farmers’ earnings.
The Kenya Tea Development Authority early this year said a kilogramme of tea sold at an average $2.38 between July and November last year compared to $3.65 in 2012. “This is the lowest price registered since October 2008, when the price of tea per kilo sold at $2.05,” the agency that manages 66 tea factories in Kenya said.

Fluctuating foreign exchange rates, rising fuel prices, decreasing smallholder farm sizes, climate change, and political woes in key markets are hurting the country’s tea industry.
Global Tea in 2009 warned producers against reacting to good prices by increasing production. However, Mr Kamanga said local growers expanded their farms while consumption remained low, unlike India, which has managed to stabilise its tea prices through increased local use.

According to the Economic Survey 2014, the acreage under tea increased by 4.2 per cent to 198,600 hectares in 2013 from 190,600 hectares in 2012. Tea output jumped by 21 per cent to 182,600 tonnes in 2013 from 150,900 tonnes in 2012.

Tea earnings increased to Sh114.4 billion last year from Sh112.2 billion in 2012, but the payment to farmers per kilo declined. KTDA last year said the global market for the Black CTC teas was depressed.

The turmoil in Egypt, the civil war in South Sudan, and the political instability in Pakistan and Afghanistan have impacted negatively on the tea business.
“The bulk tea buyers have not expanded and we are relying on the few markets that have been facing political instability,” said Mr Kamanga.
Coffee prices have also registered a drop in recent months, although market watchers anticipate improvement because of dry weather in Brazil, which produces Arabica, like Kenya.

The commodity experienced a steady drop in price, recording the lowest in the past six years in 2013, threatening to stifle growth in the sector that has only recently recovered from the 1990s slump. The 2014 economic survey indicates that coffee production decreased by 18.8 per cent to 39,800 tonnes in 2013 from 49,000 tonnes in 2012 due to rising cost of farm and processing units.

The average yield also reduced. Coffee earnings have dipped to Sh17 billion in 2013 from Sh22 billion in 2012.
On April 8, the top grade AA sold at $311.4 and AB at $261.30 for 50-kilo bag at the Nairobi Coffee Exchange while the same grades sold at $301.66 and $249.06 respectively on 13 May.

“We’ve seen improvement of prices over the uncertainty of weather in Brazil. The greatest competitors to Kenya are Brazil and Colombia. Whatever happens in these countries affects the prices of Kenya coffee,” said Nairobi Coffee Exchange chief executive Daniel Mbithi.

According to the International Coffee Organisation, continued uncertainty over Brazil’s crop has driven prices upwards, although the rate of increase has slowed slightly.

Reports that El Nino weather might occur earlier than expected have also contributed to speculation over future coffee supply, with analysts reducing their production forecast for the 2014/2015 crop.