KTDA’s impunity: How greed, self interest brewed bitter cup of tea

What we know as the Kenya Tea Development Agency (KTDA) today was established in 1960 as the Special Crops Development Authority (SCDA) to help smallholders plant cash crops such as tea and pineapples. The name was changed to KTDA in 1964 and its mandate was confined to the development of smallholder tea-growing.

VETO POWER

At the helm of this body was Mr Charles Karanja, a man who in 1973 wanted KTDA to expand into the technically difficult areas of processing and international marketing. Although he was opposed by the World Bank, which was the main financier, Mr Karanja went to President Jomo Kenyatta and was given the go-ahead. Initially, when this proposal was tabled, Mr Karanja and nine farmer representatives voted for it. While this was a majority vote, the KTDA Order had a clause that gave the World Bank and Commonwealth Development Corporation veto powers on policy governing the tea sector.

The Agriculture minister Jeremiah Nyagah sided with both institutions and Mr Karanja took advantage of a Jomo Kenyatta meeting, also attended by Mr Nyagah, to raise the matter. KTDA had in 1968 helped President Kenyatta to own a large tea estate on the edge of Kamae Forest. With the President's entry into the sector, and as a large-scale producer, nobody could stop Mr Karanja’s dream.

As a parastatal, KTDA inherited the SCDA assets and it was supposed to provide tea farmers with extension services, credit, leaf collection and manufacture of green leaf. It was further supposed to recover its costs by a cess levied on green leaf purchases. Making profits out of farmers’ produce was not part of that KTDA mandate, although the 1960 Working Party Report and Subsection 19 of the KTDA Order had empowered the body to impose a levy on growers in order to become “self-financing”.

That has now been abused.

The man Kenyans entrusted to run the smallholder tea sector also started his own factory, Ngorongo Tea Factory, which owned a large estate in Kiambu. Other shareholders were Mr Njenga Karume, chairman of the powerful Gikuyu, Embu and Meru Association (Gema), Eastern Provincial Commissioner Charles Koinange and James Kamau, the then KTDA chairman. They would use KTDA to advance their own interests and nobody questioned them — and that was the origin of impunity within the body.

ABUSIVE

With the dramatic increase in tea prices in 1977, KTDA took over from Brooke Bond Liebig the role of tea marketing. With that, power had gone into Mr Karanja’s head and by 1979 he would loudly tell the press that he would never “discuss the tea problem with ignorant people … who did not understand the tea industry and could not tell one blend from another”.

KTDA had two objectives from the start: commercial and the development of a “middle peasant” class of tea growers. While the government and KTDA were to give policy guidance, the contract farmer was to offer labour and land, an arrangement that resulted in the current abusive relationship, since the owner of the land, produce and labour has no say on the sale of processed tea. This is because KTDA was designed to have effective control of smallholders through monopoly and administrative powers.

While the “early” KTDA was owned and controlled by the State, the “new” KTDA is only controlled by smallholder farmers in name, but not in practice. The government had set up Provincial Tea Boards (PTBs) and District Tea Boards and their work was to convey farmers’ grievances to the KTDA and KTDA policies to farmers.

But soon, PTBs became KTDA agents and started siding with them against the farmers. So powerful was KTDA that it could determine who could grow tea, where and the levies to be charged. Farmers would have no say on this — and still don’t. Actually, the smallholder representation within KTDA was an afterthought and came after the formation of a lobby group in central Kenya — the Central Province African Grown Tea Association.

Until 1973, multinational tea companies such as James Finlay, George Williamson and Brooke Bond were the managing agents for KTDA, the latter playing a major role of leaf collection and providing extension services.

EXPLOITATIVE

The presence of smallholder representatives at the KTDA board was to ensure that farmers were well represented. But the board was also saturated with government appointees and even though smallholders were the majority, the World Bank and Commonwealth Development Corporation — at one point in 1960s and 70s — exercised veto powers against farmers and the government.

This is what led to the conflicts in the 1970s between KTDA, smallholders, multinationals, the World Bank and CDC. Farmers started complaining that the service charges and the agency fees were excessive and exploitative and this was debated in Parliament. This levy was supposed to cover operating expenses and service World Bank loans.

But the KTDA board saw an avenue to get more from farmers and invest in projects. “This cess money has also tempted the board to build a huge building as their headquarters. This money should have gone to the small-scale farmers,” lamented Kikuyu MP Kabibi Kinyanjui in 1974 in Parliament.

The DTB and PTB had also become advisory committees and had no powers. It was during this time that the ministry started coming under pressure to take over marketing of tea from the multinationals.

When the original SCDA was mooted, the government guaranteed a £720,000 loan from the Colonial Development Corporation for the construction of six tea factories for smallholder farmers, who were expected to plant 11,000 acres of tea by 1966.

LIBERALISATION

In the initial arrangement, SCDA and the financiers were to jointly control the operations of the tea factories until the loan was repaid. Thereafter, the growers were to acquire sole ownership. With a government guarantee, the factories were able to get cheap loans.

But there was a problem on the running of the SCDA. One of the worries was that a tea authority would consume growers’ income in the long run.

SCDA and the ministry of agriculture discouraged farmers from planting China hybrid tea, which had no market and which was to be replaced with Assam tea. Each factory was to serve about 1,200 acres of tea.

After years of total mayhem in the industry, a sessional paper for the privatisation of KTDA was tabled in March 1999, at a time the government was being accused of “killing” the tea industry.

While the idea was to give tea factories more powers, in theory, KTDA was in practice left to control every activity of those factories, turning the elected factory directors into village robots. Why Tea Agency refused to delink itself from the activities of the tea factories meant that the liberalisation only happened on paper — and that the entire tea industry was left to a few individuals who controlled billions of shillings.

MPs from coffee and tea growing areas — and which were mainly opposition — formed the Coffee Tea Parliamentary Association (COTEPA) which was to push for the full liberalisation of the sector. Mr Kiraitu Murungi (then Imenti MP) described the “small-scale tea sector (as) the last pocket of colonialism in this country.”

MISCHIEF

The Tea Act, enacted in 1934, was still in place albeit with a few amendments, and the thinking then was that liberalisation of the sector would free farmers from the control of the government.

But various loopholes had been left for the cartels to emerge — and soon the previous managers of KTDA returned to control the liberalisation process.

One of the anomalies noted by Mr Murungi, and he said as much, was that there were no linkages between increasing the processing capacity and the benefits the farmers get.

“They are not growing tea as a matter of charity. Our farmers are doing so because they are driven by the profit motive,” said Mr Murungi. “It will be useless to expand the tea industry in this world and make Kenya a leading exporter, if this improvement does not make a positive difference in the lives of our farmers.”

This is simply because some traders wanted a free-for-all sector where the government had no regulatory powers. This was good for the brokers and only a few saw the mischief contained in the Sessional Paper of No 2 of 1999.

Prof Peter Anyang Nyongo raised the matter: “In privatising, it is important that the government realises that it must perfect itself as a regulatory agency. One of the crisis in the tea industry is that the government does not know what to do with KTDA. Should it be a regulatory agency, laying ground rules for the privatised tea sector or should it continue to be an intervening agency in the economic running of these factories?”

UNDERPAY

The government had left in place the Tea Board of Kenya seen as a colonial instrument for the control of the tea sector. COTEPA had opposed the retention of the Tea Board saying it had “no role” to play in the liberalised market.

Originally, the function of the tea board was to sell the farmers produce, underpay the farmer and keep the surplus which was then squandered. In colonial Kenyan, the Africans had no say on the marketing of their produce and the various produce boards were led by government functionaries.

How this structure was to be modified without recreating the colonial Tea Board marketing structure was turning to be a big issue.

 Both KTDA and the Tea Board worked in tandem to keep as much surplus. While the Tea Board controlled production by issuing licenses, KTDA’s role was to collect the tea and market as a monopoly. All the money went to the KTDA account and was given in small monthly doses — with a final payment disguised as “bonus.”

It was the struggle to reduce the surplus left to the Tea Board than led to the industrial demand for the liberalisation of the sector since the marketing aspect of the sector had been left to a few companies.

“It was a struggle over this surplus,” said Mr Murungi.

EXCESS LIQUIDITY

By the time of its privatisation in 2000, KTDA was holding over Sh1.4 billion belonging to 45 factory companies. While Parliament was told that this was realised from “savings on income” the reality was that this was money deducted by the KTDA barons from farmers — since KTDA was not a profit-making organisation rather than a farmers’ service organisation. The money was not held in shares but in cash.

“The farmers would like to have this money in cash,” said Kariuki Muiruri who was pushing to have the money distributed to the farmers.

The Minister, Mr Chris Obure told parliament that the money was part of the “assets” inherited by the new Kenya Tea Development Agency and that its board of directors would meet and decide its distribution. “I expect the distribution will be in form of shares to be allocated to the 45 tea factory companies,” said the minister. But was this done?

The evaluation of KTDA assets had been carried out by Ernst and Young and the money was, somehow, included as part of the assets of KTDA even though it was “excess liquidity.” KTDA was not a parastatal — which pays excess cash to the government- but a farmers’ organisation which should have returned the excess money to the farmers.

DEDUCTION

After the tabling of the Sessional Paper No 2 of 1999 on April 8, which formed the basis of the Revised Tea Act, the tea sector was liberalised and saw the creation of the largest private tea management agency in the country with 45 factories then. Why this new agency was given farmers’ money is not clear — and this was one of the issues picked up by the special audit report that looked at the privatisation of KTDA.

The money had been deducted from the farmers disguised as management fee, which had been set at 5 per cent, then. While the government admitted that the deduction “was a mistake” — why it forced the farmers to take up shares in the new agency rather than get back their money has never been explained.

Next: How British multinationals fashioned KTDA and set it up to fail the farmers