KTDA’s inept practices subjecting farmers to servitude

The 600,000 smallholder tea farmers were supposed to be rich – but all they collectively own are lush rows of green bushes which help them brew their troubles and misery.

These small-scale tea farmers were lured — more than 50 years ago — to grow a cash-crop that promised them a good income. It did for some time. But not anymore.

BROKEN DREAMS

Today, they are caught between brokers, buyers and broken dreams. While last year Kenya sold 474,861,590 kilos worth Sh140 billion — at the average price of Sh296 per kilo — there is little economic progress seen in tea growing areas, thanks to an inept marketing structure that subjects the farmer to servitude.

This year, farmers received a second payment, wrongly christened bonus, of only Sh15 per kilo which is in addition to the Sh14 per kilo paid for green leaf delivered to the factory in a particular month.

Since it takes on average four kilos of green leaf to make one kilo of made tea, it means that one kilo of green leaf should average Sh74. But farmers got only Sh29, or less depending on factory, to take home.

Statistics indicate that more than 60 per cent of the tea dollars are deducted from the farmer’s produce to run factories, warehouses, the convoluted value chain and bureaucracy.

Why a country that hosts the second biggest tea auction in the world, Mombasa Auction, operated by the East African Tea Trade Association (EATTA), can have its farmers living in penury is a source of worry.

The farmers feel abandoned and turned into prisoners of a monolith that purports to stand for them — the Kenya Tea Development Agency.

At best, the farmers continue to deliver the produce to this agency, which manages 55 per cent of the country’s tea production, but in essence, and at worst, to the jaws of a giant ogre that gobbles up their money in one of the most scandalous market arrangements in history.

Tea is the last cash crop that has magically survived corruption, mismanagement of yesteryears. Attempts to liberalise the sector only led to an internal coup which saw previous managers return to run the show.

UPROOT

KTDA boss Lerionka Tiampati seems unapologetic about the low earnings that he gave this year and has asked farmers who want to uproot their tea plants to go ahead.

"We have no say over what farmers want to do with their tea bushes. They are overall owners of the plants," he told the press.

But farmers such as Laban Rotich, whose produce is processed by Kapkoros Tea Company, is a worried man: “It is unfortunate that after 15 years growing tea we have never experienced such low prices.”

This year, Kapkoros Tea Company had offered Sh18 per kilo in bonus compared with Sh34 offered last year. The same case with many other KTDA managed factories. Something has gone wrong.

“We have been left at the mercy of cartels operating in the sector who reap billions of shillings while growers are left to incur huge losses and without intervention from the government, we are doomed,” Mr Rotich lamented.

INTERMEDIARY

Tea production was, from the onset, not designed to help the smallholder farmer and was strategically suited for multinationals who for more than 300 years commanded the auction in London.

Kenya’s Nairobi auction began in 1956 and moved to Mombasa in 1969.

Now, our local auction is facing competition from Dubai where KTDA has opened an office at the Dubai Tea Trading Centre (DTTC), which has become an important intermediary between production and consumption.

Local cartels love this arrangement since from this base, they can sell tea without going through scrutiny at the Mombasa Auction.

LIBERALISATION

After months of research, the Nation can now reveal the reasons why Kenya’s tea sector is a sham – and why small-scale farmers still live in penury.

With the liberalisation of the tea sector, it was hoped that other management agents would emerge to compete with KTDA. But KTDA and its barons ensured that no such competitor arose.

What emerged, by design, was a super agency lording over factories and which held sway the regulator — The Tea Directorate — thanks to its billions. After all, the liberalisation strategy was written and carried out by KTDA and Kanu government insiders with interest in tea trade. Today, KTDA is a dominant monopoly in the sector.

At the moment, smallholder tea farmers receive only 16 per cent of the consumer price paid in Europe while 84 per cent is shared by traders, brokers, marketers and other boardroom boys. The farmers’ complaints are usually drowned by a powerful PR machine that has worked to keep KTDA away from scrutiny.

HELPLESSNESS

Tea farmers have no say on their produce — and have nobody to tell their story of pain and helplessness.

Although KTDA purports to be the farmer’s agent and voice — it is not. It not only interferes with farmers’ bid to elect factory directors and run them independently but also stage-manages polls to its advantage.

“The electoral system run by KTDA is opaque, conflicted, unjust and corrupt,” says a current director of KTDA in confidence.

When the tea sector was liberalised, it was hoped that farmers would run their factories independently and would only appoint KTDA as their management agent.

The thinking then was that as limited liability companies; the factories would be autonomous.

SHORT-CHANGED

But the barons who used to run the previous tea parastatal, Kenya Tea Development Authority, took over the running of the new Kenya Tea Development Agency and have short-changed farmers ever since.

The result: the KTDA neither protects the farmer, nor caters for their needs.

Under the Tea Act Cap 343, a “management agent” is appointed through a specific management contract or agreement to offer professional services in specific functions of production, processing or marketing of tea — “but does not include a buyer, broker or packer of tea.”

But KTDA has over the years become a buyer, broker and packer of tea, an unlawful act that has only hurt farmers. It has also become the supervisor of factories, lording on their boards and whittling down the voice of the farmer.

CONVOLUTED

After the liberalisation, KTDA was transformed into a new company — KTDA Holdings Limited which was to own all assets of the previous body.

It was this company which formed KTDA Management Services Limited to undertake the management of factories.

But this has become convoluted since some people sit at the board of the holding company and also the KTDA Management Services — the company that enters into contracts with factories.

Powerful vetting committee

“If you are the CEO of KTDA Management Services, and you also sit at the KTDA Holdings — where would a factory file its complaint,” asks a director of a Central Kenya factory.

Although KTDA is appointed by factories, built and paid for by farmers; as an agent, it has a powerful ad-hoc vetting committee that approves all those who want to vie for leadership as directors of the various tea factories.

SUPERVISE

This committee is advised by the KTDA company secretary who appoints both returning and presiding officers — an undemocratic practice since an appointed agent cannot purport to supervise elections of a private company.

Why the agent is given power to pre-qualify candidates gunning for directorship of the various tea factories it manages is to silence any critical voice to headquarters.

As a result, KTDA can hand-pick those it wants to run as directors thanks to this ad-hoc committee.

“If you have an appeal on the conduct of elections, you appeal to this KTDA body — the same which is used to manipulate elections,” says a past director. “If the vetting committee declares you unfit, you will go nowhere.”

REGULATORY

This is because the duties of the KTDA Company Secretary include overseeing and managing the directors' electoral process — even though it is only an agent of farmers’ factories. KTDA says it has an “inbuilt appeal and dispute resolution mechanism” but some of the tussles have ended up in court.

Previously, KTDA, when it was a State parastatal, could do nothing without the approval of the central government.

The minister could remove any wayward managing director and there was a balance between the parastatal, the Tea Board of Kenya and KTDA.

But with the exit of the government from the tea sector, and failure by the Agriculture ministry to make a decision on whether it wanted KTDA to be an agency or a regulatory body, the policy void left farmers at the mercy of 12 directors who today control the multi-billion industry — and hardly answer to any government authority.

“The directors control tea worth billions of shillings,” says an insider.

ANOMALY

To start with, and in order to control the tea sector, KTDA made sure that none of the various factories operating as limited liability companies has its own company secretary — a legal anomaly — who should plan the agenda of board meetings, record minutes of various factory boards and keep statutory record books.

He is also supposed to draft all agreements, contracts and resolutions. Why farmers’ representatives — who are board members — were denied the right to appoint their own person for this role is part of a huge conspiracy to keep them in the dark on where their money goes.

In essence, neither farmers nor directors know what contracts they have entered, with whom or who procures which services for them and at what price.

Instead, even when KTDA is subject to discussion — as an agent —, the agenda has to be set by the single KTDA company secretary for all companies.

MONOPOLISTIC

This way, insiders say, KTDA as an agent has illegally acquired monopolistic control of the tea sector and neither the farmer nor brokers raises any question for fear of intimidation.

This is because brokers are also beneficiaries of the cartel-like business structure — or they are uninterested spectators in a complex game.

More so, the factories are forced to enter into 10-year contracts with KTDA and any factory that wants to leave the agency must give it a three-year notice.

With all the billions of shillings it has bilked from the farmers’ produce over the years, KTDA has taken almost all factories hostage by guaranteeing them loans from various banks — either to buy equipment or vehicles.

GUARANTEES

This is because the government no longer offers tea farmers any guarantee — thus leaving thousands of farmers at the mercy of KTDA.

“The problem is that these loans are negotiated by KTDA and directors only come here to sign,” says a KTDA insider who works at the headquarters.

With such loans in place, any threat by a KTDA member factory to sign-out of a management contract is met with an equal threat by KTDA to withdraw bank guarantees.

By 2014, tea farmers, through their factories, were indebted to the tune of Sh6 billion. Given the low production and changing weather patterns, it means that most of the money generated from their farms goes to offset loans negotiated by KTDA — a body which they do not control.

SUBTLE THREATS

It is now known that smallholder tea farmers under KTDA Management Service are paid less per kilo of green leaf on a monthly basis than those who take their green leaf to private factories.

KTDA holds billions of shillings of farmers’ fortune and uses that to intimidate any factory that would like to get out of the contract.

Since all factories have various loans guaranteed by KTDA, any attempt to walk out of the agency contract is usually met with subtle threats to remove the guarantee.

That way, farmers are caged in an abusive marriage — thanks to a management agreement where KTDA gets 2.5 per cent of the gross sales of every tea factory.

While each factory has a board, it cannot appoint its factory managers.

KICK-BACKS

They are appointed by KTDA but paid by farmers.

“KTDA decides on how much these managers earn and when they go on leave. That means that the factories have little control on the managers employed,” says a source.

Thus, the burden of paying the managers is shifted to farmers and what KTDA does with the 2.5 per cent it gets as agency fee is not known — some of it is used to ostensibly guarantee the factory loans or sunk in kick-back driven projects.

KTDA also appoints regional managers who also sit on factory boards and have more say than the elected factory board members — most of them with little knowledge on the workings of this behemoth whose history they don’t know.