Tea has for a long time been a major foreign exchange earner for the country and is ranked third behind tourism and horticulture.
Tea farmers have been a happy lot and over the years have enjoyed timely payments and super bonuses.
But now they are at the crossroads. Increased production coupled with slow sales because of political volatility in key traditional markets have resulted in a slump.
With tea prices dropping by $1.05 in the last 10 months – or about Sh22 for a kilogramme of green leaf – the final bonus will definitely be lower than last year’s.
Already, small-scale tea farmers did not get their mini-bonus this year because of reduced earnings, and there is little hope of prices recovering anytime soon.
The management of the crop through the Kenya Tea Development Agency, long seen as a success model, is now being questioned over its ability to break into new markets to ensure sustained high earnings for the farmer.
Factors compounding the sector’s dwindling fortunes include political instability in key markets like Egypt, Sudan, Pakistan, Iran, and Afghanistan, volatile exchange rates and high energy costs.
Prices have gone down by 30 per cent since last July, and the situation may worsen if the current glut persists in the global market.
The agency markets tea for an estimated 565,000 small-scale tea farmers and controls more than Sh61.4 billion annually.
So why has KTDA failed to adopt a long-term strategy for the industry to remain sustainable and arrest declining prices? Why has the farmers’ body failed to intervene to cushion farmers from further losses that may culminate in neglecting or uprooting tea bushes to plant other crops with a more reliable source of income?
It is such questions and frustrations that drove farmers to uproot tea bushes after low earnings in the 2008/09 season. This would prove to be a big blow to the economy as it would result in reduced foreign exchange earnings.
And while the market for good tea is still there, and growing, KTDA has been slow to source new markets, relying instead on a handful of traditional markets that buy tea in bulk.
Today, 75 per cent of Kenya tea is exported to five buyers, and while production has continued to grow, volumes exported to Pakistan, Egypt, UK, Afghanistan and Sudan have remained the same.
“It is a leadership problem. Why did they not invest in new markets?” said Kenya Union of Small-Scale Tea Owners (Kusstoa) chairman Joel Chepkwony.
According to him, the KTDA takes the bigger share of earnings of up to 51 per cent while the shareholders (farmers) are left to share the remaining 49 per cent.
Mr Chepkwony said tea farmers in the Rift Valley had threatened to ditch KTDA in favour of direct processing at county established processors.
“The mini-bonus is not there. Farmers are hurting because they don’t have information on the goings on at the KTDA head office,” said Mr Allan Njoroge, the Kusstoa national treasurer.
Mr Chepkwony is now threatening to mobilise farmers to sell their tea elsewhere if KTDA fails to pay them an interim or mini-bonus next month.
“We expect to get an interim bonus in May because the first half of the year performed well. We can also sell our tea to multinationals. They pay better, between Sh25-Sh27 per kilogramme of tea. Why should we be forced to wait for one year, yet our money is not earning an interest?
“We want county governments to take over management of our tea. We are in a liberalised market and have lobbied both the governors for Bomet and Kericho to build more factories to process the surplus leaves,” Mr Chepkwony said in a telephone interview.
A trader at the Mombasa-based Global Tea and Commodities Ltd, Mr Peter Kimanga said growing exports of value-added tea is the best way to get new markets for Kenya’s tea.
Besides failing to get their bonus, small-scale farmers have had to bear high operational costs to keep factories running. These costs — especially salaries for a bloated work force — erode their earnings.
KTDA has three levels of management in its Nairobi office, regional offices and at the factory level, all supported by the farmer.
Agriculture Secretary Felix Koskei said they will investigate circumstances that led to the over-supply of green tea, leading to a glut.
Industry experts say the fees charged to farmers and the investment decisions KTDA makes need to be examined to determine whether the farmer is getting value for his produce.
For example, in December 2012, KTDA bought 15 per cent (or 42.7 million shares), making the farmers’ body the second largest shareholder in Family Bank after the Muya family that has a combined stake of more than 30 per cent. The agency operates a microfinance company (Greenland Fedha), an insurance firm (Majani Insurance Brokers), packaging business (Ketepa) as well as warehousing services.
“What then is the direct support offered by KTDA that justifies the management fee of 2.5per cent of total tea proceeds from the smallholder tea subsector? KTDA only assists the farmer in sourcing fertiliser in bulk, spreading the cost across the year is not a benefit to the farmers. But KTDA holds farmers earning for close to year before the same reflects in their account,” said an industry paper seen by the Sunday Nation.
But KTDA sees it differently.
“Market rates for management services are in the range of six per cent or more. Surplus revenues generated after paying off associated costs for example staff salaries and rent contribute to the dividends paid to the farmers at the end of the year,” said Benson Ngari, KTDA’s Finance and Strategy director.
“Proceeds from tea sales are paid to farmers monthly for all tea deliveries for the preceding month. Annually, accounts for each factory company are done and any surplus income is paid to the farmers,” said Mr Ngari in an email response to the Sunday Nation.
“The subsidiaries are in line with KTDA’s strategy of revenue diversification. The subsidiaries are managed as profit centers to ensure they perform well and the profits thereby generated contribute to the dividends farmers are paid each year,” he added.