Unravelling the value of plight-ridden KTDA

Wednesday March 18 2020
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Tea harvesting at Ihururu in Nyeri County on May 16, 2019. The Kenya Tea Development Authority is owned by farmers through their respective factories. PHOTO | FILE | NATION MEDIA GROUP

By JULIUS SIGEI

For some, Kenya Tea Development Authority (KTDA) is the soul of one of Kenya’s most important crops. To its critics, however, the agency, which started out as a marketing facilitator for farmers, has since morphed into an all-powerful hydra-headed monster. Finance and Strategy Director Benson Ngari speaks on this.

Just what is the role of KTDA?

The KTDA Holdings Ltd is a company that provides critical services in the management, processing and marketing of high quality tea grown by Kenyan smallholder farmers.

The agency is owned by farmers through their respective factories. The more than 600,000 farmers are individual shareholders in 54 factory companies which in turn are corporate shareholders of KTDA Holdings.

Each factory company on average holds two per cent shares in KTDA.

The KTDA’s core mandate is to facilitate smallholder farmers to grow high quality tea, process and market the product to achieve the best possible return.

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The subsidiaries are meant to make this tea value chain more efficient and earn profits that are paid to farmers as dividend, together with the second payment.

Has KTDA stretched its original mandate to include roles not envisaged by the law?

Following recommendations by Sessional Paper 2 of 1999, KTDA now runs multiple subsidiaries along the tea value chain that provide specialised services at the best rate.

This translates to cost-saving and efficiency across the chain from the moment the farmer picks his tea to the moment it is loaded to a ship or sold at a local shop.

For instance, our microfinance subsidiary, Greenland Fedha, offers farmers easy access to loans, enabling them to add value to their livelihoods by buying necessities such as water tanks and accessing funds to build homes.

Our brokerage subsidiary, Majani Insurance, facilitates insurance of all KTDA assets, including factories, at lower-than-market rates.

The KTDA Power Company (KTPC) was created to spearhead the development of renewable, reliable and affordable energy, starting with small hydropower projects across the tea growing regions.

KTDA Management Services (MS) Ltd runs the 69 processing factories through agreements with the respective factory companies, while Chai Trading Company Ltd is in tea warehousing, blending, trading and export.

Kenya Tea Packers (Ketepa) Ltd, a leader in tea blending, packaging and distribution for local and international markets has diversified to the bottled water business with its Maisha brand.

Tea Machinery and Engineering Company (Temec) Ltd does fabrication, installation, repair and maintenance of processing machinery and equipment. We also have KTDA Foundation through which the agency carries out corporate social investment activities.

Why does KTDA pay farmers west of the Rift Valley less than their eastern counterparts?

Teas from different factories fetch varying prices based on consumer preference on account of quality.

Some buyers prefer teas from specific factories and regions based on ecological and climatic features as well as the quality of farm management practices such as application of fertiliser, pruning and plucking.

The buyers are willing to pay a premium on teas from these factories (regions), hence farmers in these areas will often receive better returns for their produce than others.

The cost of production also varies from factory to factory based on labour and energy efficiencies, cost of credit and investment income.

A factory that runs at capacity or near capacity all-year round will be more efficient in processing a kilo of tea and will leave more for farmers’ pay-out.

Factories with expansion projects that are financed by loans will incur higher costs than those which are not expanding. Given the current interest rates regime, such costs can be substantial.

On the other hand, factories with healthy cash flows and which have no need to borrow will ultimately invest their surplus and earn more income. It is this combination of factors that determine what income individual factories pay their farmers.

Farmers from zones west of the Rift Valley complain that their voice is dimmed by the number of factories required to make a vote to the extent that some are now agitating to secede. What do you say about this?

The KTDA was privatised in 2000. Factory companies contract KTDA MS to manage for them the tea value chain at a management fee of 2.5 per cent. The KTDA does not own any of the factories nor assets in those factories.

All decisions regarding management of the factories, including payment to farmers, are done by the shareholders of the companies (farmers) who are represented by directors.

Farmers enter into a leaf delivery agreement with their respective factory which entitles one to a vote to pick a representative to sit at the factory board. Each factory has at least six elected directors to represent interests of their farmers in the management of the factory.

The board members are also farmers who deliver tea and oversee the running of their factory on behalf of farmers. This kind of governance structure has allowed farmers’ voices to be heard during decision making.

It is therefore incorrect to say that farmers’ voices from whichever region are dimmed in favour of others, because all farmers have adequate representation in the factory boards and at the KTDA Holdings board.

Decisions are not made on the basis of the number of factories in any region but on the decisions of boards at the factory level and the holdings level.

What are you doing to curb incidences such as uprooting of tea?

Tea’s growth and management is governed by law. On the other hand, farmers grow the crop on their private land and KTDA has no jurisdiction over how a farmer wants to utilise their land.

The incident you allude to is isolated and the reasons given by the individual uprooting his tea are economic.

KTDA, on its part, continually works to improve tea farmers’ earnings by increasing factory efficiency, diversifying the types of teas produced, sourcing for new markets, streamlining its processes to make the tea chain efficient, setting up related businesses to earn extra income and lowering costs for inputs like fertiliser, power and wood fuel.