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Tea market price falls raise supply chain issues in Kenya

August 28, 2013

In April 2013, it was reported that Kenyan tea prices had fallen by US$0.5/kg since the start of 2013. This was attributed to a combination of increased production and fluctuating demand from seasonal and lower end of market buyers, with exports in February 2013 down 4% on February 2012. This contrasted sharply with the experience in the previous season when farmers enjoyed high returns from the produced supplied to the Mombasa-based auction house. In 2012, tea prices at auction had hit record highs of US$3.18/kg.

The Managing Director of the Tea Board of Kenya (TBK), Sicily Kariuki, expressed concern over the possible effect on overall earnings in the short term. As a consequence, the TBK was assessing the entire supply and marketing chains to establish the cause of the dip in prices, so as to be able to identify remedial actions that can be taken to ease the consequences of price falls for Kenyan tea producers.

Press reports suggested that fears of post-election violence in Kenya played a role in the unusual market behaviour. This saw a glut of tea in warehouses prior to the election, amid fears of later disruption of tea supply chains. No such problems, however, emerged. Difficulties were also reported in the system for processing export orders, which may also have contributed to a slowdown in exports.

In the longer term, with high tea prices having encouraged an expansion of investment in the processing of tea, four newly licensed factories were expected to add an additional 60 million kgs to annual processing capacity.

Press reports noted that the Kenya Tea Development Agency (KTDA) considered that the fall in prices might not affect the final payout to tea farmers, given the price gains made in the second half of 2012. The KTDA maintained that prices should stabilise from [May] with the onset of [the] cold season that would see the supply of green leaves drop.

Meanwhile, Dormans, Kenyas leading coffee roaster and packer, took the opportunity of the Fairtrade Eastern Africa launch in Nairobi on 8 May to announce the companys plans to enter the tea market, with the launch of four brands. This move is part of the companys expansion strategy. In contrast to Dormans coffee operations, where its supplies are from cooperatives, its tea supplies will be bought at auction. Fairtrade Eastern Africa also announced at the launch that four new fair-trade tea lines in Kenya would be on sale in June.

The Chairman of the East African Tea Trade Association, Peter Kariuki, expressed reservations about the Fairtrade labelling of tea, maintaining that the strict terms coupled with expensive fee imposed by Fairtrade were prohibitive for local brands that sought the mark. He maintained that improved terms of access to Fairtrade labelling were required if more than a handful of companies were to benefit. As part of a broader defence of the current auction system, denying that it favoured buyers over producers, Mr Kariuki argued that buying tea straight from the farmer is unsustainable due to the impact of erratic weather and global price fluctuations.