Tea prices at the weekly auction have been steadily rising in the past weeks, with a kilo going at an average price of $1.95 at the auction held on 2nd, 3rd, and 4th August 2021.
This is compared to $1.86 during the previous sale held on 26th, 27th, and 28th July 2021, and $1.85 during the same period last year. There was improved demand for the 11,951,444.00 kilos in the market, but interest eased towards the close due to higher expectations on price with more teas (17.69%) remaining unsold.
The amount offered for sale increased from 11,363,081.00 kilos for the same period last year and 10.8 Million kilograms offered during the previous sale.
The improvement in prices follows a drop at the Mombasa Tea Auction, to an all-time low of US$1.80 from highs of US$ 2.09 last year and US$ 2.23 in 2019.
The current cost of production for tea stands at US$ 1.70.
Available data shows that the smallholder sub-sector, which accounts for 56% of the national production, was the most affected by the low prices, threatening the livelihoods of over 620,000 smallholder farmers.
Farmers have in the past threatened to stop growing tea and instead go into other economic activities.
“One of the critical reform agenda in the tea sector has been to transform the price discovery mechanism through automation of the trading infrastructure, which has already been put in place,” said Agriculture Cabinet Secretary Peter Munya.
In his recent remarks on tea prices at Serena Hotel recently, Munya said traders are now no longer required to be present at the auction, enabling trade to go on uninterrupted during this COVID-19 pandemic.
However, there still exist several challenges that were characteristic of the open cry system.
He said these include lack of anonymous bidding, which leads to traders colluding, unrestricted stopping of bids leading to low competition, and single as opposed to multi-bidding, thus leading to more auction days.
High production costs have also been blamed for the decline in tea prices.
Figures indicate that there was a record production of 569 Million Kgs last year compared to 458 Million Kgs in 2019, representing an increase of 110 Million Kgs (24%).
This considerable increase created close to 50 Million Kg stocks, which are still being held as excess stock.
Figures indicate that tea production in 2021 will drop significantly. Already, production in the first five months of this year stood at 230 million kilos against 254 million kilos over the same period in 2020.
In the remaining months, the Ministry expects production to fall further, making it possible for the market to absorb all tea available in the market.
The list of reforms that will boost prices at the Mombasa Tea Auction includes a reserve minimum average price for smallholder tea producers, based on the cost of production, grade of the tea, and a reasonable return to the tea farmer.
The smallholder producers are expected to manage their supplies of black CTC to the auction, including a shift into Orthodox tea production.
Smallholder producers will be required to re-engineer their processes to lower costs, waste, and get rid of inefficiencies.
According to CS Munya, the Ministry is looking at lowering costs associated with storage and transport logistics and exploring the possibility of using the standard gauge railway as an alternative to transporting tea to the port of Mombasa.
Concerning storage, the government is exploring existing Government storage facilities around the smallholder tea factories. The smallholder producers, on their part, will explore competitive rates for transportation of the tea to the storage facilities (the “first mile”).
The smallholder factories management, the Tea Board of Kenya, and the other relevant government agencies will seek to address the malpractices surrounding the falsification and manipulation of weighing the green leaf at the tea buying centers to ensure that farmers derive maximum benefit from their produce.
