Kenya Tea Development Agency(KTDA) factories located west of the Rift Valley (WoR) spend an extra Sh32 to produce a kilogramme of tea compared to those located in the east (EoR), signifying the pain for farmers who have to shoulder the higher cost of production.
A report by the Tea Board of Kenya (TBK) shows that it costs factories in the WoR, where 70 percent of the KTDA-run factories are based, some 31 percent more to produce a kilo of tea compared to those operating in the EoR region.
“It is apparent that the cost of production in the WoR factories is 31 percent higher (Sh32.08 per Kg of made tea) as compared to the cost of production of tea factories from the EoR,” TBK Chief Executive Officer Willy Mutai said in a presentation to the Departmental Committee on Agriculture and Livestock.
New Content Item (1)
Photo credit: File | Nation Media Group
KTDA’s EoR factories are located in Kiambu, Murang’a, Nyeri, Kirinyaga, Embu, and Meru counties. The WoR, on the other hand, includes factories in Kericho, Bomet, Nyamira, Kisii, Nandi, Vihiga, and Trans Nzoia counties.
The TBK, in its presentation, blamed high transportation costs and the use of archaic equipment by the factories for raising costs and denying farmers better returns.
This year, it cost factories in the Rift Valley and Western an average of Sh134.35 to produce a kilo of tea, against an average cost of Sh102.27 for a kilo of tea produced in Mt Kenya, details from the TBK show.
“Whereas some factories, especially in the EoR (Zones 1 to 7), have fared well in managing the costs of production, the other factories, most of which are in the WoR (Zones 8 to 12), are still faced with high production cost.
A factory worker keeps an eye as freshly rolled tea leaves are delivered for fermentation at the orthodox tea processing plant.
Photo credit: File | Nation Media Group
“This means that factories in the WoR, which realise lower tea prices and have relatively higher costs of production, end up with lower net income and therefore pay less bonus to their farmers,” TBK told the committee.
TBK evaluated why tea farmers in Mt Kenya zones earned more than their counterparts WoR. It reviewed cost items including energy, labour, transportation, and administrative expenses.
The regulator also looked at operational issues within factories, including the efficiency of machinery in use, noting that factories with efficient machinery and operations realise a lower cost of production and pay farmers higher.
Overall, TBK noted that the year to June had a 7.65 percent increase in the cost of production for tea factories due to an increase in the cost of energy, labour, and administration as compared to the previous year.
Factories operating in Mt Kenya, however, witnessed a three percent drop in the cost of production compared to an 18.2 percent increase in costs for factories in Western and Rift Valley.
Lorries deliver green leaf at Gathuthi tea factory, Nyeri, on September 4, 2020. Auction prices have improved.
Photo credit: File | Nation Media Group
“This implies that on average, farmers in the EoR earned more compared to their counterparts in the WoR by Sh7.22 per Kg of green leaf owing to efficiency in management of costs within their factories alone,” TBK said.
The regulator reckons that major costs incurred by factories in the Western and Rift Valley regions include labour that accounts for 5 percent, followed by electricity at 4 percent, wood fuel at 3 percent, green leaf collection (2 percent), and packaging expenses take up 2 percent. Many factories have administrative costs estimated at 3 percent, it says.
It reckons that factories in Mt Kenya have fared well in managing costs of production, while their counterparts in Western and Rift Valley still struggle.
“This means that factories in the WoR, which realise lower tea prices and have relatively higher costs of production, end up with net income and therefore pay less bonus to their farmers,” TBK says.
