An impasse over government-fixed minimum prices at the Mombasa tea auction has triggered a crisis, leaving warehouses overflowing with stocks of unsold consignments.
Industry estimates showed that about 60 per cent of stocks sent to the weekly sale over the past six months, remain in warehouses unsold even as extra larger consignments are brought in on increased output due to the good rains being experienced across all key growing regions.
The Kenya Tea Growers Association (KTGA), which represents large-scale plantations, attributed the crunch to a standoff over the minimum price of $2.43 (Sh370.43) per kilogramme of tea that was set by the State on Kenya Tea Development Agency (KTDA) teas in 2022 to safeguard farmers’ earnings.
“The problem is on the minimum price set by the State. Buyers do not want to buy at that price, which has triggered a crisis because a lot of tea is going unsold and have to be reprinted on future sale catalogues” KTGA chief executive officer Apollo Kiarii told the Nation yesterday.
“The pile-up crisis in warehouses has worsened because of the ongoing good rains which means more tea leaf is produced but not sold at the auction,” he said.
The Mombasa auction runs on a two-day per week format where secondary-grade quality tea is sold on Mondays and premium-grade ones auctioned on Tuesdays.
Any tea that is not sold on a scheduled auction day is reprinted on a fresh auction catalogue and returned to the auction two weeks later. A seller is only allowed to bring back unsold crops to the auction twice.
Any crop unsold after two auction trials is relegated to a sale window referred to as a “passive window” where produce fetches low pricing on perceived poor quality.
“With supply outstripping demand there will always be a buyer preference to purchase fresh tea and reprints multiplied rapidly. More unsold teas weekly, more reprints unsold multiple times, less cash to pay for inputs and to pay farmers. Money must be borrowed, interest paid. A doomsday scenario” said Mr Kiarii.
KTGA said small-scale farmers and producers will go out of business due to the mess, risking damage to the economy of tea-growing areas of western Kenya.
“Much of this tea is made from smallholder farmers' leaves. They need to be paid. They can only be paid if Kenya tea is selling above the cost of production. About 40 per cent of smallholder west of Rift tea is unsold and many sales for other producers are below the cost of production,” said the association.
It urged the government to shelve minimum prices at least for produce from the west and Rift Valley growing areas to help improve the purchase of the massive stocks held up in warehouses.
“We recommend the removal of at least the west of the Rift smallholder minimum pricing. Regulate the shipment of all reprinted/unsold tea to Dubai to stop Pakistan blenders cashing in and exploiting the current situation of unsold stock,” proposed KTGA.
“Anything on or above a value of $2 (Sh304.82) sold can be shipped but properly reviewed and policed every month. Re-orientate marketing so that the millions of unsold small holder kg in stock are taken off the existing market circuit. Discount and sell to African destinations through Kenya or burn, or throw on tea fields. Once the backlog is cleared return to an orderly marketing structure,” it added.
Data by the Tea Directorate shows that cumulative tea output for the first half of 2023 rose by 2.34 million kg to 273.64 million compared with the same period of last year.
