Kenya Looks To Cut Tea Supply As Auction Prices Tumble

Kenya Looks To Cut Tea Supply As Auction Prices Tumble

Kenyan tea farmers have been asked by an industry body to cut down on production that is causing prices of the commodity to fall at the auctions mainly due to a glut in tea supply.

Tea is the leading hard currency earner for the largest east African economy and is auctioned in the port city of Mombasa every Monday and Tuesday. It earned the country 1.2 billion in 2012.

East African Tea Trade Association (EATTA) says there is an extra 60 million kilos of tea supply glut at the auction center between January and September compared to the volumes delivered over the same period last year.

“Consumption has not increased by the same proportion,” EATTA said in a statement seen by The Star.

As a result, EATTA says the price of tea at the auction has dropped to its lowest since 2008.

Last week, India, one of Kenya’s major competitors in the international tea market, reported one of the highest increases in its output recording 53.6 million more kgs in the nine months to end of September with entire production standing at 861.6 million kgs.

Kenya’s tea production increased by 22 per cent, Rwanda 17 per cent, Uganda nine per cent and Tanzania 18 per cent.

“The decline in auction prices has eroded farmers’ earnings considerably. The whole industry is facing serious cash flow problems as teas are selling below their cost of production,” said EATTA in the statement.

Production costs, EATTA added, had been pushed up by higher costs of electricity, labour, furnace oil, diesel and a major increase in price of fertilizer.

The average auction price reported end October by EATTA stood at $2.47 per kilo dropping from $2.84 per kilo over the same period last year.

Last week, Bloomberg reported that Rwanda, which also sells tea via the Mombasa auction, had lowered its income outlook for this year from $83 million to $60 million.

EATTA wants the government to establish a price stabilization fund to cushion farmers from fluctuations and removal of VAT on tea sold locally to encourage domestic consumption. The country is in the process of developing a futures market that famers could use to stabilize their prices.