Low auction prices, high operating costs frustrate Uganda tea growers

Ugandan tea growers are complaining of low earnings at auction following a surplus production in Kenya and Uganda. The growers, who sell most of their tea through neighbouring Kenya's Mombasa weekly auction, are earning about 40 per cent less per kilogramme, and prices are expected to plummet further as production rises. The tea fetches $1.15 at the auction, while the average price on the market is $1.50 per kilogramme. During last year's drought in Kenya, the shortage of supply saw Ugandan tea fetch up to $1.70 per kilogramme.

The growers said operating costs were rising above their earnings. "Production costs are up to $1.20 per kilogramme so we are making losses,"said Charles Mugabi. He said the current appreciation of the Ugandan shilling, which trades at 1,670 to a US dollar, has eroded earnings, while operating costs remain high.

Transporting tea from Ugandan processors to Mombasa has become more expensive with rising fuel prices, while an ongoing energy crisis has led to erratic hydro-power supply, forcing farmers to rely on costlier thermal power. Frustrated by the low prices, Ugandan growers have been looking for other markets. Pakistan government officials visited the country and held discussions with Uganda Tea Association (UTA) on direct export of the commodity.

Uganda is also considering exporting to Sudan. Isaac Munaabi, the executive secretary of UTA, said higher production was expected due to favourable weather conditions. But because no new markets have been found, farmers still rely on the coastal auction, in which Kenya is the biggest supplier. In the first quarter of the year Ugandan tea production fell by 6.6 million kilogrammes, said Munaabi.

Business Daily