Kenya declines to re-nationalise tea sector body as global competition grows

Stakeholders in Kenya’s tea industry are now sitting pretty after the state announced that it was after all not returning the Kenya Tea Development Agency (KTDA) to its stable. The tea industry, based on Kenya’s biggest money-minting cash crop, seemed to have receded into limbo after a section of players waged a vicious war against the government’s bid to transform KTDA- the industry’s regulator - from a private entity to a state owned parastatal. Hope has since replaced the uncertainty brought about by the standoff, thanks to a task force report presented to the government last week after years of a probe into the woes afflicting the industry. The findings presented to Agriculture minister Kipruto arap Kirwa mainly blamed the dwindling fortunes of the industry on the strengthening of the Kenyan shilling against the US dollar and other major currencies. “Exports to traditional markets around the globe are no longer fetching premium returns due to the shillings’ marginal gains over-time. This has seen the industry's loose substantial revenue due to low returns despite its steady market share,” said the report in part.Instead, the report recommended that Kenya should sign bilateral trade pacts with its major tea trading partners, like Pakistan, to ensure it tightens her grip in the lucrative global market. Kirwa reckoned that the problem was not with the management of the regulatory body, but was as result of market dynamics that had heralded stiff competition due to liberalisation of the sector. “We are not going to take over KTDA because the problem is not with the agency, it lies in the market, where we need to re-invent our selves and tackle prevailing challenges to ensure the industry remains profitable,” noted the minister. The industry recorded a Ksh5 billion increase in earnings last year, on the back of better prices despite lower production. The industry produced some 310 million kilograms in the same period, accounting for 10% of the global tea supply. After earning a record Ksh47.3 billion ($655 million) last year, up from Ksh42.3 billion in 2005 , the industry's future looked bleak when players engaged the state in a tussle over ownership of KTDA, a situation that left its prospects even dimmer. Several directors of the agency and a watchdog committee of Parliament opposed the move arguing that it would serve to erode the gains already made if it was returned to the state. “The sector has been on a roll and the windfall in earnings is a testimony that the agency has been performing and any move to reverse ownership could spell doom for the industry,” Dr. Uburu Odinga, the chairman of the parliamentary committee on Trade and Finance argued. The Task force report and the government change of heart has renewed hope in the sector, and players are looking at increased production that could translate into better earnings, irrespective of how the shilling trades against other currencies. East African Business Week Kenya tea is facing increasingly stiff competition in world markets, with former importers Rwanda, Malawi, Vietnam and Nepal now exporting their own tea. This comes at a time when the country is struggling to retain its existing markets, encourage domestic consumption and diversify from traditional exports, among them tea. A recently presented report on the tea sector's problems, a task force identified poor payments to growers and repositioning of the Kenya Tea Development Agency (KTDA) as major areas of concern. Parliament recently passed a motion to return control of KTDA to the government, a move that sparked protests from a cross-section of industry players and analysts. Agriculture minister Kirwa, saying the government no intention of changing the agency’s private status, however noted that KTDA must move quickly to cement its relationship with the 400,000 small-scale farmers who produce more than 60 per cent of the country’s tea, and whose 57 tea factories it manages. He reiterated that the solution lay in tackling the agency’s problems rather than placing it under government control. Despite complaints from farmers, related mainly to low pay, KTDA remains the world’s largest single exporter of tea and has achieved worldwide recognition, especially among emerging tea growing countries, who have been sending representatives to Kenya to learn how to organise their own smallholder tea industries. Other complaints are structural weakness, poor corporate governance and operational inefficiencies. Tea farmers are faced with high production costs, notably of fertilisers, which have more than doubled in the past five years. Kirwa says that discussions are going on between Kenya, Uganda and Tanzania to mine the fertiliser binder material, which accounts for most of the fertiliser weight, leading to high costs. The three countries will have to work together to make such a project viable, since it will not be economically viable for each to set up a fertiliser factory. It currently costs about $85 to import a tonne of fertiliser, but this could be brought down to about $35 if the carrier material were mined locally, Kirwa said. If the project takes off, it will be funded under a new Ksh250 million ($3.7 million) low-income national accelerated inputs project under the Ministry of Agriculture, established to provide affordable inputs to farmers as part of the ongoing efforts to revive agriculture. Kenya is also considering a major shift from selling tea in bulk at the Mombasa tea auctions to value addition, which the Tea Board of Kenya has repeatedly said is the future of the industry in the face of growing competition and global oversupply, which currently stands at 100 million kilogrammes. This will go hand in hand with an intensified domestic consumption campaign, which seeks to reverse the dismal 4 per cent of total production drunk at the moment. “Countries like India, which produce more tea than we do, consume more than 90 per cent of their own tea,” Kirwa said, adding that if Kenyans were to increase tea consumption, the industry’s sales would more than double. Tea is the country’s third largest export earner, bringing in Ksh47 billion ($701.5 million) after tourism’s Ksh56 billion ($835.8 million) and horticulture’s Ksh49 billion ($731.3 million) annually. The East African