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Home Business Why new tea sector reforms are a bag of mixed fortunes

Why new tea sector reforms are a bag of mixed fortunes

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Lewis Njoka@LewisNjoka

Tea sector players have described the new tea law as a mixed bag of fortunes that comes with both benefits and risks for smallholder tea farmers.

While the law generally creates an environment that encourages development of the sub-sector, they say it also contains provisions whose impact will vary, depending on the role played across the tea value chain.

Having signed into law the Tea Bill 2018 by President Uhuru Kenyatta on December 23 last year, the Bill which was opposed by some stakeholders introduced several reforms in the tea sector including re-introduction of the Tea Board of Kenya, the establishment of a stabilization fund, and the regulation of the amount that can be sold through direct sales compared to auction.

Additionally, the new law reduced the charges a management agency can levy on a tea factory to 1.5 per cent down from 2.5 per cent, lowers fees charged by brokers to 0.75 per cent and creates a Tea Research Foundation, among others.

In what appears to be a change of heart, the Kenya Tea Development Agency (KTDA) Management Services, Managing Director, Alfred Njagi said the new law will help the sub-sector promote its products in non-traditional markets.

More income

“It is expected that the Tea Board, in this regard, will play a crucial role in ensuring that the country unlocks more markets for Kenyan tea, which will subsequently translate to more income for the farmers,” said Njagi.

He said a Tea Research Foundation established by the new law will enrich the sector, diversify products, curb tea hawking and ensure Kenyan tea remains competitive in the long run noting that farmers would earn more money from producing specialty teas at a broader scale.

But on the other hand, Njagi faulted how the stabilisation fund and the reduction of factory management fee saying the two might need a rethink in future.

Going forward, he said, management agents might have to review the scope of services they offer to factories forcing each to seek the remaining services independently hence missing out on the benefits that emanate from economies of scale.

“Managing agents will have to reconsider their existing arrangements with tea factories since the law now demands that the fee charged to factories is lowered by one percentage point to 1.5 per cent and the costs of seconded staff to the factories are to be borne by the managing agents,” he added.

Loss of revenue

East African Tea Traders Association (EATTA) chief executive, Edward Mudibo, faulted the law saying the requirement to add value to 40 per cent of all tea exported was unrealistic and could result in loss of revenue.

“Pakistan which is Kenya’s largest consumer accounting for 38 per cent of exports imports only straight tea. We could lose that market to other tea exporting countries,” he said.

In 2020, unsold tea at the Mombasa auction stood at 17 per cent, according to Mudibo.

The requirement that majority of tea be sold via the auction, however, could push this to between 25 and 30 per cent pushing down prices, he said.

Last year the average price at the Mombasa auction was $1.98 (Sh215) down from $2.5 (Sh272) in 2019.

Mudibo said he fears the new law could push this to as low as $1.5 (Sh164) per kilo. He also faulted the move to have an ad valorem tea levy as opposed to one based on kilos saying it will see farmers levied more.

Under the new levy farmers will be charged a percentage of total exports as opposed to a shilling per kilo.

A return of the Ad Valorem levy revoked on June 24, 2016 due to stakeholder feedback on the impact it had on farmers’ incomes, where buyers would recover the same amount from producers’ tea prices, hence lowering incomes for small holders.

He, however, praised the move to bring back the Tea Board and revert assets of the former board back from the Agriculture and Food Authority.

Similarly, Kenya Tea Growers Association, CEO, Apollo Kiarii, faulted the restriction of black sale by the new law saying it would worsen the problem of low tea prices as tea would flood the auction pushing down tea prices.

“And when the prices go down, it does not matter how well you reform other parts of the industry, the incomes of farmers will be negatively affected,” he says.

The passage of the bill is a big win for Agriculture Cabinet Secretary Peter Munya whose attempt to bring reforms to the sector through regulations has been frustrated after opposition from players including counties and the KTDA.

In summary

    • Under the new levy farmers will be charged a percentage of total exports as opposed to a shilling per kilo.  Return of the Ad Valorem levy revoked on June 24, 2016 due to stakeholder feedback on the impact it had on farmers’ incomes, where buyers would recover the same amount from producers’ tea prices, hence lowering incomes for small holders.
    • Restriction of black sale by the new law saying it would worsen the problem of low tea prices as tea would flood the auction pushing down tea prices.
    • Within eight years, tea managers will start a process of value addition for a minimum of 40 per cent of the tea they take for production.
    • Bill ensures tea auction management, buyers and brokers pay farmers within 14 days of the sale. Factories must also pay 50 per cent of the sales to farmers.
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