Team proposes radical reforms to cushion tea farmers from price shocks

Directors of smallholder tea factories have been given a sneak preview of how the government may steer the sub-sector in the next few years.

The directors, who concluded a week-long induction workshop last month in Mombasa, were taken through recommendations of the tea price stabilisation committee appointed by Agriculture Cabinet Secretary Peter Munya.

The committee, chaired by former Principal Secretary (PS) and Murang’a gubernatorial candidate Irungú Nyakera, has made proposals rooting strongly for the establishment of a Tea Fund to cushion farmers from fluctuations in the international market.

Nyakera at the weekend posted on his social media pages that the team had finalised the report ready for presentation to the CS in the coming days. “The recommendations in the report will truly transform the sub-sector and also inform reforms within the coffee sector, especially on the Minimum Guarantee Return,” he said promising to summarise the recommendations once the CS makes the report public.

The presentation to the factory directors shows the team has proposed that the Tea Price and Income Stabilisation Fund be run by the Tea Board of Kenya (TBK) with a board comprising of representatives of the PSs for Agriculture, Trade and National Treasury, the Chief Executive of TBK, a company secretary and other co-opted members.

It will have two committees – the Audit and the Technical committees - and will track and monitor tea prices against a determined benchmark.

It will then determine a price oscillation-band and distress and boom periods for farmers.

It will also determine triggers for a payout or pay into the Fund which will mainly draw its financing from deductions from farmers’ proceeds.

Specifically, it will cushion tea farmers against adverse price shocks and finance an input subsidy to smallholder tea farmers.

Some of the factory directors we spoke to said the main contention is likely to be how safe farmer’s resources will be under government technocrats and at Mombasa, a few of them are said to have recommended the management of the fund at the factory level.

The Fund is also to help finance the construction of warehousing facilities at the factory level suggesting the smallholder factories will explore produce hoarding in distress periods to starve the auction and drive up prices.

The fund will also help promote value addition efforts at the factory level or in joint ventures between the processing plants.

Value-adding arm

The committee has also recommended the conversion of the Kenya Tea Development Agency (KTDA) Holdings subsidiary-the Kenya Tea Packers (Ketepa) Ltd - into a value-adding arm of the group and a blending facility for local and exports teas.

It also wants the government to consider the use of Special Economic Zones for value addition and to promote cottage tea manufacturing in the smallholder farms.

The committee had a stinging indictment on some of the KTDA’s subsidiaries, especially Chai Trading Company, KTDA Management Services (KTDA-MS), Greenland Fedha, and the Sales and Marketing Department.

“Chai Trading had no coherent market plan for its products, merely conveyancing and waiting for government assistance,” it said of the marketing department. The committee accused the management services wing of enjoying skewed management agreements that don’t hold them accountable and allowing the introduction of new products such as orthodox, purple, and Chencha tea without a clear market plan.

While it said Chai Trading was not taking advantage of its multinational level playing field including a presence at the Dubai Tea Auction to increase farmers proceeds or pay sizeable dividends, it accused Greenland Fedha of charging some of the highest interest rates to farmers saying the subsidiary averaged 21 per cent per annum against 10 per cent charged by some SACCOs.

It also appears to have engaged a reverse gear recommending exploiting of Direct Sales Orders for higher prices and better terms.

“This will create a direct marketing relationship and pay factories directly to avoid tempting insiders at the KTDA holdings,” a summary of the report presented to the over 400 directors from 69 KTDA factories reads.

At the farm level, the committee has recommended the use of plucking machines to cut harvesting costs and improved productivity by initiating the replacement of aging tea bushes, provision of extension services, and timely fertiliser application.

It also wants the traditional plucking standards of tea leaves and a bud to be enforced to maintain green leaf quality and protection of farmers from manipulated weighing scales in leaf collection centres.

It has also recommended a maximum of eight per cent interest rate on loans to farmers from the KTDA subsidiary – Greenland Fedha and the establishment of affordable health insurance schemes for all farmers.

“The government to actively promote Kenya tea in the external markets through commercial attaches, bilateral and multilateral trade agreement and mainstreaming tea as part of Kenyan image and brand,” the committee has proposed.

The committee has also rooted for the promotion of domestic consumption of tea, saying a huge unexplored potential lay in local sales.

“Ketepa was operating at 50 per cent of installed capacity and was not aggressively exploring more of contract packing. It has gradually been losing its market share locally from 90 per cent to the current 30 per cent and its export market strategy was not very clear and appeared to be waiting for government support to open upmarket,” the committee said, accusing Ketepa of lacking general aggression of a Fast Moving Consumer Goods establishment.