Why Kenyan tea fetches peanuts

A tea basket on a tea farm in Tetu, Nyeri. February 16, 2021. [Kibata Kihu, Standard]

Kenya is a towering figure among tea producing countries in the world.

However, the fortunes of its farmers barely stand out beyond their villages.

The elephant in the room has been the lack of value addition to the green leaf. And farmers are paying a heavy price for this.

Hailed as Kenya’s second-highest foreign exchange earner after diaspora remittances, tea is a crop that should be putting smiles on farmers’ faces. But it is not.

Official data shows that farmers last year earned Sh130.8 billion from exporting 556,459.4 metric tonnes of the crop. This was up from Sh130.3 billion from 575,282 metric tonnes of tea exported the previous year.

It sounds like a good figure. But comparative data paints a grim picture. 

The average export price of tea had stagnated at between $2.50 (Sh286.37) and $3 (Sh343.64) per kilo between 2011 and 2018 before suffering a decline to average between $2 (Sh229) and $2.20 (Sh252) between 2019 and last year.

“Growers remain the most affected within the value chain, leading to dwindling earnings from tea,” says the Tea Board of Kenya (TBK).

TBK is an agency that regulates, develops and promotes the tea industry. It has a mountain to climb in improving farmers’ fortunes.

Despite being the leading country in the world in terms of export volumes —accounting for 26 per cent of global tea exports — Kenya’s export value from tea is lower compared to its competitors such as Sri Lanka and China.

For instance, in 2020, Kenya earned $1.127 billion from exports of 518 million kilos of tea, down from $1.156 billion (Sh130.6 billion) realised from a much lower volume of 496 million kilos in 2019.

But in 2020, Sri Lanka, which exported 262 million kilos — being 49.4 per cent lower than Kenya — earned $1.218 billion (Sh137.6 billion), being five per cent more than Kenya.

This means that while Kenyan tea was averaging $2.18 (Sh248.5) per kilo, that of Sri Lanka was fetching $4.65 (Sh530.1)—more than double that of Kenya.

In 2019, China, which exported 366 million kilos of tea, earned $2.019 billion (Sh230 billion), being 75 per cent more than $1.16 billion (Sh130.6 billion) earned by Kenya after exporting 496 million kilos of the crop.

The 2019 figures mean that while a Kenyan farmer was on average earning $2.33 (Sh265.6) per kilo, their Chinese counterpart was taking home $5.52 (Sh629.3) on the same quantity.

The comparison means that Kenyan farmers in 2019 collectively lost $1.6 billion (Sh180.3 billion) — going by China’s price per kilo.

“The main reason for lower earnings from tea exports by Kenya is less export value attributed to selling in bulk as opposed to value-added form,” says TBK.

Out of Kenya’s total export volume, only one per cent is in value-added form—packaging of black CTC tea into smaller packages of less than three kilos. The rest is sold in bulk form.

The 99 per cent that is exported in bulk form is used for blending other teas and then packed for distribution in the export market, without recognition of the source, thus resulting in identity loss for Kenyan tea.

Sri Lanka, whose kilo of tea fetches more than twice that of Kenya, adds value to about 50 per cent of its tea before exporting. Eyes are now on TBK to work towards achieving what is envisioned in the Tea Act, 2020 that has made it mandatory for export tea to be in value-added form.

The Act requires buyers or exporters to add value to at least 40 per cent of their annual Kenya tea exports — except tea extracts, tea aroma, tea oils, tea by-products and specialty teas — gradually over the next eight years from the current one to 40 per cent.  

TBK faces a test of time to develop and implement strategies for assisting exporters to access more markets for value-added products to attain this legal requirement.

Kenya’s situation is also worsened by overreliance on a few export markets, narrowing farmers’ bargaining power.

TBK says Kenya’s tea exports are destined for over 70 markets, but Pakistan accounts for more than a third (36 per cent) of the export volume.

While Pakistan buys most of Kenya’s tea, it does not do so for consumption. It adds value to it, competing with Kenya alongside Sri Lanka, India and China.

Pakistan purchased tea worth $350.9 million (Sh40 billion) at the Mombasa Auction in the 10 months to October last year, cementing its position as Kenya’s leading market for the beverage.

Ten markets - Pakistan, Egypt, UK, UAE, Sudan, Russia, Yemen, Afghanistan, Kazakhstan and Saudi Arabia — currently take up 85 per cent of Kenya’s tea exports, exposing farmers to concentration risk.

Awareness of Kenyan tea among the consumers in these markets is also low since 99 per cent of the export quantity is sold in bulk form. Little has been achieved in value addition as a means of boosting earnings for the growers in Kenya.

Kenyan tea continues being sold in blended form, thereby losing its identity and the advantage of fetching higher prices as an origin tea, according to TBK.

“Further, the visibility of Kenyan tea is low as brand owners in the export markets who package the teas in their brands, rarely denote the origin of the teas, which would otherwise help promote the consumer awareness on Kenya as a producer of quality teas,” says TBK.

In the other global markets, Kenya tea’s market share is low and mostly dominated by its competitors, mainly Sri Lanka, India and China. While these markets mainly prefer the Orthodox and Green teas, the market penetration of the Kenyan Orthodox and Green teas is low.

The cut, tear and curl (CTC) is the most dominant method of tea processing in Kenya.  Depending o n the fermentation process, CTC teas are categorised as black, oolong or green.

Out of the total national production, CTC black tea accounts for 99 per cent, while other specialty teas are about one per cent.

Among the specialty tea, Orthodox accounts for 50 per cent of production, followed by green tea (40 per cent) while 10 per cent is mostly purple, ball-shaped, white and organic teas.

CTC tea is the most consumed type of tea, representing 35 per cent of the global market share followed by green (33 per cent) and orthodox (21 per cent). TBK now wants to roll out a strategy to win new tea markets and cut reliance on a few markets to rescue farmers from low prices. It is not going to be a sprint. It will be a marathon.

The agency says priority markets will be the US and Canada in North America and Germany and Poland in Europe.

In Asia, Kenya will be targeting Saudi Arabia, United Arabs Emirates, Iran, Iraq, Turkey, Japan and China. Ghana and DR Congo will be the priority in Africa.

TBK intends to reduce risks associated with lower returns, overreliance on a few markets and low awareness of Kenyan tea among consumers.