STiR coffee and tea magazine

46 STiR coffee and tea | 2024 Issue 5 (October / November) By Dan Bolton D Kenya Takes Aggressive Steps to Reduce Tea Surplus Global black tea markets were already unsettled in 2022 when Russia invaded Ukraine, driving up fertilizer prices and lowering demand for African-grown tea. Price volatility was extreme, with auction averages descending from pandemic highs averaging more than $3 per kilo to levels approaching Kenya's approxi- mately $1.23 (KSh 160)* per kilo cost of production. *See: graph on p43 In July 2021, the Kenyan govern- ment established a minimum reserve price averaging $2.43 per kilo for Ke- nya Tea Development Agency (KTDA) tea to stabilize the market. Instead, auction prices in Mombasa have fallen to a three-year low. Approximately 20 million kilograms of tea produced in 2023 and earlier sit unsold in bulging Mombasa warehouses, accruing high warehousing charges and complicating the storage of newly harvested tea. The precise amount of the surplus is unknown, but Kenya's principal sec- retary of agriculture estimates that KSh 32 billion (about $244 million) remains unsold. Alfred Njagi, former KTDA Man- agement Services managing director, writes, "The absorption rate for tea on offer at the Auction was lower at an av- erage of 60% compared to 76% in the previous year and 84% for some auc- tions in 2021." Absorption is a measure of volume sold. Njagi explained production for 2022/23 was 266 million kgs and sales were 255 million kgs. Production for 2023/24 was 318 million Kgs, and sales were 285 million Kgs. "This was for the entire auction, but we know it's KTDA teas that were most neglected." Inflexible price minimums have also unintentionally worsened tea quality by encouraging growers to abandon good practices and focus solely on volume. In a July 5 letter to the Kenya Tea Development Agency and the Kenya Tea Board, the President's Executive Office wrote, "This intervention has led to several unintended consequences without addressing the root causes of the price decline. Specifically, the esperate to quickly dispose of millions of kilos of staling tea, Kenya has sus- pended its troublesome minimum price floor for Kenya Tea Development Agency (KTDA) teas and is aggressively negotiating with export destinations and multi-national brands to reduce its staggering surplus. "The objective is to allow teas to meet the market—to move the teas even at sal- vage value," writes George Omuga, managing director of the East African Tea Trade Association (EATTA). KTDA processes about 60% of Kenya's green leaf, bought from approximately 680,000 smallholders. Since June, 115.2 million kilos of freshly made tea have accumu- lated. Another 20 million kilos of last year's harvest remain unsold due, in part, to price minimums that achieved the exact opposite of their intention. In August, Cabinet Secretary Andrew Karanja announced that teas aged six months and older were no longer subject to a reserve price that varies by region* but averages $2.43 per kilo. The price floor was established in July 2021. *See: Unintended Consequences Sidebar Karanja announced that the surplus would be resolved in September before the final amount of this year's workers' bonus is announced. Alfred Njagi, former KTDA Management Services managing director, is skeptical. He writes, "The absorption levels for reprints are still pathetically low," citing the fact that buyers refused to bid on 91% of the tea on offer in Sale 34 – which occurred after the suspension of the minimum price. "I don't know what magic will be used to clear the 100 million kgs of old stock in a month—brokers don't buy teas!" he exclaimed. "It is my opinion that the minimum price requirement is still in force, and buyers will neglect any fresh teas they consider not worth the price and come back after six months to buy them for a song." Stuck with millions of kilos of unsold tea, the Kenyan government is forced to take drastic measures in order to meet the deadline for the worker's bonus payment due in October. Unintended Consequences By Dan Bolton

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