Agriculture, Fisheries and Food AuthorityTea Directorate

PRESENTATION ON KENYA TEA INDUSTRY

PRESENTATION OUTLINE

INTRODUCTION THE PROBLEM STATEMENT

REVIEW OF STATISTICS DISCUSSION POINTS

INTRODUCTIONTea Industry Contributes immensely to socio-economic development of the country :• It is the leading foreign exchange earner-26% of the total

foreign exchange earnings. • 7% of the GDP.• livelihood support to over 5 million Kenyans. • Contributes to Rural development and employment in 18

Counties .• 95% of Kenya tea is exported to over 60 market

destinations.• In 2014, the tea industry earned the country Ksh. 101

Billion in export earnings and Ksh. 22 Billion in local sales .• Tea Industry is a strategic subsector in the overall economy of

Kenya .

ROLES OF THE TEA DIRECTORATE

Guided by Crops Act 2013, the Directorate conducts: Regulation and compliance Industry planning and development Advocacy Market and product Research Trade Promotion Organizational capacity and service delivery

enhancement

A SUSTAINABLE AND GLOBALLY COMPETITIVE TEA INDUSTRY

INDUSTRY REGULATION

AND DEVELOPMEN

T

PRODUCTION

PROCESSING

TEA TRADE

BLENDERS /BRANDS

WHOSALERS

/RETILERS

CONSUMERS

GOVERNMENT

(NATIONAL &

COUNTY)

TEA DIRECTO

RATE AND TEA

RESEARCH

INDUSTRY VALUE CHAIN

TEA GROWERS 0VER

700,000)

BLENDESRS AND

BRANDS

BUYERS(80)

MANUFACTURE (120)

WHOLESALE

RS

RETAILERS

AUCTION

CONSUMER

S

NATIONAL GOVERNMENT (POLICY FORMULATION) COUNTY GOVERNMENT (POLICY IMPLEMENTATION)

TEA DIRECTORATE (REGULATION AND DEVELOPMENT ) TEA RESEARCH INSTITUTE (RESEARCH & INNOVATION )

WHAREHOUSING

BROKERS

PROBELEM STATEMENT

Year 2013 /2014 witnessed a drastic turn of fortunes with tea prices at the Mombasa auction, the main outlet for the smallholder farmers, dropping significantly by 30%

Consequently, (KTDA) failed to declare the initial lump sum payment to farmers, popularly referred to as “Mini-bonus, causing a national outcry by tea growers.

PROBLEM STATEMENT

Government raised concern about the situation and decided to look into ways to mitigate against the negative impact of the low prices so as to ensure that the tea sector remains sustainable and competitive

The President gives a directive in June 2014,on the establishment of a Price Stabilization Fund to cushion farmers in times of low prices

PROBLEM STATEMENT

Overall objectives of this assignment is to implement the Presidential Directive by recommending the most appropriate price stabilization scheme for the tea growers in Kenya

RISING COST OF PRODUCTION

PRODUCTION DATA

No of Growers   Estates 32,786   

SmallHolders

595,152

   

Total

627,938

Area(ha) Production

65732 150,981,510

124985 218580414

190,717

369,561,924

PRODUCTION DATA

 

               10 YEAR SUMMARY OF GREEN LEAF PAYMENT (SMALLHOLDERS)

FINANCIAL TOTAL WEIGHT FIRST SECOND TOTAL 1ST & 2ND

YEAR  DELIVERED BY FARMERS AVG. PAYMENT AVG. PAYMENT AVG. PAYMENT  PAYMENT

  KGS RATE/KG/GL RATE/KG/GL RATE/KG/GL KSHS           

2004/2005 753,925,730 9.00                   11.75 20.75 15,475,299,489

2005/2006 727,824,118 9.00 15.27 24.27 17,660,692,876

2006/2007 914,708,202 10.50 10.85 21.35 19,187,243,360

2007/2008 813,641,578 10.50 14.13 24.63 19,781,669,971

2008/2009 726,269,270 10.50 24.66 35.16 25,411,417,801

2009/2010 888,704,028 11.50 31.52 43.02 38,228,154,316

2010/2011 837,370,088                   12.00 36.40                   48.40 40,525,847,694

2011/2012 906,274,568                   12.50 37.51                   50.01 45,317,098,263

2012/2013 1,123,909,348                   14.00 31.65                   45.65 51,303,667,428

2013/2014 1,124,328,441                  14.00 17.61                  31.61 35,543,621,836

PRODUCTION DATA

PRODUCTION DATA

PRODUCTION DATA

PRODUCTION DATA

PRODUCTION DATA

PRODUCTION DATA

(i) Manufacturing/Processing Costs

2009/10

2010/11

2011/12

2012/13

2013/14

Labour 12.97 11.17 12.54 12.24 13.00Furnace Oil 4.08 0.92 1.18 0.40 0.09Electricity 9.27 9.23 11.70 9.66 10.40Fuelwood 3.89 5.91 7.12 7.68 7.84Leaf Collection 4.26 3.30 3.92 3.66 3.54Packing Expenses 5.56 5.87 6.63 6.49 6.23Administrative Costs 11.12 8.81 10.40 9.42 10.21Management fees   6.34 6.70 6.39 4.91Financial Costs 9.27 10.24 11.04 9.43 10.27Selling Expenses   5.03 5.66 5.43 6.62Sub-total (K.sh) 60.42 66.82 76.89 70.8 73.11Sub-total (USD) 0.78 0.84 0.87 0.79 0.85  25% 27% 27% 24% 35%

PRODUCTION DATA

(ii) Farm gate Costs 2009/10

2010/11

2011/12

2012/13

2013/14

           Fertilizer 5.67 4.78 6.96 6.35 5.64Plucking Labour 32.00 25.50 32.00 39.90 34.00Miscelleneous -weeding & other costs 17.00 17.00 17.00 16.53 14.88           Sub-total 54.67 47.28 55.96 62.78 54.52                      COP Grand-total (K.sh/Made Tea) 115.09

114.10

132.85

133.58 127.63

COP Grand-total (USD/Made Tea) 1.49 1.44 1.50 1.50 1.48AUCTION PRICE AVERAGE-smallholder 3.11 3.07 3.20 3.26 2.43

PRODUCTION DATA

MARGIN/KG OF MADE TEA 1.62 1.63 1.70 1.76 0.95Smallholder average area under tea-ha 0.5 0.5 0.5 0.5 0.5

Smallholder productivity/ha 1,609

1,956

1,771

1,749

1,962

Smallholder average production/Year 804.55 977.98 885.66 874.43 980.88

Smallholder average Net Margin/Year 1304.59 1592.97 1509.26 1541.93 928.53Smallholder average Net Margin/Year/K.SH 100,871 126,122 134,038 137,623 79,893 Smallholder average Net Margin/Month/K.SH 8,406 10,510 11,170 11,469 6,658 Smallholder average Net Margin/Day/USD 3.6 4.4 4.2 4.3 2.6 Working parameters          Exchange Rate 77.32 79.17 88.81 89.25 86.04

Fertilizer Cost per Bag of 50 Kgs 1,825

1,871

2,466

2,221

2,214

Fertilizer application-Bags/ha 5 5 5 5 5

Cost of fertilizer per ha

9,125.00

9,355.00

12,330.00

11,105.00

11,070.00

Productivity-Made Tea/Ha (Kgs) 1,609

1,956

1,771

1,749

1,962

Cost of fertilizer per Kg of Made Tea 5.67 4.78 6.96 6.35 5.64smallholder average area under tea-ha 0.5 0.5 0.5 0.5 0.5

DISCUSSION POINTS

FAO COMPOSITE PRICES INDICATE A PRICE DROP OF 12% WHILE KENYA AUCTION PRICES DROPPED BY 30% IN 2013/14

THE NATIONAL TREASURY DOES NOT SUPPORT A PRICE STABILISATION FUND,CITING THE EXPERIENCE OF THE COFFEE

STABEX FUND (2000),AMONG OTHERS

KTDA COMMENTS ARE THAT WITH REDUCED GROWER EARNINGS ,ITS NOT FAIR TO BURDEN THE TEA GROWER WITH ADDITIONAL

CONTRIBUTIONS TO THE FUND

OPTIONS FOR DELIBERATIONS

A PRICE STABILISATION FUND SUPPORTED BY GOVERNMENT,INDUSTRY OR A MIX OF BOTH

USE MARKET BASED RISK APPROCHES ,FORWARDS ,OPTIONS ,FUTURES ETC

USE OF SUBSIDIES INPUT SUBSIDIES ETC

OPTIONS FOR DELIBERATIONS

USE OF CROP INSURANCE APPROCHES

VALUE CHAIN INNOVATIONS

A MIX OF THE ABOVE OPTIONS BASED ON SHORTTERMAND MEDIUM TERM SOLUTIONS

THANK YOU