Growing Production costs a threat to Kenya Tea Industry

Kenya risks losing its top spot as a leading tea exporter resulting from high cost of production that is making the country’s beverage uncompetitive in the world market.

Stakeholders are worried that if the current demand by employees of multinationals to increase their wage by 30 per cent is implemented, it will spell doom to a sector that has been raking in billions of shillings annually.

At Sh185 per kilogramme of made tea, Kenya’s cost of production is amongst the highest in the world when compared with other growers of black crush tear and curl (CTC) tea such India where it takes Sh166 to process the same quantity and Sh123 in Malawi.

“Kenyan tea is very expensive in the world market and that is why most of the time it has to be blended with others to make it competitive in the world market,” says the tea directorate.

It says labour and electricity are the major drivers of high cost of production and it is currently in talks with the Ministry of Energy on tariff review.

Kenya’s bid to woo Russia as a major destination of its tea has been hampered by high cost of beverage compared with other countries that serve that market.

Russia gets a lot of the beverage from Sri-Lanka and India where the price per kilogramme is Sh438 and Sh295 respectively compared with Sh300 that a Kenyan tea would attract in the same market.

The Kenya Tea Growers Association (KTGA) says a tea pickers strike has cost companies Sh400 million in the last three weeks with the situation expected to worsen if the issue is not resolved soon.

The association is afraid that if the increment is honoured, then the wage bill of these companies will move to 54 per cent, subjecting them to losses.

“By increasing the wages by 30 per cent, then it means the wage bill of these companies will go up to 54 per cent, this will obviously subject us to losses,” said Mr Apollo Kiarii, KTGA chief executive officer.

Kenya is trying to open up new markets and expand the existing ones such as China, which has potential to buy more of the local beverage as a way of protecting farmers from low earnings.

In 2016, a total of 480.3 million kilogrammes of tea were exported compared with 443.4 million kilogrammes exported in 2015.

Kenya has been trying to promote local consumption of the commodity, but growth has been slow. Last year, local consumption of tea increased marginally from 29.3 million kilogrammes to 29.7 million kilogrammes accounting for Sh15 billion on local sales.

Out of the total production for 2016, the smallholder sub-sector output was 265.6 million kilogrammes (56 per cent) while the estate sub-sector was 207.4 million kilogrammes (44 per cent).

East Africa Tea Trade Association managing director Edward Mudibo says the ongoing industrial action is dangerous and does not work well to secure the future of the more than four million Kenyans directly and indirectly employed in the tea industry.

“With the current demands, the cost of labour has overtaken inflation to unsustainable level that will likely not guarantee any reasonable returns to sustain the workforce,” said Mr Mudibo.

“Kenya still remains the highest in the world in terms of cost of labour and production in the tea industry. We risk collapsing the tea industry as was witnessed in the South African tea industry previously,” he added.