Kenya tea exporters benefit from India, Pakistan hostility

Monday March 4 2019

Tea picking

Workers operate a tea picking machine at a private tea plantation in Kericho County in Kenya’s Rift Valley. Pakistan imports up to 70 million kilogrammes of Kenyan tea annually. FILE PHOTO | NMG 

ALLAN OLINGO
By ALLAN OLINGO
More by this Author

Kenyan tea traders are beneficiaries of the latest tensions between India and Pakistan.

Tension between the two countries led to New Delhi's decision to cancel Pakistan’s Most Favoured Nation (MFN) status.

This has made it difficult for Indian tea to cross borders, prompting Pakistan to buy even more Kenyan tea as an alternative.

This is a boon for Kenyan exporters, even as the country’s Tea Directorate forecasts a fall in the volumes this year to 416 million kilogrammes from a high of 474 million kilogrammes in 2018.

In international economic relations, MFN is treatment normally granted by a country to another to enable smooth trade between them.

India withdrew this status for Pakistan a fortnight ago after a deadly bombing of its troops in the disputed Kashmir region.

Advertisement

In a tweet, Indian Finance Minister Arun Jaitley announced the decision, which raised Customs duty by 200 per cent.

“India has withdrawn the MFN status to Pakistan after the Pulwama incident. Upon withdrawal, basic Customs duty on all goods exported from Pakistan to India has been raised to 200 per cent with immediate effect,” he said.

A suicide bomber killed more than 40 paramilitary police in Indian-administered Kashmir on February 14 in what was the deadliest attack on Indian forces in the region for decades. Pakistan denied any role in the attack by militant group Jaish-e-Mohammad, which is based on its soil.

Dipak Shah, chairman of the South India Tea Exporters Association, was quoted by the Hindu Business Line as saying that Pakistan’s tea imports from Kenya are bound to increase with the latest escalation between India and Pakistan.

Pakistan imports up to 70 million kilogrammes of Kenyan tea annually.

“So far, we have seen this reflect in the price movement, with Kenyan tea rising by between $0.17 and $0.21 a kilogramme. We have also seen a few contracts signed, but none executed after the terrorist attacks, as exporters refrained from executing them, having taken a cautious stand,” Mr Shah told the Indian newspaper.

Cheaper tea from South India, which Pakistani buys more of, will be particularly affected.

Better time

For Kenya, this could not have come at a better time, as the traders have been struggling to find better markets after the US imposed sanctions on Iran – one of its leading markets — affecting trading relations, in additional to plans by Iran and Turkey to introduce stringent trading terms that the Kenyan traders deem prohibitive.

US President Donald Trump announced in May last year that the US was withdrawing from the 2015 nuclear deal and moving to re-impose sanctions against Tehran.

An initial round of US sanctions against Iran would come back into effect on August 4, targeting the Iranian automotive sector as well as trade in gold and other key metals. On November 4, further sanctions were imposed, targeting Iran’s energy sector and Iran’s central bank.

With the market shrinking, Pakistan has emerged as the biggest buyer of Kenyan teas, accounting for about 45 per cent of the country’s tea exports, and paying more than $500 million.

Edward Mudibo, managing director of the East African Tea Trade Association, told The EastAfrican that any increase in the uptake of Kenyan tea will be welcome news for the country, which is looking at ways of boosting its global market share.

“We have always been Pakistan’s biggest supplier,” said Mr Mudibo, “and with the ongoing trade wars and now military escalation between the two countries, we should start seeing an uptick in demand for our tea.”

Mr Mudibo added that the weekly report will show how much, in terms of pricing and quantities, the country is benefitting from the increased demand for its teas.

Kenya relies on Pakistan, Egypt, the United Kingdom, Sudan and the United Arab Emirates for tea dollars.

But the volumes purchased by these countries have been decreasing over the years, with exports facing trade barriers from different states.

Last year, Kenyan tea farmers earned $1.4 billion, boosted by high volumes that defied low international prices.

These were the highest earnings registered by the country in five years, and comprised a $110 million increase from 2017’s earnings.

Kenya’s production peaked at 474 million kilogrammes last year, up from 415 million kilos exported in 2017, according to data from the Tea Directorate, which anticipates a lower output this year.

“Kenya tea production is expected to come to about 416 million kilogrammes this year, down from what was produced in 2018, which is largely attributed to the dynamics of the weather conditions in tea-growing zones,” says the directorate.

The country is also expecting to see its domestic sales grow by five per cent to 40 million kilogrammes, boosting the local earnings from the leaves to $180 million compared with the $160 million it earned in 2018.

An airstrike launched by India on a target within Pakistan marked the most serious escalation in hostilities between the two nuclear-armed neighbours in decades and risks triggering a cycle of retaliation.

Early on Tuesday, India sent fighter jets across the Line of Control, the unofficial frontier that divides Kashmir between India and Pakistan, for the first time since 1971. The planes dropped bombs outside the town of Balakot, about 64km into Pakistani territory.

Pakistan said the strike hit an unpopulated wooded area, but India said the location was the site of a training camp used by Jaish-e-Muhammad, a Pakistan-based militant group that is designated as a terrorist organization by the United States.

Advertisement