A push by Tanzania and Uganda to have their own tea auction could destabilise incomes, coming at a time that production and prices in the region have been falling.
Last week, Tanzania said it was planning its own tea auction in Dar es Salaam. Uganda had in March this year, said it was planning to market its own tea directly to buyers as it sought better prices, effectively pulling out of the Mombasa auction, the second largest in the world, after Colombo.
Kampala has since rescinded the decision.
Kenyan tea industry players, however, believe that the two countries’ push for another auction outside Mombasa, which serves the region, with offerings from at least 10 countries as far afield as Madagascar, Zimbabwe and the Democratic Republic of Congo, is infeasible due to low volumes from those two markets.
Uganda’s concerns emanate from what it says is loss of identity of its tea once it enters the Mombasa auction, as it is labelled as Kenyan.
“Once our tea is exported through Mombasa, it loses identity because it lacks the proper packaging. This means it inherits Kenya as the origin in the export market, losing its identity to the advantage of Kenya,” said Othieno Odoi a, senior planner in charge of trade at Uganda’s National Planning Authority.
Mr Odoi added that the country is yet to complete the feasibility study that would determine whether the market would be viable for a Kampala auction.
“We are also tied down by some challenges, including transportation. However as the country improves on the infrastructure front, it could address some of these constraints making a reality of the aspirations of having our own auction,” Mr Odoi said.
The chairman of the Tanzania Tea Board Steven Mloti said last week that the country’s push for an auction is driven by the need to lower the transport costs to Mombasa, and boost farmers’ earnings.
“We are establishing a warehouse in Dar es Salaam before launching our own auction,” he said. “This will boost business in the Dar es Salaam port too.”
But East African Tea Traders Association (Eatta) managing director Edward Mudibo said he is yet to receive a complaint from the Ugandan tea traders, adding that Dar es Salaam cannot sustain an independent auction.
“We have not yet not received any information regarding Ugandan exporters complaining about the Mombasa auction. Most importantly, quantity makes a tea auction sustainable, which Kenya enjoys. The Mombasa auction is unique because it is the only one with 10 countries including Madagascar, Ethiopia, Mozambique, Burundi, Tanzania, Rwanda and Uganda,” said Mr Mudibo.
However, George Sekitoleko, the executive secretary Uganda Tea Association, said it was not currently feasible for Uganda to start a tea auction because of the small volumes and poor quality produced.
“As it is, this idea is not feasible now because we don’t have the volumes and the high quality to attract premium buyers,” said Mr Sekitokelo.
The Mombasa tea auction has more than 70 buyers worldwide, with Pakistan being the largest market, accounting for 40 per cent.
As at June this year, the Kenyan tea output was 198,000 tonnes, which sold at an average price of $2.6 per kilogramme, followed by Uganda’s 30,000 tonnes which fetched an average of $1.57 a kilo. Rwandan tea, which recorded the third highest volume of 10,000 tonnes fetched the highest price of $2.897 per kilo, while Tanzania’s 7,000 tonnes fetched $1.65 for a kilogramme of the leaf.
Burundi sold 5,000 tonnes of the product at an average $2.62 per kilo, while Mozambique sold 446 tonnes, each averaging $1.24 a kilo. The Ethiopian tea stood at 286 tonnes fetching $1.53 a kilo, while 15 tonnes of Madagascar tea was sold at the auction at an average price of $1.47 per kilogramme.
“This is what went through at the auction and the average prices. For Tanzania, the average price was $1.65 when Rwanda was fetching the highest at $2.97. From the economics, it will be difficult to compete with the lower quantity,” said Mr Mudibo, adding that there must be enough produce for another regional auction to thrive.
If Tanzania pulls out from Eatta, the Mombasa tea auction will lose about 12,000 tonnes annually. Kampala exports more than 60,000 tonnes of tea through the Mombasa Tea Auction, data from the Uganda Tea Association shows.
“But Uganda will also be impacted, since they are not likely to realise competitive prices because of limited buyers as compared with the current 70 at the Mombasa auction. What has made this auction thrive is the fact that we have tea from 10 countries and different varieties from 67 KTDA factories that gives you a big framework. Let us pride ourselves as African tea,” said Mr Mudibo.
Eatta says it is yet to receive any formal communication from Tanzanian authorities on the matter.
“The threshold is minimal for Tanzania. If they move out, it would not significantly change the trading at the auction floor: Their members bring their tea to Mombasa, so who is this purporting to talk on behalf of the investors and farmers? Who will put up the asset? They need an auction floor, where will that facility be? Who will run it? They need brokers and buyers,” Mr Mudibo said.
He added: “If you need an auction there must be uniqueness; it must be multi-origin; 10 countries offer their tea in Mombasa. A wise buyer or exporter would rather go to a one-stop shop than going to 10 destinations to buy tea.”
Malawi has a tea auction but it still trades at the Mombasa auction, showing the complexities of the tea trade.
“Limbe auction in Malawi is small. It takes about an hour due to the small volumes. There are only two brokers and six serious buyers but only four are active. There are producers in Malawi who still believe in the Mombasa auction and are ready to bear the transport costs because they still make a profit. So what is the statement there? The late President Idd Amin attempted to have an auction in Kampala and it failed due to dynamics,” said Mr Mudibo.