Trade spats, politics hurt tea prices in East Africa

Monday August 5 2019

Finlay Mombasa Ltd employees arrange various types of tea for testing at the company’s laboratory before they are packed for export.

Finlay Mombasa Ltd employees arrange various types of tea for testing at the company’s laboratory before they are packed for export. Global tea prices have dropped in recent times. PHOTO | FILE | NATION MEDIA GROUP 

ANTHONY KITIMO
By ANTHONY KITIMO
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Socio-economic and political crises in the world’s leading tea consumers have led to a significant decline in global tea prices.

And the East African Tea Trade Association (EATTA), an industry lobby, warns that the prices will continue dropping if the political uncertainties in major tea trading countries such as the US, the UK, Sudan, Egypt and Iran are not stemmed.

DECLINE

The global price for tea is currently $2.73 a kilogramme, compared with $3.31 at the same time last year.

Speaking at the Mombasa tea auction this past week, Edward Mudibo, EATTA managing director, also cited currency devaluation and rising inflation in some countries that have experienced political crises including Sudan, where inflation has reached 70 per cent and Egypt, where it reached highs of 20 per cent last year.

And the reintroduction of US-led sanctions against Iran is bound to have far-reaching ramifications for the tea trade as well.

“A reduction in exports to the Middle Eastern markets, a drop in oil prices and a heat wave in Europe have contributed to the decline in demand for tea and consequently low prices," Mr Mudibo said.

Iran imports 95 per cent of the tea it consumes. China and Kenya are major suppliers, although 55 per cent of tea consumed in Iran is smuggled.

Sudan, which is in the middle of a political crisis, last year imported over 27,000 tonnes of tea but this year’s volumes are expected to drop drastically due to the current political environment.

The unpredictable market in the UK, another huge tea consumer and importer, is also expected to record fewer imports in the wake of uncertainties associated with Brexit.

Other factors are VAT on direct sales by local exporters, VAT on inter-trading, are adequate consumer-driven research and development, and promotional activities.

TEA AUCTION

While prices have been on the decline or flat, the tea sector is grappling with increased costs of production such as labour, fertiliser, electricity and fuel. With the prevailing low average price of tea, most tea producers are not able to sustain the costs of production.

Mombasa is the largest black CTC (crush, tear, curl) tea auction centre in the world, and accounts for 32 per cent of global tea exports. Under the CTC method, tea leaves are run through a series of cylindrical rollers with numerous sharp teeth that crush, tear and curl the leaves.

The Mombasa tea auction centre is known for high quality teas.

Last year, it traded over 400,000 tonnes of tea valued at over $1 billion.

Export records from EATTA indicate that there has been instability in tea prices over the past three years, despite a rise in production in Africa, with experts projecting further reduction of prices in the next two years.

Global tea production in 2018 increased by 0.68 per cent to an estimated 5.85 billion kg, from 5.81 billion kg in 2017, with Africa's contribution being 717 million kgs, accounting for 12.25 per cent of the total.

Global exports stood at 1.85 million tonnes, with Africa's contribution being 654,000 tonnes or 35 per cent.

In East Africa, Kenya remains the largest producer of tea, earning more than $14 million last year. The tea sector employs more than six million Kenyans directly or indirectly.

Over 67 per cent of tea traded in the country is auctioned at the Mombasa Tea Auction Centre, featuring teas from Kenya, Uganda, Tanzania, Rwanda, Burundi, Ethiopia, DRC, Malawi, Madagascar and Mozambique.

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