Kenya tea exporters ride on weak shilling, mint fortune at auction
Tuesday March 21 2023
Kenyan farmers sort out collected tea leaves at a tea plantation in Kericho, Kenya on August 19, 2021. PHOTO | BILLY MUTAI | ANADOLU AGENCY VIA AFP
While importers in the East African region have been struggling with a dollar shortage that has pushed up the cost of basic commodities, Kenya’s tea exporters have been among the beneficiaries of the country’s a weak shilling, earning more than $1.32 billion (KSh171.7 billion) from the commodity.
The Tea Board of Kenya (TBK) said the country reported an increase in shipments to $1.07 billion (KSh139.21 billon) last year. And due to a weak shilling, the average price of the leaves at the Mombasa tea auction jumped 18.6 percent to an average of $2.49 (KSh324) per kilogram last year.
A Kenyan farmer picking tea. PHOTO | NMG
Increase in export earnings was attributed to depreciation of the Kenya Shilling against the dollar as well as improved prices.
“Export volumes in 2022 stood at 410.2 million kilograms of made tea against 388 million kilograms in 2021,” TBK said.
Depreciating shilling
The board stated a weaker shilling against the dollar played a significant role in improved earnings as it depreciated 11.58 percent in the 12 months to December 2022, closing at KSh123.4 to the US dollar.
In 2021, the shilling lost 7.24 percent to stand at Ksh109.1 to the dollar. Exporters sold their produce in hard currencies such as the US dollar and the euro.
Last year, TBK had anticipated lower yields due to a short rainy season, as the worst drought in 40 years dragged on.
Read: Kenya braces for lower tea sale receipts
Rainfall across the Horn of Africa declined for the fifth year. Rainfall totals in 2022 were the lowest in 70 years. The drought is the most prolonged and severe on record, threatening 20 million of the 36 million people living there.
But scarcity boosted prices, a positive change given several years of depressed foreign earnings from tea.
The strength in the Mombasa auction continued early this month with only 83,000 packages remaining unsold compared to 94,000 packets at the end of February.
Kenya banks on tea exports, tourism receipts, diaspora remittances and horticulture shipments to generate the foreign currency it needs to pay for imports and service external debt.
Read: Kenya's public debt crosses $72bn mark
Foreign reserves under pressure
Kenya’s foreign reserves have been under increasing pressure from elevated oil prices, falling to $6.57 billion (KSh854.76 billion) by March 9 or an equivalent of 3.67 months of import cover.
Kenya's foreign reserves is under increasing pressure from elevated oil prices. PHOTO | SHUTTERSTOCK
Under East African Community (EAC) arrangements, each member state must at least have reserves worth four months of imports at any given time.
Most of Kenya’s tea is shipped to Pakistan, Egypt, the United Arab Emirates (UAE) and the United Kingdom (UK).
Agricultural products, including tea, flowers and corn, account for 20 percent of Kenya’s gross domestic product (GDP) and employ more than 40 percent of the population, according to a Central Bank of Kenya (CBK) survey conducted in January this year.
Pakistan buys nearly 40 percent of the total tea exports with the economic turmoil facing the country resulting to low uptake his time round.
Kenya is facing a serious shortage of foreign currency, forcing the country to restrict banks from issuing dollars for items considered as non-essential.