Poor prices hit coffee, tea sectors

PHOTO | FILE A woman picks coffee berries at a Nyeri farm in the past. In the last 10 months, earnings from coffee have been volatile due to an oversupply in the
international market.  NATION

In Summary

Horticulture sector subjected to tougher compliance rules by the European market

By JOSHUA MASINDE
More by this Author

The tea and coffee sectors are some of the worst hit of the country’s foreign exchange earners this year due to a decline in prices in the international market.

Despite a marginal drop in the quantity of processed tea in the first 10 months of the year, prices of the crop fell by 38.6 per cent in what could hurt the country’s earnings from the crop.

Earlier in the year, the East African Tea Traders Association (EATTA), which manages Mombasa Tea Auction - the largest black tea auction in the world – had projected that earnings from the crop this year could rise by as much as Sh3 billion but on lower export volumes based on a traditional trend in which earnings in subsequent years have been rising.

The crop earned Sh109 billion in exports last year.

The crop has this year been affected by the political crisis Egypt.

Egypt is a huge consumer of Kenyan tea and the political uncertainty that saw the overthrow of President Mohamed Morsy led to a decline in Kenya’s exports to the country.

Coupled with the introduction of the ad valorem levy earlier this year, which slaps a 1 per cent levy on the value of each kilo of tea exported, up from 46 cents, the earnings have dropped even further by more than a third. Because of the tax, farmers now pay Sh3.22 per kilo of tea from 46 cents.

The crop, which is the country’s leading export, is also subjected to other levies like the Forest Levy, Fuel Levy, Port Levy, Road Maintenance Levy and Municipal Council Levy.

According to the EATTA, farmers now pay the government Sh800 million from Sh200 million in form of the new levies, a move that could discourage them from engaging in tea production activities.

PROCESSED CROP

The prices declined to Sh174.39 per kilogramme in October from Sh284.11 in January, a 38.6 per cent drop.

The quantity of the processed crop declined by 2.4 per cent to 44,283 metric tonnes in October, compared to 45,390 metric tonnes in January this year.

The coffee sector has also suffered a similar fate this year, in what could see depressed earnings overall that could eventually continue to hurt the country’s already worsening current account deficit.

The quantity of coffee auctioned at the Nairobi Coffee Exchange dropped by 38 per cent to 2,442.26 metric tonnes in September from 3,938 metric tonnes in January this year.

AVERAGE PRICE

The average price of the crop on the other hand fell by 16.8 per cent to Sh286.46 per kilogramme in September compared to Sh344.3 in January this year.

In the last 10 months, earnings from the crop have been volatile due to an oversupply on the international market, pushing international prices lower.

In 2012, the country earned Sh19 billion from the crop, a drop from Sh22 billion earned in 2011. Earnings for this year are projected to come below Sh17 billion.

Tea on the other hand, is Kenya’s leading foreign exchange earner. However, from the Sh109 billion the crop earned last year, it remains in doubt whether the crop would fetch even close to the 2012 figure due to the fall in prices at the international market.

Two leading Nairobi bourse-listed tea firms, Williamson and Kapchorua expressed fears that falling tea prices against the rising quantities of the crop on the global market is now a “matter of national concern”.

There has also been talk of diversifying export markets away from the traditional European countries and some North African and Middle East countries by targeting Eastern Europeas well as Far East.

Some of these countries, including Kazakhstan, Uzbekistan, Syria Iran and Asian countries like China highly demand the Kenyan tea, coffee and horticultural produce but the country lacks a vibrant value addition market. This has seen it lose out to its competitors like Sri Lanka, Brazil, Ethiopia and other South American countries.

HORTICULTURE SECTOR

The horticulture sector has also not been left out. Earnings from the horticulture sector also dropped by 30.5 per cent in the first eight months of the year to Sh6.3 billion in August compared to Sh9 billion earned in January this year. Within the period, volumes also dropped by 18.5 per cent to 15,005 metric tonnes in August compared to 18,397.7 metric tonnes in January.

The horticulture sector suffered slightly after Kenya’s fresh produce exports were subjected to tougher compliance rules by the European market.

The tougher restrictions, which were imposed on vegetable exporters to the European Union (EU) markets, required the sellers to follow compliance procedures effective January this year as the new food safety measure.

The country earned Sh89.87 billion from horticulture (flowers, fruits and vegetables) in 2012, down from Sh91 billion in 2011.

Earnings from coffee, tea and horticulture significantly support the country’s export bill and buffer the Kenyan shilling from weakening in value against the United States Dollar and other major international currencies.