Financiers hit by defaults over falling tea prices

Money Markets

 

Kenya Tea Development Agency MD Lerionka Tiampati at a past function. KTDA will not pay a mini-bonus because of poor tea prices. FILE 

By GERALD ANDAE, gandae@ke.nationmedia.com

In Summary

• The most affected are financiers in rural areas where tea farmers account for more than half of the advances and a handful of banks that are exposed to the sector.
• Kenya Tea Development Agency announced last month that it would not pay the mini-bonus because of poor prices caused by oversupply.
• Value of tea at Mombasa auction has dropped by 30pc since July 2013.

Tea farmers are bracing for more expensive credit after declining prices in the international market prompted massive defaults, forcing financiers to reschedule payments.

The most affected are financiers in rural areas where tea farmers account for more than half of the advances and a handful of banks that are exposed to the sector.

“We have been affected greatly by this move, a good number of farmers are unable to repay their loans. As a result, we have been forced to reschedule the loans by a year,” said Nandi Hekima Sacco chief executive officer Edwin Chepkwony, adding that the society was finding it difficult to advance more credit.

Kenya Tea Development Agency (KTDA) announced last month that it would not pay the mini-bonus because of poor prices caused by oversupply.

“Tea producers will be negatively affected by the drop in prices. This is expected to have a negative impact on tea earnings by farmers this year,” said KTDA chief executive officer Lerionka Tiampati.

Tea prices at the Mombasa auction have dropped by 30 per cent since July 2013.

During this week’s auction, a kilogramme of made tea sold at an average price of Sh172 ($2.2) for small holders at the auction against Sh258 ($3.15) the same period last year.

READ: Poor tea price persists at Mombasa auction

Mr Chepkwony said the Sacco had advanced Sh100 million to farmers in the current crop year at rates varying between 15 and 17 per cent.

In most Saccos growers are supposed to repay partly when they receive a mini-bonus around May and clear the balance with the final payment, commonly known as bonus, paid around October.

Farmers mostly commit the monthly payment of Sh12 per kilogramme to labour with tea pickers earning between Sh8 and Sh10 per kilogramme.

The financing crisis facing the sector has prompted the government to consider ways of stabilising prices and cushioning farmers and service providers in the value chain from business losses.

“The tea sector has not had regulations. Those we are developing now will be key in offering intervention in regard to the price of tea,” said Agriculture Principal Secretary Sicily Kariuki.

Mrs Kariuki said the current crisis is a global phenomenon which has affected the price of other commodities.