Tea prices drop at Mombasa auction as buyers rush to dispose of excess stocks

Money Markets

A woman picks tea at Embomos in Konoin Constituency. PHOTO | FILE 

By GERALD ANDAE

In Summary

• Buyers argue that the rains that have started and the onset of summer next month in major export markets will increase volumes and suppress the demand of tea, driving down the price.

Tea prices have dropped by Sh8 a kilogramme or three per cent at the Mombasa auction in the most recent sales as buyers rush to release their stocks for fear of a fall in prices in the coming days.

In last week’s auction, the price of the beverage dropped to $2.76 (Sh251) from $2.85 (Sh259) in the previous trading.

The move has reversed the trend of high prices that the auction has been witnessing in the last two months, threatening farmers’ expectations of a good bonus at the end of the year.

Buyers argue that the rains that have started and the onset of summer next month in major export markets will increase volumes and suppress the demand of tea, driving down the price.

“Prices are likely to come down in the coming days as the demand of tea is likely to go down with the expected increase in volumes,” said Mr Peter Kimanga of the Global Tea and Commodities.

Mr Kimanga noted that tea consumption is normally high during winter but the demand drops when summer starts as the intake of the beverage declines.

“Nobody wants to be caught with tea as we head towards summer and this is one of the reasons why traders are off-loading their stocks to the market,” he said.

The low prices is coming at a time when statistics from the tea regulator indicates that the exports grew marginally last year compared to the previous years.

READ: KTDA denies claims of price manipulation with tea brokers

Data from the Tea Directorate at the Ministry of Agriculture shows the output rose to 444.8 million kilos in 2014 compared to 432.2 million kilos a year earlier.

Last year, the country exported 499 million kilos, up from 494.4 million kilos in 2013, reflecting a growth of 0.93 per cent. The difference in export and production figures arose from unsold tea carried over from the previous year.

The glut in the market saw the average price of tea drop to Sh190.29 per kilos last year from Sh217.71 the previous season and Sh269.36 in 2012 — a pointer that the farmers might have to wait longer before witnessing a turnaround after their bonuses hit a five-year low in 2013.

In 2013, 4.8 billion kilos of tea were produced globally against a consumption of 4.6 billion kilos, creating a surplus of 200 million kilos, which spilled over to 2014, hurting tea prices in the market.

Total earnings for the Kenya Tea Development Agency also decreased from Sh69.2 billion in 2013 to Sh52.9 billion in 2014, representing a 23 per cent decline.

Kenya is the world’s leading exporter of black tea and the commodity is a major foreign exchange earner.