Tea growers eye more cash in Sh150m auction automation

From left: Trade Mark East Africa CEO Frank Matsaert, East Africa Tea Trade Association (EATTA) managing director Edward Mudibo, Trade Mark country director Ahmed Farah and EATTA chairperson Nicholas Munyi during the signing of the deal in Nairobi on Dec 1, 2016. PHOTO | DIANA NGILA 

In Summary

• Use of technology to reduce the cost of financing auctions and increase trade volumes 15pc.

By JAMES NGUNJIRI, ngunjirij@ke.nationmedia.com

The East African Tea Trade Association (EATTA) has signed a Sh150 million agreement with Trade Mark East Africa (TMEA) to automate tea trading at the Mombasa weekly auction.

The automation of the 60-year-old auction, expected to be complete within a year-and-a-half, will cost Sh151.1 million ($1.5 million) provided by TMEA.

This is expected to enhance transparency in the trading process at the auction and reduce the cycle by about 65 per cent from the current 45 to 60 days to less than a month.

The reduction in the trading period will ensure farmers receive timely payments removing need to take loans to finance farming operations.

“This portal will simplify the tea auction with the added benefit of increasing transparency and thus gaining stakeholder confidence in the auction,” said EATTA chairperson Nicholas Munyi during the signing ceremony in Nairobi on Thursday.

Players at the tea auction have been accused of colluding to fix prices, denying small-scale tea farmers their deserved earnings.

But small-scale tea farmers through their factories will now be able to connect to the auction and follow trading on real-time basis.

“Once fully implemented, the platform will ensure that stakeholders of the tea auction including farmers, buyers and sellers receive real-time information on what is happening on the auction bourse, which will boost confidence in the process,” said EATTA managing director Edward Mudibo.

TMEA chief executive Frank Matsaert said tea, which is a major foreign exchange earner for the country, will going forward reach the breakfast tables across the world in an efficient and cost effective system.

“The farmers working hard on their farms will regain confidence in the trading process as a result of the transparency and accountability the system will give,” said Mr Matsaert.

The automation is set to shorten the pre-auction, auction and post-auction stages significantly creating the potential for increased frequency in trading volumes.

READ: Tea prices at Mombasa auction fall 3pc despite drop in volumes

Players also expect the system to improve visibility of the trading process as non-auction actors will be roped into the auction through information access by use of messaging alerts for data.

The automation is expected to result in 15 per cent reduction in the cost incurred by producers in the financing of an entire trading cycle and 15 per cent increase in the volume as well as value of tea traded through the system.

The auction is the world’s biggest for black tea and handles about 75 per cent of the cash crop is exported through the Mombasa port.

The exports include shipments from countries such Burundi, Rwanda, Uganda, Democratic Republic of Congo, Tanzania, Ethiopia, Malawi, Madagascar and Mozambique.

The port handled 358.6 million kilogrammes of tea in 2015.
Tea exports earned Kenya Sh125 billion in the same year, contributing four per cent to the country’s gross domestic product.

The automation is in line with the East African governments’ trade facilitation initiatives that focus on reducing barriers to trade.