A push by Tanzania and Uganda to have their own tea auction
could destabilise incomes, coming at a time that production and prices
in the region have been falling.
Last week, Tanzania
said it was planning its own tea auction in Dar es Salaam. Uganda had in
March this year, said it was planning to market its own tea directly to
buyers as it sought better prices, effectively pulling out of the
Mombasa auction, the second largest in the world, after Colombo.
Kampala has since rescinded the decision.
Kenyan
tea industry players, however, believe that the two countries’ push for
another auction outside Mombasa, which serves the region, with
offerings from at least 10 countries as far afield as Madagascar,
Zimbabwe and the Democratic Republic of Congo, is infeasible due to low
volumes from those two markets.
Uganda’s concerns
emanate from what it says is loss of identity of its tea once it enters
the Mombasa auction, as it is labelled as Kenyan.
“Once
our tea is exported through Mombasa, it loses identity because it lacks
the proper packaging. This means it inherits Kenya as the origin in the
export market, losing its identity to the advantage of Kenya,” said
Othieno Odoi a, senior planner in charge of trade at Uganda’s National
Planning Authority.
Mr Odoi added that the country is yet to complete the
feasibility study that would determine whether the market would be
viable for a Kampala auction.
“We are also tied down by
some challenges, including transportation. However as the country
improves on the infrastructure front, it could address some of these
constraints making a reality of the aspirations of having our own
auction,” Mr Odoi said.
The chairman of the Tanzania
Tea Board Steven Mloti said last week that the country’s push for an
auction is driven by the need to lower the transport costs to Mombasa,
and boost farmers’ earnings.
“We are establishing a
warehouse in Dar es Salaam before launching our own auction,” he said.
“This will boost business in the Dar es Salaam port too.”
But East African Tea
Traders Association (Eatta) managing director Edward Mudibo said he is
yet to receive a complaint from the Ugandan tea traders, adding that Dar
es Salaam cannot sustain an independent auction.
“We
have not yet not received any information regarding Ugandan exporters
complaining about the Mombasa auction. Most importantly, quantity makes a
tea auction sustainable, which Kenya enjoys. The Mombasa auction is
unique because it is the only one with 10 countries including
Madagascar, Ethiopia, Mozambique, Burundi, Tanzania, Rwanda and Uganda,”
said Mr Mudibo.
However, George Sekitoleko, the
executive secretary Uganda Tea Association, said it was not currently
feasible for Uganda to start a tea auction because of the small volumes
and poor quality produced.
“As it is, this idea is not
feasible now because we don’t have the volumes and the high quality to
attract premium buyers,” said Mr Sekitokelo.
The Mombasa tea auction has more than 70 buyers worldwide, with Pakistan being the largest market, accounting for 40 per cent.
As
at June this year, the Kenyan tea output was 198,000 tonnes, which sold
at an average price of $2.6 per kilogramme, followed by Uganda’s 30,000
tonnes which fetched an average of $1.57 a kilo. Rwandan tea, which
recorded the third highest volume of 10,000 tonnes fetched the highest
price of $2.897 per kilo, while Tanzania’s 7,000 tonnes fetched $1.65
for a kilogramme of the leaf.
Burundi sold 5,000 tonnes
of the product at an average $2.62 per kilo, while Mozambique sold 446
tonnes, each averaging $1.24 a kilo. The Ethiopian tea stood at 286
tonnes fetching $1.53 a kilo, while 15 tonnes of Madagascar tea was sold
at the auction at an average price of $1.47 per kilogramme.
“This
is what went through at the auction and the average prices. For
Tanzania, the average price was $1.65 when Rwanda was fetching the
highest at $2.97. From the economics, it will be difficult to compete
with the lower quantity,” said Mr Mudibo, adding that there must be
enough produce for another regional auction to thrive.
If Tanzania pulls out from Eatta, the Mombasa tea auction will
lose about 12,000 tonnes annually. Kampala exports more than 60,000
tonnes of tea through the Mombasa Tea Auction, data from the Uganda Tea
Association shows.
East Africa tea production (tonnes)
Rwanda
Tanzania
Burundi
Uganda
Kenya
2016
100,000
200,000
300,000
400,000
500,000
600,000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
“But Uganda will also be impacted,
since they are not likely to realise competitive prices because of
limited buyers as compared with the current 70 at the Mombasa auction.
What has made this auction thrive is the fact that we have tea from 10
countries and different varieties from 67 KTDA factories that gives you a
big framework. Let us pride ourselves as African tea,” said Mr Mudibo.
Eatta says it is yet to receive any formal communication from Tanzanian authorities on the matter.
“The
threshold is minimal for Tanzania. If they move out, it would not
significantly change the trading at the auction floor: Their members
bring their tea to Mombasa, so who is this purporting to talk on behalf
of the investors and farmers? Who will put up the asset? They need an
auction floor, where will that facility be? Who will run it? They need
brokers and buyers,” Mr Mudibo said.
He added: “If you
need an auction there must be uniqueness; it must be multi-origin; 10
countries offer their tea in Mombasa. A wise buyer or exporter would
rather go to a one-stop shop than going to 10 destinations to buy tea.”
Malawi has a tea auction but it still trades at the Mombasa auction, showing the complexities of the tea trade.
“Limbe
auction in Malawi is small. It takes about an hour due to the small
volumes. There are only two brokers and six serious buyers but only four
are active. There are producers in Malawi who still believe in the
Mombasa auction and are ready to bear the transport costs because they
still make a profit. So what is the statement there? The late President
Idd Amin attempted to have an auction in Kampala and it failed due to
dynamics,” said Mr Mudibo.
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