Africa Economy: Kenya says tea earnings to remain steady despite dry spell

Kenya Tea Development Agency (KTDA) said tea earnings for the financial year ending June will remain steady despite dry spell.

KTDA, which manages small holder factories, also said in a statement received in Nairobi on Tuesday that auction prices will remain largely unchanged for the first half of the financial year.

"In the first half of this financial year, tea factories processed some 128.07 million kilograms of made tea, up from 118.1 million kilograms processed in the same period last year, an increase of 8.45 percent," KTDA said.

Between July and December 2014, small-holder green leaf production rose to 569.7 million kilograms against 523.9 million kilograms produced during the same period last year.

The agency said the dry spell currently being experienced across the tea growing areas may have a slight impact on the earnings as the dry spell is accompanied by drastic reduction in crop volumes.

"If the dry spell continues, the impact of improved prices will be felt largely in the new financial year starting July 2015 should they persist," it said.

Overall, small holder green-leaf production rose by 8.7 percent, representing 45.6 million kilograms, during the first half of the current financial year.

Other tea producing countries, namely Rwanda, Burundi, Malawi, Uganda and Tanzania also reported increased production, resulting to low tea prices at the Mombasa Tea Auction.

However, in January tea production dropped by 9.21 percent from 117.3 million kilograms to 106.4 million kilograms compared to the previous year.

The decline in tea volumes is attributed to low rainfall, which led to a 4.65 percent drop in made tea from 26.1 million kilograms in 2014 to 27.4 kilograms in 2015.

"From the weather observations made in January and February, the coming months will experience even lower tea production levels because of the dry spell. The crop for February is projected to be about 38 percent lower than the same period last year," it said.

A kilo of processed tea during July to December, 2014 traded at an average price of 2.23 U.S. dollars against 2.42 dollars during the same period in 2013, a decline of 8 percent. This was also comparatively lower than 3.61 dollars recorded in 2012, the agency said, adding that tea prices at the Mombasa Tea Auction have not stabilized as they oscillate between lows of 2.0 dollars to highs of 2.5 dollars.

"We are, however, witnessing a rise in prices averaging at 2.5 dollars, which is likely to rise further in the coming weeks if the current weather patterns persist," the statement said.

Low auction prices in the first half of the financial year resulted from overproduction of made tea depressed industry earnings. As a result, earnings across the industry declined by more than 30 percent compared to the previous year.

The agency has also been working on identifying and developing new markets in addition to maintaining and growing the market share in existing markets.

"The instability in some of Kenya's main tea markets, such as Egypt and Sudan, is one of the factors that have contributed to low prices in the market," KTDA said.

However, the agency said it takes times to develop new markets and the benefits accruing will be realised in the long term. KTDA assured farmers that the main pillars of the tea industry were strong and that the tea business remains viable.

The tea agency is currently diversifying into orthodox teas, with about 12 factories earmarked for an orthodox production line. The investment in orthodox tea production is expected to diversify Kenya's tea product and enable exports into new market. Endi