Only new markets can save East Africa’s tea industry

Only new markets can save East Africa’s tea industry

By Charles Kazooba

The volume of tea sold at the Mombasa auction has risen six-fold since 1980, to 300,000 metric tons in 2011.

Over the last decade, the average price of tea at the Mombasa auction has also increased, more than 50 per cent from the 1990-2000 average. So, the tea industry in East Africa was doing well until the Arab Spring struck and started choking the market.

East Africa exports 70 percent of her tea to Pakistan, Egypt, UK, Afghanistan and Sudan. So, as the ripples from Egypt's unrest spread down the Nile and into East Africa, the consequences for the tea industry became tumultuous.  

Tea is the second most consumed beverage in the world, after water, with an estimated 18 to 20 billion cups of tea consumed every day. And East Africa contributes 28 per cent of the world market supply.

Statistics show that Uganda currently ranks 13th among the world’s largest tea producers and third in the east and central Africa region after Kenya and Malawi.

Therefore, before the Arab Spring struck Egypt in 2011, tea farmers in Uganda were assured of battered bread on the table, but not in 2012 and 2013.

With the overthrow of President Mohammed Morsi in July 2013 and the ongoing campaign against the Muslim Brotherhood causing continued political instability, demand for tea plummeted and prices went with them.

In 2010, the last year before the uprising in Egypt, Kenya supplied the tea-obsessed UK with around half of its tea, but Egypt was the single largest destination for Kenyan tea exports, buying nearly a fifth of what the factories around Nyeri produce.

However, it shouldn’t be forgotten that 90 per cent of Uganda’s processed and graded tea finds its way into the international markets through the Mombasa Auction Market where it is branded and consumed as Kenyan tea in the international markets.

Black tea prices have tumbled more than 40 per cent as top importers Pakistan and Egypt cut purchases just as output surged on the back of favourable weather in late 2012 and early 2013. The price plunge was one of the fastest and deepest in the recent history of the industry.

A kilo of tea sold at an average $2.38 per kilo between July and November 2013 compared to $3.65 over the same period in 2012. Tea prices are said to have reduced by 30 per cent since July 2013 to the lowest price registered since October 2008 when a kilo sold at $ 2.05.

The tea industry in East Africa has experienced the lowest decline in auction average prices. This is the lowest since 2001. And this is happening when the costs of tea production are shooting up.

Apart from the Arab Spring the prices of tea further dropped due to an increase in production. For instance, between January and September 2013 production increased by 22 percent (Kenya), 17 percent (Rwanda), 9 percent (Uganda) and 18 percent for Tanzania contributing an extra 60 million kilograms of tea to the Mombasa tea auction centre than the same period in 2012.

In addition, Uganda's tea industry has long been dogged by quality problems. The quality of Ugandan tea is low. The case is worsening because of shortage of labour. So, farms have resorted to using machines like pluckers instead of manual plucking. A machine does not select which ones to pluck and which ones to leave.

In response to complaints from buyers, Kenya recently imposed stricter standards on the quality of tea coming into Mombasa, and, according to Peter Kimanga, president of the East Africa Tea Traders Association, the World Trade Organization is attempting to raise tea standards worldwide.

Yet a further tightening of regulatory standards could spell disaster for the roughly 65,000 Ugandans who manufacture the country's third-largest export, which generates $100 million per year.

Fortunately, prices are again shooting up in the first half of 2014 compared to 2013. On the consumption side, top importers Pakistan and Egypt – the world’s fourth and fifth largest buyers of the commodity – are returning to the market as security in both nations improves following unrest earlier this year.

But the long-term solution should be to look for new markets and boost local consumption through new branding. For instance, seven new markets that included Vietnam, Philippines, Azerbaijan, South Sudan, Myanmar, South Korea and the Czech Republic have been established.

In addition, recent markets such as Angola as well as seasonal markets such as Syria and Chad have come on board.

The request by the East African tea producers that governments scrap value-added tax on domestic sales is another positive agenda that governments in East Africa should seriously take into consideration to stimulate prices through increased consumption.

Kenya, the world’s biggest black-tea exporter, imposes a 16 percent value-added tax on sales, while Uganda, the region’s third-biggest producer, and Malawi, charge 18 percent.

Tea producers also want their governments to introduce a price stabilization fund to cushion them from fluctuations.