Edward K. Mudibo Managing Director EATTA Creating An Enabling Environment For The Kenyan Tea Sector
Global Trends According to the Global economics, World economic forecast on tea, issued by the Economic Intelligence unit in October, 2015: Tea consumption receives much less coverage in the international press than that of coffee, but has been growing much more strongly In the period 2010-13 tea consumption growth averaged 5.5% per year but slowed marginally in 2014 at an estimated 5.2%. Global tea consumption growth will remain solid in 2015, at 5.2%, before picking up marginally in the 2016-17 forecast periods, to an annual average of 5.3%.
Global Trends Global demand for black tea will grow, but the pace of growth will be outstripped by demand for green tea, rooibos and high-end organic tea, reflecting their greater reported health benefits and higher uptake in both developing and developed markets. The latest data on average yield per hectare averaged 1,865 kg in India, 2,083 kg in Kenya and 1,756 kg in Sri Lanka. There is scope for further production increases in the medium to long term.
Global Trends Production fell by 22% year on year in the first half of 2015. It is estimated the full-year production shall be 350 million Kgs. Even assuming better weather conditions in 2016-17, several factors will hamper the recovery in output. It is expected that tea production shall stage only a partial rebound, rising to 390 million Kgs in 2016 and 406 million Kgs in 2017 (well below the 436 million Kgs recorded in 2013).
Situational Analysis Tea is the leading export for Kenya having earned the country more than Kshs. 100 billion in 2014. According to the Economic Survey 2015. the sector has employed 120,000 workers in addition to the 650,000 small holders who grow tea. In 2014 tea exports generated 24% of our foreign exchange earnings Tea is a catalyst for rural development as it is grown in 15 counties across Kenya.
Situational analysis Kenya is the largest exporter of tea in the world. The tea industry has been the subject of a lot of discussions regarding the challenges it faces and the purpose of the presentation is to highlight some of them with a view to generating debate. The presentation will apply the PESTLE approach in order to follow a particular structure
PESTLE - Political The tea sector has been the subject of a lot of political interference. The litigation by the Governor of Kericho is one of many instances where players of the tea industry have been subjected. Muranga County Assembly came up with a bill seeking to form Muranga Tea Development Board. The board is duplicating the role of the Tea Directorate and at the same time KTDA. In 2010, a private members bill seeking to liberalize the tea sector which in effect wanted to void green leaf supply contracts between farmers and their factories is another case of political interference.
PESTLE - Political The clamour by some county governments for non renewal of land tenures of for large tea plantations is a major concern for the plantations particularly. The huge investments they have put in place are at risk. There is a lack of willingness by the Government to give adequate political support to the tea industry commensurate to its contribution to the National economy.
PESTLE - Economic The tea sector is subject to several taxes and levies that make its long viability a challenge. This has been a matter of public discourse for a number of years. The county Governments have also got into the action and in Mombasa the Agricultural Produce Cess is one of the levies the tea trade is grappling with. The very strong labour unions are another challenge for the trade. The collective bargaining agreements that plantations are subjected to are a major concern
PESTLE - Sociological The cultural practice of bequeathing of ever smaller portions of agricultural land has had a major detrimental effect on the economic viability of tea farms. Research carried out shows that a parcel of land less than two and half acres will not break even in terms of returns. There is an increasing concern that the earning from tea is not properly re-invested in tea. The insular culture of members of the tea industry has brought an atmosphere of suspicion. This is a major contributing factor to the views of suggestions of an existence of a cartel.
PESTLE - Technological Investment in new methods has been very slow and many factories are experiencing declining qualities as a result of out dated and worn out factory equipment. Aversion of some members to new technology has been a retrogressive factor limiting the development. An example is the resistance to embracing automation. The high cost of energy is a major factor in the declining earning of the tea industry today. The push for alternative sources of energy is limited by the prohibitive start up cost.
PESTLE - Legal The legal framework in which the tea industry operates in has some shortcomings for the following reasons. 1. Currently there is no National Tea Policy in place. 2. The defective AFFA legislation that does not give adequate representation to all the players in the tea industry 3. The lack of an effective arbitration mechanism in case of disputes among players in the tea industry 4. Since the enactment of the Crops Act, it has taken an unduly long period to operationalize the Tea Regulations
PESTLE - Environmental Climate change is a major concern of the tea industry A study carried out by Ethical Tea Partnership indicates that with the current rate of change in weather patterns, it is likely that by 2050 a lot of the suitable tea growing areas West of the Rift will lose their ability to grow tea. Considering that 60% of the tea grown in Kenya is in the West of the Rift Valley, a decline in the suitability of that whole region will have a catastrophic impact on Kenya s tea industry. The climate change phenomenon may also see introduction of pests that have all along not been present in our tea farms.
Conclusions and Recommendations In order for the tea sector to flourish, the following are the recommended actions: The enactment of the Agricultural Policy should be fast tracked, the AFFA and Crops Act amended and the Tea Regulations reviewed for immediate implementation The Government should aggressively pursue bilateral trade agreements with markets such as China, Nigeria, Iran and other markets in Africa to avoid over reliance on the top 6 markets which account for 77% of all exports. To improve on the quality of tea, husbandry and manufacturing processes should be looked into. Extension officers should be positioned in tea zones and monitor production of tea and report ahead so that stakeholders can take appropriate positions in order to reduce oversupply of tea. The Government should incentivize development of infrastructure projects like the Dubai Tea Trade Centre to support value addition initiatives
Conclusions and Recommendations Tea stakeholders should be adequately represented on bodies such as the Tea directorate, Export Promotion Council that spearhead market development of the tea commodity There is need for the Government to support local SMEs by creating an enabling environment that will facilitate SMEs in tea sector to grow and thrive. This should primarily focus supporting SME to venture on value addition initiatives. There is currently over reliance on foreign companies. In order to reduce the multiple levies, taxes and licences, there is need to streamline the compliance so that all statutory requirements are paid through KRA and all regulatory requirements are handled by the Tea Directorate. Ad valorem levy should be rebranded as Tea levy and charged on the basis of quantity as opposed to the value of tea. Government should zero rate VAT on locally consumed tea. In any case, 95% of the tea is exported while only about 5% is locally consumed. KRA should amend the tax regime in order to reduce duty on packaging machinery and zero rate importation of packaging material. It should directly invest in developing our local packaging industry to reach international standards.
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