Tea sector reforms herald fresh start for smallholders

It is game over for the barons who rule KTDA, as new regulations signal big wins for small tea farmers

By VICTOR ADAR

For a long time, low tea prices and poor bonus payment have been a mainstay grievance for smallholder farmers. It has been hard to thrive in a sector where brokers reportedly pocket about Sh50 per kilo of tea sold leaving the actual farmers about a quarter of brokers’ fees. 

President Uhuru Kenyatta in December 2019 directed the Cabinet Secretary, Agriculture, and Competition Authority of Kenya to oversee radical policy and structural reforms to the tea sector to rectify this situation of affairs. The result was the tea industry (draft) regulations 2020 that seek to address corporate governance issues, ring-fence farmers’ incomes, and overhaul the leadership structure in Kenya Tea Development Agency (KTDA), subsidiaries, and factories, to bring the money to the farmers. 

Among other reform points, tea farmers will pocket not less than 50 percent of their deliveries, in kilos, as monthly payments, with the balance being paid as annual bonus.

According to Kenya Tea Sector Lobby chairman, Irungu Nyakera, that is a move that will catalyse growth and reassure tea farmers of good fortunes in the near future. Nyakera argues that creation of an electronic tea auction platform, which is part of the reforms, for example, will help weed out middlemen. 

“This is a step in the right direction and the tea sector has another chance to be a leading source of foreign exchange and a major employer in the agriculture sector,” he said. “These regulations will help close loopholes that East Africa Tea Trade Association has failed to implement for years, thereby exposing the Kenyan tea industry to exploitation by cartels, to the costly loss of farmers.” 

Most cash crops – tea, coffee, pyrethrum, cotton and even sugarcane – have become a real sources of headache to farmers to the point that others have taken to uprooting them. While some farmers make good money, a big number generally are unlucky. 

In parts of Kiambu County, in the past few years, farmers have uprooted their coffee to invest in real estate. Today, there are more rental houses in Kiambu than coffee plantations. In Western Kenya, some farmers stopped planting sugarcane because the sector became choked by cartels who took most or all of the farmers’ money. 

To cure this the regulations will seek to operationalize a stabilization fund to cushion farmers from price volatility. Further, the tea sector will be supported to find more ways to improve the value addition of Kenyan tea, overhaul marketing structures, open up new export markets and boost local consumption of Kenyan tea.

Among other reform points, tea farmers will pocket not less than 50 percent of their deliveries, in kilos, as monthly payments, with the balance being paid as annual bonus.

At the same time, to effect the overdue leadership overhaul in the sector, management agency agreements between KTDA and respective factories shall be for a tenure not exceeding 5 years, and the remuneration paid for such management services will be capped at 2 percent of the value of tea sold per year. Each factory shall either recruit an in-house company secretary or outsource the service, reducing the interference by KTDA in the running of individual factories.

As we wait to see the outcome of the bundle of measures prescribed in the crops (tea industry) regulations 2020, the country can look forward to increased agricultural activity to address complex issues like unemployment, food security and even poverty. It should not be a story of low price and little bonuses but rather an opportunity to focus on the bigger picture such as how to optimise value chains, increase production through optimal use of land, innovation and how to get accurate information on farming. 

What they mean

If implemented, the sale of tea to the export market will be exclusively done through an electronic auction process that is auditable, removing opaqueness and loopholes experienced in the current trade.

The regulations might also change Kenyan tea farmers’ experience in the sense that all tea buyers shall pay in full for all teas they win at the auction before they take custody and lift the tea for export, removing instances of collusion between KTDA and farmers through credit sales, with some being written off as bad debts. 

The funds from the sale of tea at the auction shall be remitted directly to the respective factory accounts within 14 days from the auction date. Factories shall be required to deposit at least 50 percent of the funds to farmers’ accounts within thirty days from receipt of proceeds, with the balance kept as bonus within the same financial year.

A statement from Kenya Tea Lobby shows that in the past, KTDA has delayed payments to farmers and placed “interest-earning deposits with commercial banks”. This, for instance, saw farmers lose Sh4.6 billion in deposits at Imperial and Chase Banks. The delays also exposed farmers to predatory lending from financial institutions, against their tea proceeds, which often left thousands of farmers broke and dejected. (