Post views Discussions related to the largest regional Tea Auction in Mombasa.


Kenya: Ruto Pushes for Mombasa Tea Auction Reforms
Allan Odhiambo
8 July 2009

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The weekly tea auction in Mombasa will not be scrapped, but reformed to ensure the benefits from earnings are passed on to growers. Agriculture minister William Ruto said contrary to reports that the government would close the auction, the State encouraged the establishment of more trading outlets for sale of the commodity in the face of growing competition for market space.

Speculation had been rife in the past few months that the government planned to disband the auction following an outcry by growers over alleged cartels that controlled the auction denying them earnings for their produce delivered for sale. Growers questioned the rationale of trading their tea through the auction when middle-men took away nearly half of their earnings.

Mr Ruto, however, said such malpractices would be addressed as part of wider reforms planned for the sub-sector following the recommendations of task force that was appointed to review the prospects of the industry.

"The entire tea industry will be reformed to ensure everyone benefits," Mr Ruto said on Monday on the sidelines of a dinner in honour of a delegation of tea traders from Iran.

Besides ensuring an efficient and transparent operation system, the task force recommended that a flexible approach be adopted for the trading currency at the Mombasa auction and allow the trading partners determine the preferred currencies.

Trading at the auction is currency fixed on the US dollar.
"The auction should be transformed into a modern tea trading centre, offering several trade instruments and incentives to its members. The Tea Board of Kenya as regulator exercises its oversight role over the auction as a measure to guarantee transparency and accountability in the tea trade activities," the task force said.

Currently, producers have the option to sell their made teas through the Mombasa auction, direct private sales or factory door sales. About 70 per cent of the teas are sold through Mombasa auction, 20 per cent through direct sales and 10 per cent through factory door sales.

Tea brokersThe proceeds from the tea sold through the auction are remitted to the individual factory accounts on the prompt of nine working days. The tea brokers remit their funds less their fees of 0.75 per cent of gross proceeds from each factory.

However, there is perceived lack of transparency in the auction system with buyers and brokers accused of collusion and conflict of interest thus denying the growers fair pricing and income. A key industry reform also planned by the government is the reduction of the number of directors that served in the numerous tea factories around the country.

Besides trimming their numbers, the governments also eyes to set minimum academic and professional qualifications before one would be allowed to serve as a director.

It is believed that currently there are too many directors serving tea factories around the country with farmers claiming that the huge finances required to sustain them was impacting on the earnings already threatened by failed weather. This has seen Kenya's tea exports faced with sluggish demand from its traditional bulk buyers who are cutting their orders due a sharp rise in the prices at the Mombasa tea auction.

The umbrella body of most small-scale growers, Kenya Tea Development Agency has also been earmarked for major changes with recommendations that it be converted into a holding company in future and some of its shares floating through the Nairobi Stock Exchange.

By ESTHER NAKKAZI (email the author)

Posted Saturday, May 2 2009 at 13:29

Following a shortage of green leaf occasioned by a prolonged drought in Kenya, Uganda tea continues to gain high and stable prices at the Mombasa tea auction predictably up to mid this year.

More smallholder tea growers are also earning premium prices under the Fair Trade system as the leaf quality improves following importation of good quality and high yielding clones from Kenya two years ago.

Uganda Tea Association officials said some Uganda tea is fetching between $1.98 and $2.00 per kilogramme at the Mombasa tea auction since early this year and the price will remain stable for up to mid this year. However, the average price is $1.5 for the 21 factories that sell through the auction market.

For two consecutive years now, Uganda tea has been earning high prices at the Mombasa auction. Indeed, in 2008, during Kenya’s post election crisis, tea prices were the highest ever, fetching between $2.45 and $2.60 per kg.

Now the price ranges from $1.7 to $2 per kg because of low output occasioned by a drought in Kenya.

The upside of drought in Kenya usually gives Uganda tea a chance to temporarily earn more at the Mombasa market, where Kenya is the biggest participant.

Prices at Mombasa are usually $1.3 to $1.5 per kg for Uganda tea.

About 70 per cent of all the harvested green leaf from Uganda is sold through the auction, 15 per cent is direct sales while the rest is sold to the Uganda market.

UTA officials said production of the green leaf would also remain high in most of the tea estates given having a relatively consistent weather since early this year.

At Igara Growers Tea Factory Ltd, the largest tea estate and producer in Uganda, production has increased by 20 per cent to two million kg of green leaf per month.

“Production has been up this year because the weather has been good so far and we applied the right fertilisers at the right time,” said Hatega Nsanze, the factory manager Igara factory.

The government liberalised the tea sector in the 1990s and the big estates were sold off to smallholders in 2007.

The move was supposed to improve production and to empower tea growers who also already owned the factories.

At the time two clones — 303/577 and 31/8 — were also imported from Kenya to boost production and to replace the unknown type that was planted in the 1960s.

Uganda Tea Association officials could however not give production figures for the year because some factories have not yet sent in their returns.

They said since most of the factories are in the western region, Igara’s high production is representative of what is happening elsewhere.

Overall tea production has more than doubled as Uganda tries to diversify from reliance on coffee as the traditional cash crop and main foreign exchange earner.

Records from the Uganda Tea Association show a steady increase over the past five years.

Quality is also on the rise now, with the leaf fetching five cents more per kg, above the usual 50 cents premium per kg paid in by direct Fair Trade buyers.

About five per cent of Uganda’s tea is sold under the Fair Trade system, where smallholder farms are paid a premium price by consumers abroad under a poverty alleviation initiative.

“We are maintaining and improving the quality by making sure we have the right material and paying a price differential for it. For each extra good quality leaf in a higher category, there is an additional 10 cents from the factory,” said Nsanze.

Tea is no longer a major export earner like it was in the 1980s.
It has long been overtaken by remittances and non-traditional exports like maize and fish.

In contrast to the previous year, tea-growing areas experienced plentiful and at times unseasonally heavy rains with only short periods of dry weather. The first quarter crop reflected an increase of 56% over the similar period in 2000 with the six months figure 46.27 million kgs ahead; at the end of the third quarter, the cumulative crop reflected an increase of over 35%. Only in November and December was there a comparative deficit over the same months in 2000. The final production for the year is estimated at 285 million kgs – 21% ahead of the previous year.



The extended periods of wet weather had an effect on overall quality. Within each category, better teas both in leaf appearance and cup quality, were generally rewarded, fetching premiums.





MARKET



The all-growth average price opened the year at US$1.96 ($1.91) per kilo, with a significant drop to US$1.57 ($2.00) by the end of the first quarter; the six-month figures reflected an average price of US$1.61 ($2.01) declining further to US$1.57 ($2.03) by the end of the third quarter and closing the year at US$1.53 ($2.02). (Comparison averages for 2001 in italics)





DEMAND



Considering the higher crops, and with quality teas often in short supply, offerings in Auction were satisfactorily absorbed, albeit at lower prices.







BUYERS



Pakistan Blenders were a strong feature of the Auction; the Bazaar and Afghanistan were active with varying strength but quiet in August and September with Afghanistan naturally out of the market for the weeks after September 11th, re-entering the market at the end of November. There was strong enquiry from Egypt (purchases were affected by a short Comesa trade dispute in August). The Sudan, Yemen and other Middle Eastern countries were always active. The UK lent consistent support, closely following quality. Somalia and Ethiopia were active on traditional fibrous Fannings types. Latterly there were significant purchases for Russia and Eastern Europe with line orders for the USA, Ireland, Poland and other markets.

In contrast to the previous year, tea-growing areas experienced plentiful and at times unseasonally heavy rains with only short periods of dry weather. The first quarter crop reflected an increase of 56% over the similar period in 2000 with the six months figure 46.27 million kgs ahead; at the end of the third quarter, the cumulative crop reflected an increase of over 35%. Only in November and December was there a comparative deficit over the same months in 2000. The final production for the year is estimated at 285 million kgs – 21% ahead of the previous year.

The extended periods of wet weather had an effect on overall quality. Within each category, better teas both in leaf appearance and cup quality, were generally rewarded, fetching premiums.

Thanks, for the Infor Flight-FGB;

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Thursday August 20, 2009
Business & Finance

Tanzania tea demand improves at Mombasa auction

AT least 314,722.90 kilogrammes of the Tanzanian tea which was offered at the Mombasa tea auction last week was sold. Tanzania's initial offers totalled 332,973.40 kilogrammes of tea which fetched USD 1.46 per kilogramme and the average auction price during the auction was USD 2.14 per kilogramme.

The weekly report on the sale released by the Africa Tea Brokers (ATB), an affiliate of the East African Tea Trade Association (EATTA), indicated that only 6,116,633.90 million kilogrammes of the commodity was sold at the auction from initial offers totalling 6,526,452.90 million kilogrammes. During the same period last year, 7,158,866.50 million kilogrammes were sold against offers amounting to 7,364,164 million kilogrammes.

According to the report, there was an improved general demand for the 6.52 million kilogrammes of tea which was sold at irregular rates with 14.40 per cent of the teas remaining unsold. During the sale, Sudan reportedly lent strong support with more interest from Egyptian Packers and Kazakhstan while Afghanistan showed improved enquiry.

Other countries which showed interest but at lower levels included Yemen and other middle-eastern countries. Also other enquiries include the United Kingdom, Russia and Somalia. Kenya sold the most tea during this sale at 4,418,877 million kilogrammes of tea from offers totaling 4,693,787 million kilogrammes.

Uganda, who had offered 871,697 kilogrammes of tea, managed to sell 779,793.50 kilogrammes of the commodity while at a price of US dollars 1.80 Burundi sold 148,562 kilogrammes from offers totalling 156,894 kilogrammes while Rwanda who had offered 392,585.50 kilogrammes managed to sell 372,643.50 kilogrammes. Tea from Burundi was sold at USD 2.11 while tea from Rwanda fetched US dollars 2.15.

Malawi who had offered 78,516 kilogrammes sold 77,168 kilogrammes of the same at US D 1.32. According to the report, Zambia, Mozambique and Madagascar did not make any offers during the week under review. Offers in the week's auction had totalled 102,930 packages (6,526,452.90 kilos) against 115,215 packages (7,364,164.00 kilos).

www.dailynews.co.tz/business

By Kabir Chibber
Business reporter, BBC News

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The tea leaves in this cup were probably bought and sold in Mombasa Your cup of tea may be about to get more expensive. The United Nations Food and Agriculture Organization (FAO) says that demand exceeded supply in 2008, driving up the cost of tea.

Tea consumption reached 3.85m tonnes last year, up 4.8% from 2007. But production was only 3.78m tonnes, according to the FAO's preliminary estimates. Tea was in surplus in 2007, but it seems the recent shortfall can only get bigger.

"This explains the current price hike, which shows that traders are expecting the worst," said Kaison Chang, an economist who works in the FAO's tea division in Rome. Tea prices have soared as drought has hit Kenya hard in the past year, as well as Sri Lanka and India, which is the world's biggest producer of tea.

Traders' fears
"There've been reports of a 15% drop in production in Sri Lanka alone in January and February due to the drought," Mr Chang said. If the shortfall turns out to be as deep as expected, then prices will go through the roof

Kaison Chang, FAO
All this has not gone unnoticed in Mombasa, a Kenyan coastal city of white sand and blue water that hosts tea auctions. These weekly auctions, which sell most of the tea produced in Africa, pretty much set the benchmark for the price of the crop throughout the world. The average price of tea last year was $2.33/kg, almost a third higher than $1.76/kg in 2007, according to Kenya's tea board.

Black tea had jumped to a record of $2.70 last August. But Mr Chang said he had heard reports that the price of tea had now breached $3/kg in recent weeks, as the scale of the crop shortfall became clear.

The new oil?
It may get even higher as tea traders worry the production gap will get larger. Kenya, which is Africa's largest grower of tea, will probably produce 328 million kg of the crop this year, the Tea Board of Kenya said this month. That is well below the 345 million kg produced last year.

"If the shortfall turns out to be as deep as expected, then prices will go through the roof," Mr Chang said. But much in the same way that rising crude oil prices push up the cost of petrol at the pump, this too is likely to increase the price of High Street brand teas.

The UK is the second-biggest importer of tea in the world, behind Russia, so any costs of the raw materials will either have to be absorbed by the teamakers or passed on. British tea companies are also suffering from the decline in the pound against the dollar for the past year. Whittard of Chelsea said that the market was going through an "uncertain period".

"Areas are certainly suffering drought and there is no reserve of tea, so shortages exist," said Giles Hilton, Whittard's product director. "Some prices might need reviewing soon," he said. With global demand continuing to rise, there is little sign that production is going to be able to match. More expensive cups of tea may have to become a fact of life.

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Tea farmers will next month be laughing all the way to the bank as they receive Sh17.7 billion in bonus payment. The Kenya Tea Development Agency (KTDA) yesterday released figures that showed tea earning had recorded unprecedented growth, raking in an extra Sh6.4 billion for farmers in the 2008/09 financial year.

More than 500,000 small-scale farmers are thus set to receive Sh17.7 billion in bonuses compared to Sh11.3 billion paid the previous year. The earnings come against the backdrop of inadequate rainfall that resulted in a decline in production and pushed demand for the crop in the international market.

"The record earnings are the rewards of efficient factory processes, improved auction prices caused by global demand and favourable exchange rate," said KTDA Managing Director Lerionka Tiampati. During the year the crop recorded an increase of 28 per cent in earnings to hit the Sh25.4 billion mark compared to Sh19.7 billion realised the previous year. Farmers have already received Sh7.7 billion as initial payment. Tiampati said the bonus, which is the second payment and is usually eagerly awaited by farmers, would be paid at an average rate of Sh24.66 per kg of green leaf compared to Sh14.13 per kilogramme paid in the 2007/08 financial year.

Recent years
This is the highest rate paid in recent years and ranks the Kenyan farmer among the highest paid in the world. The increase in earnings was as a result of prices rising by an average of 30 per cent at tea auctions. This was caused by a persistent drought that has ravaged the country during the past two years, causing tea production drop by as much as 30 per cent. "Overall, factories are paying an average 70 per cent of total earnings to the farmers compared to 67 per cent last year," said Tiampati.


Infor: http://www.eastandard.net/business/InsidePage.php?id=1144024736&cid=14&