Low prices, market access brew storm for East Africa's tea industry

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East Africa’s tea sector is threatened by underperformance as its two key markets – Russia and Ukraine – remain closed.

Observers worry that besides dealers not fully harnessing the quality of tea produced in the region, they are now going slow on production fearing it would lead to a glut that would push down prices that have been recovering after a pandemic slump.

Rwanda’s tea prices at the Mombasa auction continued to fetch premium prices, having been on a recovery trajectory from $2.94 per kilogramme in 2021 to $3/kg in January 2022, and heading towards pre-pandemic prices of $3.05/kg of January 2020.

Rwanda has grown its exports to 35.2 million kilogrammes a year.

In the early months of 2022, its tea exports rose by 7.3 percent, reflecting a gradual reopening of markets.

According to Charles Kenge Iruta, acting sales and marketing manager of Rwanda Mountain Tea, the recovery is attributed to growth in volumes and the country’s high quality tea, which has attracted demand from international buyers.

But Mr Iruta says Rwanda’s key markets are not fully opened and now the Russian invasion of Ukraine threatens further logistical disruptions as both countries are some of the biggest consumers of tea.“Some destinations have not yet opened; we still face shipping challenges. Cargo bookings are very difficult to nail down for different destinations. Some shipping companies have increased freight costs, which has led to some destinations closing,” he said.

Dollar shortage

Sudan, one of Rwanda key markets, has been facing political turmoil since October last year when a transitional government was toppled. Importers have largely been reluctant to commit to deals as the country is also facing a dollar shortage.

But if Rwandan producers feel their quality hasn’t been fully rewarded, their peers in the region have suffered both in market access and quality.

At the Mombasa Tea Auction, Tanzanian tea fetched the lowest price due to its quality followed by Ugandan tea, Burundi and Kenyan tea.

At the weekly tea auction held last week, about 12.7 million kilogrammes of tea were offered for sale, according to data by the East Africa Tea Trade Association (EATTA), which runs the auction.

Of the total tea offered, only 9.4 million kilogrammes were sold, compared to 10.9 million kilogrammes during the same period last year.

The tea auction recorded a decrease in prices, with a kilogramme selling at an average price of $2.30, compared to $2.38/kg during the previous sale, but an increase from $1.82/kg during the same period last year.

In Kenya, the turmoil has been such that even a set price has been defied by markets. Last year in July, the Kenya Tea Development Agency set a minimum reserve price for processed tea at the Mombasa auction to prevent it from falling below $2.43 per kilo. But the price has remained below this figure since it was set.

EATTA managing director Edward Mudibo said low prices were a result of oversupply in spite of a recent drought.“We are having more unsold tea of about 25 percent of the total supply. We suspect most of traders were hoarding their teas when there were strict Covid-19 containment measures and now they are flooding the market," Mr Mudibo said.

The move by government to set a minimum price was a response to farmers’ reluctance to supply due to low prices that reached an all-time low of $1.80/kg in July 2021, almost at par with the cost of production of $1.70/kg.

While setting the minimum price, the government capped the cost of producing a kilo of made tea at $0.84/kg.

Ukraine war

Now, tea traders are also worried the prolonged invasion of Ukraine by Russia may hurt tea exports, thereby putting pressure on the already declining prices of the beverage.“Despite low prices in Kenya, we are also cautious of supplying more as some markets might be affected due to strained logistics to reduce purchases of tea from Mombasa Tea Auction, which is second world tea market after India,” said Dinesh Khan, a Mombasa-based tea broker.

In Tanzania, officials say the Russia invasion of Ukraine will have little impact as long as Dar can get its tea to the usual big markets.

Tea Board of Tanzania Director-General Nicholaus Mauya says Russia and Ukraine do not buy much Tanzanian tea.“We have not been affected by the Russia-Ukraine war. In reality, our tea market in those warring states remains marginal”, Mr Mauya told The EastAfrican.

The leading buyers of Tanzania’s tea are the United Kingdom, South Africa, Germany, Pakistan, the United Arab Emirates and the US.

About 80 percent of Tanzanian tea is exported to foreign markets and the remaining 20 percent is processed and consumed locally.

Tea is among leading agricultural products in Tanzania with annual sales of Tsh140 billion ($60 million).

Poor agronomy

But Tanzania has suffered from old farming practices that have caused yields to fall to as low as 35,000 tonnes a year against a potential of nearly twice this figure.

The government is encouraging modernised farming and providing agricultural extension services to smallholder farmers to boost output.

It targets to raise production to 60,000 tonnes and improve its quality, the tea board says.

Uganda, the second largest producer of tea in Africa after Kenya, has an average annual output of 65,000 metric tonnes exported from the country.

However, Uganda tea continues to fetch lower prices at the Mombasa auction than its East African neighbours.

For instance, in January, a kilogramme of Uganda’s tea was sold for $1.3, far below Kenya’s $2.38, Rwanda’s $3.23 and $2.47 for Burundi tea.

End of February, Rwandan tea fetched $3.02 a kilo while Kenya’s tea sold at $2.72, Burundi $2.44, Uganda $1.27 and Tanzania’s at $1.15 for the same quantity.

Under perfomance of Ugandan tea, however, could be improved with better agronomical practices as experts say Uganda has only exploited about 10 percent of its potential for tea growing, with about 52,000 acres under cultivation.

The Mombasa Tea Auction has remained the only market for East African countries as the Dar es Salam Tea Auction has failed to take off.

The Mombasa Tea Auction is the largest tea auction in the world with 75 percent of the volume of tea traded through the auction centre. Close to 32 percent of the tea exported to the world passes through Mombasa.