05 Oct

Once again, farmers are crying foul over last week’s second and final bonus payment from the Kenya Tea Development Agency (KTDA).

So far, the payment, as declared by different tea factories, ranges from as low as Sh9.50 per kilogramme (Tombe factory) in Nyamira to as high as Sh30 per kilogramme (Gacharage in Murang'a).

This was the third year in a row that the more than 700,000 smallholder farmers are seeing declining earnings from the crop. The farmers’ complaints have some basis and the government has noted.

Agriculture Cabinet Secretary Peter Munya commissioned a study to evaluate the impact of commercial activities, behaviour and, earnings of KTDA smallholders farmers. This is data that should be in the public domain if the Agency is to command respect from its membership.

Unfortunately, the kind of data the CS is looking for cannot help him achieve the intended purpose, which, in my view, is key to how farmers can productively gain from tea growing.
First, let me explain briefly the history of the tea industry in Kenya as the basis of understanding its future direction. Tea production in Kenya was started in 1903 by the colonial government and by 1924 large commercial farms had started.

Africans were not allowed by the colonial government to grow tea until 1960. At the time, the argument was that “the local natives of Kenya could not effectively control diseases on their farms and this could be a threat to the “well-cared-for” European colonialist-owned farms.” In truth, the colonists thought there would be shortages of farm labour were they to allow Africans to grow the crop.

In 1960, the Special Crop Development Authority (SCDA) was created by the colonial regime to promote tea growing by Africans under the patronage of the ministry of Agriculture. Later, in 1964 SCADA became the Kenya Tea Development Authority (KTDA1) and more recently the Kenya Tea Development Agency (KTDA2).

Upon creation, KTDA1 effectively managed tea extension services and crop husbandry leading to exponential growth of the industry by:

“recruiting more farmers, providing tea-planting materials, collecting, purchase and handling of green tea, processing of the tea leaf, manufacturing of tea, marketing of the made tea, payment of the growers after the necessary deductions and development of sound technical, financial and managerial infrastructure.”

These happier days were cut short by a Government task force that privatised KTDA1 in 2000 and creating KTDA2 to basically undertake the same services KTDA1 offered. They made KTDA2 a private company owned by small holder farmers to provide services as a contractor. The International Monetary Fund (IFC) later called it an inclusive business model whose mission statement stated:

“to provide effective management services to the tea sector for efficient production, processing, and marketing of high-quality tea and investing in related profitable ventures for the benefit of its shareholders and other stakeholders.”

In 2013, IFC advanced the new limited company a loan of Sh1.2 billion shillings to “finance the construction of a new warehouse complex for handling and storage, strengthen the environmental, social, health and safety standards utilised by KTDA and offer expertise on potential expansion areas for the company, as well as explore opportunities to engage Advisory Services to strengthen KTDA’s supply chain.”

Farmers, mainly from Murang’a, are up in arms demanding de-privatisation with the hope of re-igniting the sector with better bonus earnings. Other farmers argue that the agency is exploiting farmers through expensive procurement of fertiliser. According to the farmers who spoke last week, what was meant to be an inclusive agency has become an exclusive cash cow for a few farmers.

Farmers indeed have a point since KTDA2 as a contractor has no incentives to be more creative as long as they pick tea from the farmers and sell it. If they had any inclination towards creativity and innovation, they should have looked at what competition is doing.

There are, however, fundamental problems afflicting the agency that could depress earnings even beyond Covid-19. The agency has failed to be competitive by becoming more innovative and taking advantage of lucrative products similar to its competing private large-scale farms. Its investment in manufacturing, electricity generation, insurance and warehousing, etc. are far insignificant when compared to competitor revenue sources.

Competition such as Finlay are investing in more lucrative products. A new product like Kombucha, made from Green and Black tea, has a market of more than Sh150 billion. The market growth of the drink is estimated at 52 per cent annually since 2017. Yet, Finlay’s production comes from 27,000 hectares compared to 126,000 hectares of the small holder farmers.

The data the CS will be interested in is the acreage per farmer, which has been declining. Most farmers in densely populated areas have less than one acre of tea, which is far too low, below the break even point of two acres. Unless these farmers are helped, they are digging deeper into poverty.

The solution lies in high yielding varieties in order to address the problem more effectively. Earnings depending on yield per acre also varies from a high of Sh183, 000 per acre of tea to the lowest receiving Sh61, 000 per acre. Others earn about Sh91,000 per acre. Although the structure of the agency is flawed (farmers ought to be owning the shares rather than factories), the CS will be wasting his time trying to wrestle a “private company.”

The problems at KTDA2 are complex. The political class should deal with these problems and compel management to innovate and create more wealth for farmers. Otherwise, we may be accelerating poverty when our intentions are to deal with it.

Source: Nation Media