The multinational tea firms want to set the minimum price of tea at more than Sh200 for a kilo to break even, which will be Sh20 above the reserve price the government set on purchases of the smallholders’ produce.
The plantation owners argue that the cost of production for a kilo of the beverage is between Sh190 and Sh200, way above the selling price at the auction. Kenya Tea Growers Association chief executive Apollo Kiarii said the multinationals produce has been fetching Sh150 a kilo on average in the last couple of months, implying that they have been operating at a loss.
The companies announced last week that they would set a minimum price for their tea at the Mombasa auction to cut on losses occasioned by the low cost of the commodity in the market. “Our cost of production is around Sh190-200 per kilo of made tea. The average price in the last few months of 2021 has been about Sh150,” he said.
“The current prices offered at the auction, which are frequently below the cost of production, are not sustainable and unless something is done, the entire sector and the livelihoods it supports is at risk.” Agriculture Cabinet secretary Peter Munya introduced the minimum price at the auction for Kenya Tea Development Tea Agency (KTDA) farmers produce last month at Sh183, citing low value for the beverage amid high cost of production. The new price regime at the auction saw millions of kilos of tea offloaded from the trading floor as traders kept away from KTDA teas as they opted to buy beverages from other firms that were seen to be cheaper.
However, the prices have so far picked with a kilo of tea at the auction last week hitting a five-week high to Sh213 from a low of Sh168 last month. It remains to be seen what impact the minimum price by the multinationals will have on trading at the auction. Meanwhile, the Mombasa auction will cut the trading days to two from three initially as volumes of tea offered for sale decline.
Source: Business Daily