There are growing discussions on whether the controversial tea reforms bulldozed by the last regime have been a blessing or a bane for farmers, especially the smallholders who make up the lion’s share of the sector’s stakeholders. One area where there is a lot of concern is the setting of a minimal price which was contested by all players in the tea industry. Part of the tea sector reforms introduced a $2.43 (Sh296.5) base price for the smallholder factories managed by Kenya Tea Development Agency (KTDA). Such an artificial price creates a big problem. The argument advanced by economists is that if the cause of the low price is oversupply, a minimum price encourages more production due to better pay. It makes the supply situation worse. Consequently, an even lower price will ensue unless the State has alternative ways of disposing of the surplus product. This is what is happening at KTDA-managed factories. By placing a base price, teas that do not attract this $2.43 are left unsold, raising the number of unsold stocks. Buyers are now buying alternative teas from other non-KTDA factories that did not agree to set a floor price and from other countries that sell through the Mombasa Auction at the expense of KTDA farmers. This stock that is left unsold is put back to the auction, which is costly because for every sale, a 4kg sample must be drawn from the tea for distribution to the buyers. This leads to a loss of revenue for the farmers. Old teas lose quality over time and do not attract the same price as new teas, losing cash for farmers. It is key to note that there is no other tea auction in the world that has a minimal price in place. Another area that needs to be looked into is a proposal to begin the process of making KTDA a publicly listed company. In April 2021, through a special AGM, the KTDA Holdings board and the 54 factories awarded over 620,000 tea farmers and affiliated institutions shares. The move made the farmers direct owners in the tea farmer organisation. Previously, KTDA Holdings was owned by the 54 factories owned by farmers and affiliated organisations. As such farmers did not directly own KTDA Holdings. This changed in April last year. Farmers were allocated shares based on leaves delivered between July 1, 2019 and June 30 2020. Listing on the NSE will lead to price discovery and liquidity of the shares. Finally, KTDA is embroiled in lawsuits at the expense of the welfare of farmers.
Source: Standard Media