Voluntary Report - public distribution

**Date:** 7/14/2004

**GAIN Report Number:** KE4011

KE4011

**Kenya**

**Tea**

**Kenyan Tea Report**

**2004**

**Approved by:**

![](media/image1.wmf)Fred Kessel

U.S Embassy

**Prepared by:**

Mary Onsongo

**Report Highlights:**

Kenyan tea production averages 280,000 - 294,000 mt annually. Production
for 2004 is projected at 295,ooo mt with a 5 % drop forecast for 2005.
The drop is attributed to reduced smallholder farmers yield (husbandry
practices, high cost of farm inputs) and low farmer morale (irregular
and delayed payment). Kenya earns an average of \$ 437.5 million from
tea exports. The U.S. tea imports from Kenya average 4,500 mt annually.
There are efforts to export Kenya tea to the U.S. under AGOA.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Nairobi \[KE1\]

\[KE\]

TABLE OF CONTENTS

[Production 3](#production)

[Tea Production by Sector 3](#tea-production-by-sector)

[The Structure of the Tea Industry
4](#the-structure-of-the-tea-industry)

[Marketing 4](#marketing)

[Limitations of the Tea Industry 4](#limitations-of-the-tea-industry)

[Investment Opportunities 5](#investment-opportunities)

# Production

Growing and processing capacity

The area under tea has increased from 21,000 hectares in 1963 to the
current level of 130,000 hectares. About 26 percent of this area is
owned by the plantation estates and the rest by over 400,000 smallholder
farmers. Production has increased from 18,000 mt in 1963 to 280,000 --
294,000 mt annually. Production for 2004 is projected at 295, 000 mt
with a 5 % drop forecast for 2005.

The Plantation estates account for about 38 % of total production and
the smallholder farmers managed under the Kenya Tea Development Agency
(KTDA) Limited, account for 62 % of national production. The major
commercial plantation owners include major transnationals like Brooke
Bond, the tea arm of Anglo-Dutch consumer goods giant Unilever and James
Finlay and other locally owned farms.

Kenya has 91 tea factories with a production capacity of 1,365 million
kgs of green leaf, with a turn over of 300 million kgs of made tea.

## Tea Production by Sector

## 

  ------ --------- ------------ ------------- ------------ ------------ --------- ----------------
  Year   Estates                Smallholder                National     Exports   Value of Exports
                                (KTDA)                                            

         Area (HA) Production   Area (HA)     Production   Total        Total     Value (KSHS)
                   (MT)                       (MT)         Production   Exports   

  1995   32,201    105,580      80,355        138,946      244,525      237,498   18,808,319,320

  1996   32,523    113,091      81,159        144,071      257,162      244,237   21,618,497,940

  1997   32,694    91,014       84,657        129,708      220,722      198,552   24,073,283,560

  1998   33,761    118,537      84,657        175,628      294,165      263,023   33,210,769,440

  1999   33,884    94,853       90,317        153,855      248,708      241,739   32,732,691,400

  2000   35,313    90,740       90,890        145,546      236,286      216,990   35,095,298,440

  2001   38,781    112,906      92,800        181,726      294,631      270,152   34,403,967,820

  2002   44,399    111,197      95,577        175,905      287,102      272,459   34,306,319,216

  2003   44,400    112,882      95,577        180,789      293670       269,459   34,259,845,797
  ------ --------- ------------ ------------- ------------ ------------ --------- ----------------

Source: Tea Board of Kenya

## 

**U.S Tea Imports (mt)**

+-----------------+---------------------+------------------------------+
| **Year**        | ###### Kenya        | **Other Countries**          |
+-----------------+---------------------+------------------------------+
| 1999            | 4,692               | 85,171                       |
+-----------------+---------------------+------------------------------+
| 2000            | 4,391               | 80,696                       |
+-----------------+---------------------+------------------------------+
| 2001            | 4,674               | 86,497                       |
+-----------------+---------------------+------------------------------+
| 2002            | 4,785               | 84,156                       |
+-----------------+---------------------+------------------------------+
| 2003            | 2,785               | 82,085                       |
+-----------------+---------------------+------------------------------+

**Source:** International Bulletin of Statistics-Annual Bulletins, 2003

# The Structure of the Tea Industry

The Tea Board of Kenya, is the apex regulatory body of the industry
which is mandated to license tea manufacturing factories; carry out
research through its technical arm Tea Research Foundation (TRF) of
Kenya, register growers, buyers, brokers, packers, management agents;
promote Kenya tea locally and internationally; disseminate information
relating to tea and advice the GOK on policy matters regarding the tea
industry.

Other key industry players include the Kenya Tea Growers Association,
bringing together the plantation estates; Kenya Tea Zone and
Conservation Corporation a government tea project creating a buffer zone
between the settlement areas and forests to protect the later from human
encroachment; and the East Africa Tea Trade Association which brings
together producers, buyers, brokers and packers under whose auspices the
tea auction in Mombasa is conducted.

The tea policy and legislation was completed in 2000, through the Tea
(Amendment) Act 1999 thus fully liberalizing production, processing and
marketing of tea. The tea sector utilizes 80% of the 1% tea cess for the
improvement of roads. The sector enjoys zero rated duty on farm inputs
and factory equipment.

## Marketing 

## 

The marketing of tea in Kenya is fully liberalized. 75 % of total
production is sold through the Mombasa Auction Centre and the rest sold
directly by private treaty. Only 5 % percent of the total production is
consumed locally and the rest exported. The major export destinations
include UK, Pakistan, Egypt, Afghanistan, Sudan Yemen and USA. There are
efforts to market tea to the U.S. under AGOA.

Kenya, which predominantly uses the CTC method of manufacture, remains
an important black producer, coming third after India and Sri Lanka.
Kenyan tea is sold largely in its generic, unbranded form. Privately
driven endeavors to tap the largely unexplored value added export market
opportunities are commencing albeit in a slow manner. Local generic
promotion campaign championed by the Tea Board of Kenya might yield some
increased domestic consumption. Kenya's per capita tea consumption (0.5
kgs), and indeed that of other Africa tea producing countries is minimal
and poorly compares with major tea drinkers like the Irish at 2.5 kgs,
Pakistanis at 1.5 kgs and the Egyptians at 1 kg per person per year.

KTDA has put in place \$ 50 million in a pilot production line for
orthodox tea at Kangaita (one of its factories). The objective is to
improve the farmers' price and accessing the gourmet tea segment. Price
indications from the Tea Board of Kenya indicate the regular CTC (Cut,
Tear and Curl) tea costs \$2.50 per kg while orthodox tea retails at
\$4.

# Limitations of the Tea Industry

Though historically the tea industry is one of the greatest success
stories in Kenyan agriculture, it has several areas that could be
improved. The low levels of fertilizer use, poor husbandry practices on
farms and management on factories especially among the smallholder
farmers have led to yield (2,500 kgs/ha) and production stagnation. The
protracted squabbles between farmers and KTDA in recent years over
payment and tea collection problems at buying centers have also led to
fluctuating production.

Though the organizational structure and delivery of services to
smallholder tea farmers by KTDA can be applauded it has poor
co-ordination between farmers and the factory management. This has
created internal rifts that are clearly evident amongst farmers as they
express dissatisfaction on their dues and query management styles.

The imposition of VAT on all teas transacted for export to locally
registered tea exporters outside the auction system continues to face
criticism by industry analysts. Removal of VAT will make Kenyan tea
cheaper by 15 % and encourage Kenyan farmers, consumers and traders.
Kenya is faced with stiff competition from other tea producing countries
and most importantly from an ever-increasing number of alternative
beverages for the end consumer.

Kenya still remains an expensive tea producer due to the high growing
(expensive labor, expensive farm inputs) and processing (high
electricity prices, high energy and expensive/poor infrastructure) costs
incurred.

# Investment Opportunities

There are investment opportunities in the Kenya tea industry. Kenya
hosts the second biggest Auction Centre in the world (after the one in
Colombo, Sri Lanka) that attracts teas from across Africa.

1.  Only about 2% total tea exports are value added hence an enormous
    value addition and consequent branding opportunity exists.

2.  Kenya primarily produces black CTC teas hence the potential of
    diversification to other products namely green teas, orthodox teas,
    ready to drink teas (juice tea), instant tea, and organic tea among
    others.

3.  Production of specialty teas for specific niche markets and direct
    sales are other opportunities.

Most of this could be undertaken individually, joint ventures with
existing producers, packers etc.