Eastern African tea auctions encounter difficulties in selling their merchandise

The market in East Africa is experiencing a decline in sales due to a discrepancy between the price and quality of tea. In fact, the price per kilo has reached its lowest level in three years.

The Mombasa Tea Auction and the recently established Dar es Salaam Auction are both consistently setting new low prices, which are influenced by seasonal fluctuations and global demand.

In spite of this, the two markets have exceeded the international limit of 30 million kilograms of unsold tea. Last year, Mombasa documented over 100 million kilograms of unsold tea.

The Dar es Salaam Tea Auctions have resulted in a decrease in sales volumes and price volatility in Tanzania’s tea sector, with many quantities remaining unsold by more than half.

The data from the auctions since November 13, 2023, indicates that prices have decreased in comparison to the $0.77 per kilo offered for the 66,920 kg of tea, which served as a benchmark for selling volumes and prices.

The volume sold in subsequent auctions has fluctuated, with a decrease to 6,994 kg from the 47,066 kg offered in the middle of the year.

These fluctuations can be ascribed to a variety of factors, such as seasonal influences, local production changes, and global market demand. The auction data has necessitated that marketers implement strategies to accommodate changes.

Kenyan authorities stated that they were making significant efforts to further reduce sales and low prices. Nevertheless, the inventory of unsold tea has necessitated the establishment of a reserve price of $2.43, resulting in elevated storage expenses.

The Kenya Tea Development Agency (KTDA)’s cessation of direct exports and the implementation of the reserve price policy, according to traders, were the reasons for the surplus.

Nevertheless, the low take-up of tea at the auction is also attributed to the declining quality of tea in the country and the challenges posed by the dollar in export markets.

Unsold tea remains in numerous tea storage warehouses in Kenya’s coastal towns, which is further exacerbated by the ongoing attacks in the Gulf of Aden, which have resulted in delays in the arrival of ships to retrieve the tea.

The industry is at risk of being stifled by an oversupply of the commodity, which will continue to depress prices. Williamson Tea and Kapchorua Tea, two companies listed on the Nairobi Securities Exchange (NSE), have already called for the elimination of the large stock of unsold tea held by KTDA.

Tea prices have plummeted to unsustainable levels due to market saturation, according to the two tea companies, which jointly own the majority.

In order to safeguard the incomes of producers, who are responsible for approximately 60% of Kenya’s tea production, the Kenyan government established a minimum price of $2.43 per kilogram for KTDA in 2022.

However, Kenya suspended the reserve price at the Mombasa tea auction last week to enable the resale of over 70 million kilograms of unsold tea.

The over 100 million kilos of tea that were rolled over this year have been accumulating in warehouses in Mombasa, as buyers have been unable to purchase them due to the price discrepancy between the grade of the tea and the price.

Farmers will forfeit a substantial incentive payment if the tea is not sold by October, as cartels persist in their efforts to undermine the tea industry.

Andrew Karanja, Kenya’s Cabinet Secretary for Agriculture and Livestock Development, announced that a committee would be established to investigate the issues related to the quality and reserve price of tea sold at the auction.

The CS accused a number of unscrupulous brokers in the tea industry of unethical trading practices and issued a warning that their licenses would be revoked. The brokers were not identified.

According to the CS, the KTDA has sold 30 million kilos of the previous stock balance in the past two weeks and is presently holding only approximately 70 million kilos of teas from smallholder tea factories. These teas will be sold before the second payment is declared in October of this year.

The government official contended that the unsold tea was within the 3-year shelf life. However, he also stated that KTDA would sell the residual stock of tea through private contracts before the second payment to tea farmers is declared in October of this year.

“The minimum reserve price for all teas that are older than six months will be suspended immediately.” CS Karanja also announced that the ministry will establish a multi-stakeholder committee to evaluate the tea pricing mechanism.

The Mombasa auction operates on a two-day-a-week schedule, with secondary grade teas being sold on Mondays and premium grade teas being sold on Tuesdays. Any tea that is not sold on a scheduled auction day is reprinted on a new catalogue and reintroduced to the auction two weeks later.

A seller is permitted to return unsold harvests to auction only twice. Any crop that remains unclaimed after two auction attempts is relegated to the ‘passive window’, a sales window in which produce is sold at low prices due to perceived poor quality.

Kenya has exported less than 1 percent of its total production in value-added form over the past five years, according to data.

Kenya generates approximately 200 million kilograms of raw tea annually.