Unsold tea stocks at auction hit 40pc on price, quality concerns

About 236.9 million kilogrammes of tea or 40 percent of stocks delivered for sale at the Mombasa auction went unsold in 2023 as buyers kept away over high reserve prices and poor product quality.

Disclosures by the Tea Board of Kenya (TBK) show that the absorption rate for tea on offer at the Mombasa auction was lower at an average of 60 percent compared to 76 percent in 2022 and 84 percent in 2021.

Growers from factories in the west of the Rift Valley were the worst hit, having had the highest volumes of the unsold teas while volumes of Broken Pokoe 1(BP1) grade teas across all factories suffered low sales as their penetration of key markets, including Russia and Iran declined.

At the same time, the average auction price for tea sold in 2023 was down at $2.24 (Sh321.61 at current exchange rates) from $2.49 (Sh357.51) in 2022, which upset the reserve price of $2.43 (Sh348.89) set for teas sold by the Kenya Tea Development Agency (KTDA)—the auction’s largest participant.

“The lower absorption and reduced prices were attributable to increased volume of lower quality teas offered by the tea factories at the auction,” said TBK in a statement on Thursday.

Read: State to drop minimum tea prices as stocks pile up

The TBK said for each specific grade of tea, the price and absorption follow the demand and quality with the quality being described as leaf appearance, leaf infusion, and liqouring characteristics.

Smallholder tea factories, which delivered quality ranging from good, medium to best were, however, spared from the fallout of the low absorption rate as the teas fetched higher prices averaging Sh391.97 ($2.73) per kilo for the main grades.

The drop in tea prices against the higher reserve price has seen calls for the removal of the floor price as sellers decry large stocks of unsold consignments of the green leaf.

Last month, Investments Promotion PS Abubakar Hassan Abubakar said the government would hold talks with tea sector players to start repealing the regulations that introduced the reserve price.

The reserve price was introduced in July 2021 in a bid to lift earnings for smallholder tea farmers.

The government has, however, admitted to unintended consequences in the move that has seen it advocate for a return to price liberalisation.

“In terms of the stock that is yet to be sold, it is because of the pricing control that was introduced to solve a problem, but it looks like it brought unintended consequences.

“We are now going to have a conversation on how we will liberalise that,” said Mr Abubakar.

On reducing the supply of lower quality teas at the auction, the TBK says it is developing standards for teas acceptable for processing.

“The Tea Board of Kenya has been registering the green leaf transporters to the factory and is developing the standards of green leaf acceptable for processing,” said the TBK.

The high volumes of unsold teas at the Mombasa auction is a dampener to a tea party anchored largely on the depreciation of the Kenya shilling, which meant higher earnings for smallholder tea farmers in local currency terms.

Earnings for the sector hit a record of Sh180.5 billion in 2023 from Sh138 billion, a 31 percent increase in the value of exports.

Read: Sh1.6bn teas withdrawn at auction as demand plunges

The tea earnings enjoyed a favourable exchange rate at Sh139.85 compared to Sh117.87 previously.

Earnings in dollar terms were however slightly lower at $2.47 (Sh354.64 at current exchange rates) per kilogram from $2.62 (Sh376.17) in 2022.

In local currency terms, tea prices averaged Sh345.32 per kilo compared to Sh306.64 previously.

Pakistan remained the top export market for Kenyan tea buying green leaf valued at Sh75.2 billion or 209.59 million kilograms.

This was despite the market suffering difficulties in obtaining hard currency to make the purchases.

Other top markets for Kenyan tea in the year were Egypt, the UK, UAE, Yemen, Russia, Iran, Sudan, Afghanistan, and Poland.

The top 10 destinations which represent the majority of destinations for Kenyan tea accounted for 83.1 percent of the country’s tea export volume.