Interview: Peter Kimanga
What can be done to insulate Kenya’s tea producers from global price volatility?
PETER KIMANGA: First, we must overcome some challenges. We are too dependent on the export of bulk teas, which has narrowed our markets. We are trying to diversify and expand to countries which are not yet importing from us, and to do that we need to have value-addition. For instance, because of labour challenges in the West, they want to import finished goods as they are expensive to finish in these markets. However, tea packers in Kenya are not allowed to access bulk tea at the zero-rated auction prices. They are required to pay the value-added tax (VAT) up front and then, upon obtaining proof of export, they are reimbursed. However, reimbursement can take up to a period of three years, which is far too long to have this capital locked up.
At the same time, we are competing with countries like India, where producers actually get a cost reduction for value-addition. So when a Kenyan company gets cost-plus-16% VAT, and an Indian company gets a 6% drawback of the invoice value as an incentive, this can make it difficult to compete. The advantage of foregoing the 16% VAT is that it will attract investors in the value addition sector, through which jobs will be created, but more importantly, we will be able to export to value-added export markets like the US, Europe, the Middle East and Southern Africa, where tea consumption is fast growing. This concentration in export destinations – some of which are economically unstable – makes us significantly less insulated from demand shocks. Eastern Europe and West Africa represent good opportunities to diversify from these traditional markets.
How can sector productivity be increased?
KIMANGA: Mechanisation is a necessary development in tea, as the younger population has moved away from agricultural professions, causing a need for productivity increases. However, strong unions are pushing against mechanisation. Crop husbandry is another way to improve productivity, and the use of better-yielding plants and practices is important. We are looking into more drought-resistant varieties, as the country is experiencing environmental change and less rainfall. We are looking at specialised factories that can manufacture specialised products and moving away from bulk producers. The Agricultural Research Institute is working on vegetative propagation to see which plants perform well in which areas, and are sharing these with farmers on “farmers’ field days”. Lastly, joint ventures between Kenyan producers and foreign supermarkets offer a mutually beneficial way to insulate the Kenyan market.
What is the greatest challenge for the sector?
KIMANGA: Cost of production and port turnaround times used to be a challenge, but we have seen progress on both of those. Other than VAT, tea’s greatest challenge is marketing. Kenyan tea does not benefit from as much government marketing as other countries. Other agricultural subsectors are struggling more than tea, so they often get more attention as tea is doing comparatively better. However, there are perhaps outsized gains to be made in investment in tea marketing, so this should be considered as well. This is why it is important to view agricultural subsectors in clusters, and not in comparison.
One other challenge we see in the tea industry is the burden from over-certification. There are certifications for the environment, halal, organic, fair trade and many other well-intentioned aims. However, the farmers are exhausted by these, and they represent an added cost as companies have to pay to show inspectors around the facilities. We would like a solution to this that harmonises these certifications and also creates a single audit process that allows for Kenya’s unique cultural practices.
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