1. Agriculture, Fisheries and Food Authority Tea Directorate PRESENTATION ON KENYA TEA INDUSTRY

2. PRESENTATION OUTLINE INTRODUCTION THE PROBLEM STATEMENT REVIEW OF STATISTICS DISCUSSION POINTS

3. INTRODUCTION Tea Industry Contributes immensely to socio-economic development of the country : It is the leading foreign exchange earner-26% of the total foreign exchange earnings. 7% of the GDP. livelihood support to over 5 million Kenyans. Contributes to Rural development and employment in 18 Counties. 95% of Kenya tea is exported to over 60 market destinations. In 2014, the tea industry earned the country Ksh. 101 Billion in export earnings and Ksh. 22 Billion in local sales. Tea Industry is a strategic subsector in the overall economy of Kenya.

7. ROLES OF THE TEA DIRECTORATE Guided by Crops Act 2013, the Directorate conducts:  Regulation and compliance  Industry planning and development  Advocacy  Market and product Research  Trade Promotion  Organizational capacity and service delivery enhancement

9. A SUSTAINABLE AND GLOBALLY COMPETITIVE TEA INDUSTRY INDUSTRY REGULATIO N AND DEVELOPME NT PRODUCTI ON PROCESSIN G TEA TRADE BLENDERS / BRANDS WHOSALER S /RETILERS CONSUMERS GOVERN MENT (NATIONA L & COUNTY) TEA DIRECTO RATE AND TEA RESEAR CH

10. INDUSTRY VALUE CHAIN TEA GROWERS 0VER 700,000) BLENDES RS AND BRANDS BUYERS (80 ) MANUFAC TURE (120 ) WHOL ESALER S RETAIL ERS AUCTION CONSU MERS NATIONAL GOVERNMENT (POLICY FORMULATION) COUNTY GOVERNMENT (POLICY IMPLEMENTATION) TEA DIRECTORATE (REGULATION AND DEVELOPMENT ) TEA RESEARCH INSTITUTE (RESEARCH & INNOVATION ) WHAREHO USING BROKERS

11. PROBELEM STATEMENT Year 2013 /2014 witnessed a drastic turn of fortunes with tea prices at the Mombasa auction, the main outlet for the smallholder farmers, dropping significantly by 30% Consequently, (KTDA) failed to declare the initial lump sum payment to farmers, popularly referred to as “Mini-bonus, causing a national outcry by tea growers.

12. PROBLEM STATEMENT Government raised concern about the situation and decided to look into ways to mitigate against the negative impact of the low prices so as to ensure that the tea sector remains sustainable and competitive The President gives a directive in June 2014,on the establishment of a Price Stabilization Fund to cushion farmers in times of low prices

13. PROBLEM STATEMENT Overall objectives of this assignment is to implement the Presidential Directive by recommending the most appropriate price stabilization scheme for the tea growers in Kenya

14. RISING COST OF PRODUCTION

15. PRODUCTION DATA No of Growers Estates32,786 SmallHolders 595,152 Total 627,938 Area(ha)Production 65732150,981,510 124985218580414 190,717 369,561,924

16. PRODUCTION DATA 10 YEAR SUMMARY OF GREEN LEAF PAYMENT (SMALLHOLDERS) FINANCIALTOTAL WEIGHTFIRSTSECONDTOTAL1ST & 2ND YEAR DELIVERED BY FARMERSAVG. PAYMENT PAYMENT KGSRATE/KG/GL KSHS 2004/2005753,925,7309.00 11.7520.7515,475,299,489 2005/2006727,824,1189.0015.2724.2717,660,692,876 2006/2007914,708,20210.5010.8521.3519,187,243,360 2007/2008813,641,57810.5014.1324.6319,781,669,971 2008/2009726,269,27010.5024.6635.1625,411,417,801 2009/2010888,704,02811.5031.5243.0238,228,154,316 2010/2011837,370,088 12.0036.40 48.4040,525,847,694 2011/2012906,274,568 12.5037.51 50.0145,317,098,263 2012/20131,123,909,348 14.0031.65 45.6551,303,667,428 2013/20141,124,328,441 14.0017.61 31.6135,543,621,836

17. PRODUCTION DATA

22. (i) Manufacturing/Processing Costs 2009/1 0 2010/ 11 2011/ 12 2012/ 13 2013/ 14 Labour12.9711.1712.5412.2413.00 Furnace Oil4.080.921.180.400.09 Electricity9.279.2311.709.6610.40 Fuelwood3.895.917.127.687.84 Leaf Collection4.263.303.923.663.54 Packing Expenses5.565.876.636.496.23 Administrative Costs11.128.8110.409.4210.21 Management fees 6.346.706.394.91 Financial Costs9.2710.2411.049.4310.27 Selling Expenses 5.035.665.436.62 Sub-total (K.sh)60.4266.8276.8970.873.11 Sub-total (USD)0.780.840.870.790.85 25%27% 24%35%

23. PRODUCTION DATA (ii) Farm gate Costs 2009/1 0 2010/ 11 2011/ 12 2012/ 13 2013/1 4 Fertilizer5.674.786.966.355.64 Plucking Labour32.0025.5032.0039.9034.00 Miscelleneous -weeding & other costs17.00 16.5314.88 Sub-total54.6747.2855.9662.7854.52 COP Grand-total (K.sh/Made Tea)115.09114.10132.85133.58127.63 COP Grand-total (USD/Made Tea)1.491.441.50 1.48 AUCTION PRICE AVERAGE- smallholder3.113.073.203.262.43

24. PRODUCTION DATA MARGIN/KG OF MADE TEA1.621.631.701.760.95 Smallholder average area under tea-ha0.5 Smallholder productivity/ha 1,609 1,956 1,771 1,749 1,962 Smallholder average production/Year804.55977.98885.66874.43980.88 Smallholder average Net Margin/Year1304.591592.971509.261541.93928.53 Smallholder average Net Margin/Year/K.SH 100,871 126,122 134,038 137,623 79,893 Smallholder average Net Margin/Month/K.SH 8,406 10,510 11,170 11,469 6,658 Smallholder average Net Margin/Day/USD 3.6 4.4 4.2 4.3 2.6 Working parameters Exchange Rate77.3279.1788.8189.2586.04 Fertilizer Cost per Bag of 50 Kgs 1,825 1,871 2,466 2,221 2,214 Fertilizer application-Bags/ha55555 Cost of fertilizer per ha 9,125.00 9,355.00 12,330.00 11,105.00 11,070.00 Productivity-Made Tea/Ha (Kgs) 1,609 1,956 1,771 1,749 1,962 Cost of fertilizer per Kg of Made Tea5.674.786.966.355.64 smallholder average area under tea-ha0.5

25. DISCUSSION POINTS FAO COMPOSITE PRICES INDICATE A PRICE DROP OF 12% WHILE KENYA AUCTION PRICES DROPPED BY 30% IN 2013/14 THE NATIONAL TREASURY DOES NOT SUPPORT A PRICE STABILISATION FUND,CITING THE EXPERIENCE OF THE COFFEE STABEX FUND (2000),AMONG OTHERS KTDA COMMENTS ARE THAT WITH REDUCED GROWER EARNINGS,ITS NOT FAIR TO BURDEN THE TEA GROWER WITH ADDITIONAL CONTRIBUTIONS TO THE FUND

26. OPTIONS FOR DELIBERATIONS A PRICE STABILISATION FUND SUPPORTED BY GOVERNMENT,INDUSTRY OR A MIX OF BOTH USE MARKET BASED RISK APPROCHES,FORWARDS,OPTIONS,FUTURES ETC USE OF SUBSIDIES INPUT SUBSIDIES ETC

27. OPTIONS FOR DELIBERATIONS USE OF CROP INSURANCE APPROCHES VALUE CHAIN INNOVATIONS A MIX OF THE ABOVE OPTIONS BASED ON SHORTTERMAND MEDIUM TERM SOLUTIONS

28. THANK YOU