Economic and Business Analysis By Leo Odera Omolo In Kericho Town
The Tea Amendment Bill 2010, a private members motion recently introduced to Parliament by the youthful Konoin MP Dr.Julius Kones, if implemented as a the new law governing and regulating the industry, would certainly destroy Kenya’s tea industry.
The tea industry has of late increasingly become the country’s greatest economic asset racking in close to Kshs 70 billion between 2008 and 2009 alone, most of it in hard foreign currency.
And the key players in the industry sees the new Tea Bill, which seeks among other things to total liberalization of the industry would ruin it and bring it to a total collapse. An action which would put into chaos and jeopardizing the lives of close to five million Kenyans.
The key players have accused the MP of ignoring the input by other stakeholder and unilaterally drafting the law that would kill the industry the same way the coffee industry has met its death.
Kones seemed to have parochial intention with the aims and objectives of protecting few small scale tea farmers in the South Rift thereby gaining political mileage at either community or constituency level without taking into account the long term economic repercussion.
The MPO ought to have known that there are more than 60 green tea processing factories scattered all over Kenya, particularly in Central, part of Easter, Western and Nyanza Provinces.
The Kenya Tea Development Agency [KTDA] is the government parastatal body charged with the responsibility of regulating and managing these factories on behalf of hundreds of thousands.
Small-scale tea farmers in the villages where the crop is grown are technically the owners of these KTDA managed factories.
As the KTDA Managing Director Mr. Lorionka Tiampati put it the other day during a Television interview, the KTDA had secured finances from the financial institutions on behalf of the small-scale farmers. To establish an extra-modern green leaves tea processing factory required the colossal amount, which is estimated to be between Ksha 500 million and Kshs One billion.
The hollow and shallow argument advanced by Kones and his supporters is that KTDA is paying less to the farmers. For example Kshs 12.50 per a kg. Whereas those farmers who are hawking green leaves tea and delivering the same to the Multi-national tea companies are fetching between Kshs 25 and 35 per kg of green leaf tea.
But those delivering the crops to the multinational tea companies are not earning any bonus, whereas the farmers who delivers their crops to the KTDA factories are earning bonuses, which is equal to Kshs 12.50 payable annually in a lump sum.
Technically, the small scale farmer is also contributing towards the replenishment of the loan accrued by the KTDA to construct the factory on behalf small-scale farmer. The KTDA is also subsidizing for certain farm inputs such as fertilizers, technical advice etc.
If the industry is liberalized the way Kones sees it, it would entail the farmers to go hawking with their harvest looking for higher prices from the multinational tea companies, and the KTDAS tea processing factories will have to be close down.
Moreover, it is only in the South Rift and in part of Central Prog9ince, particularly in Kiambu district, Nandi and Western regions where the multinational tea companies are operating. The rest of the KTDA managed tea factories are located in regions where there are no multinational tea companies.
Credible studies carried out by the various stakeholders revealed that not the small-scale tea farmers are benefiting from the high prices paid out by the multinational tea companies, which are based in Kericho, Bureti, Bomet and districts.
It is indeed, the middlemen, commonly called “Mang’eritos” who are reaping the fruits out of the sweats of the poor small scale tea farmers in rural locations. The “Mang’reritos” pays the poor farmers as little as 10/- per kg, far much below the KTDA’s Kshs 25/- per kg with nothing left like bonuses. But because of the bureaucratic logistics and red tape treatment on the part of KTDA managers and agents in the field, the desperate farmers become disillusioned and want a quick kill by selling his or her green tea leaves to the “Mang’reritos” for readily available cash money.
KTDA managed tea factories, which are located in the South Rift include Kapkatet, Litein, Tegat, Mamul, Kapkoros and Mogogosiek. There are even much more KTDA managed tea factories established in the Gusii region of Nyanza Province than those operating in the South Rift, which Dr.Kones is believed to be narrow minded about.
The small scale tea farmers in other areas outside South Rift region want the contentious Bill, which according to Dr. Kones, is meant to improve the regulation governing the tea sector, shelved until the input by all the stakeholders is taken into consideration before its implementation and enactment as a law.
Through their local directors, the small scale tea farmers operating outside the South Rift have complained, that the Bill, the Tea Amendment Bill 2010 is likely to cause more serious damage to the sector and perhaps negate on the benefits realized under the current Tea Act.
Whereas Dr Kones’ Bill, which proposes to amend the Tea Act {Cap 343 law of Kenya, is designed to liberalize the tea industry and improve the welfare of small-scale tea farmers, a close look at the provisions of the Bill reveals a well orchestrated scheme to cause chaos in the small-scale farmers sub-sector and ultimately cause the collapse of the industry for the benefit of a few hidden cartel of unknown individuals.
Other analysts say, although farmers in other quarters were in support of an improve Tea Act, the proposed Kone Bill would destroy rather than improve the industry. The Bill, they said, is neither reformist not liberating. It is retrogressive, draconian and clearly suspected to be driven by ulterior motives and bad faith. Other says, they have read mischief in its introduction, particularly at this time when prices of tea are incr3asingly becoming more competitive in the world market.
Alternatively the other option left for the government is to privatize all the tea factories currently under the KTDA management. They should sell them to new investors, who will relieve the small scale of the burden of paying millions in loans, which appeared to be endless and enslaving the farmers. Thereafter the new investors could set their own prices, which they deemed competitive enough in the face of encroachment or scramble for green tea leaves by the multinational tea companies.
The privatization exercise, is the only avenue that would set the tea farmers free to sell their crops to whoever they choose and wherever they like. This could not be achieved while these factories owed their financiers hundreds of millions.
Liberalization of the tea industry does not mean farmers should be free to hawk around looking for buyers of their crops. This would also affect the quality of tea and kill the industry.
Kone Bill is silent over how the loans would be serviced when the factories are idle not producing any tea after the farmers have gone hawking their crops to the multinational tea factories for higher prices. Thousands of workers currently employed in the KTDA managed factories would be declared redundant.
Technically, the MP has failed to explain how small-scale farmers will benefit should the Bill become law. He has chosen to single handedly draft the a Bill with grave consequences for an industry that contribute 5 per cent to Kenya’s GDP_ with exports valued at Kshs 70 billion in 2008/2009 alone.
In the small holder sector, there can be any progress by acting apart from each other. This is what caused chaos in the coffee industry leading to its near collapse
In a close scrutiny in terms of returns per kilo of green leaf tea. Kenyan small holder farmers are the best paid lots in the world, compared to their counterparts in other tea growing countries. The reason being that in Kenya, the farmer owns the factory to which they deliver raw tea, making him/her not only a supplier of green leaf, but also a shareholder.
This is why the best of KTDA managed factories pay out as much as 75 per cent of the total revenues earned per year to the farmer.
Kenya’s small-scale tea farmers, however, faces challenges such as declining land sizes, which has made many units economically unviable, high cost of labor and electricity and unstable global prices. But it is incomprehensible what will happen to the 54 factory companies should God forbid, the new Tea Bill become law.
By proposing uncontrolled registration and delivery of tea by the farmer to any factory, the Bill inadvertently seeks to stall the progress of some 600,000 farmers and their families and drive them into abject poverty.
Section 8B of Kones Bill reads as follows; ”Notwithstanding, the provision of the Act {Cap 343] or any other law, a tea grower may deliver green leaf to a factory of his choice.”.
It has been noted that the KTDA model is unique and its success has been the subject of studies by other tea producing countries including Sri Lanka, India, Uganda, Rwanda, Nigeria and South Africa.
If farmers are not registered and managed by their local factories, it will make guarantee of product, collection of loans due to the factory, collection of SACCO loans, securing credit for factory development and inputs procurement impossible.
Collectively, the factory companies are servicing expansion and modernization loans amounting to Kshs 6 billion. The financial institutions next course of action will be to recall the loans as the factories will no longer be guaranteed leaf for processing and revenues.
This experts say, could lead to the disposal of farmers assets at throwaway prices.
Other good news apart from the mischievous proposed Tea Bill, are good news that Kenya is scoring a double in the tea industry-both prices and production levels have remained high, a situation the regulator says is likely to prevail throughout the year as the country enjoys the current good rainfalls.
This development is good news for farmers who last year earned the highest end-of-year payments in 25 years, averaging Kshs 40 {USD 0.54} per kg.
The KTDA, which is currently engaged in protracted war battling the proposed controversial Tea Bill meant to wrestle the small-scale tea farmers from its control, also increased the monthly payments from Kshs 10 to Kshs 12 {USD 0.15} in January.
Unlike last year when it was unable to supply fertilizers due to high costs, the commodity is in plenty supply this year.
Also reported on increase are the countries buying Kenya’s tea, rising to 38 from 35 in 2009 and 2008 respectively.
Industry players had predicted that increased production would cause the good prices enjoyed at the peak of the drought last year to fall but reports from the Tea Board of Kenya indicate the party is still on . The board’s Managing Director Cicily Kariuki was recently quoited by a section of the press as saying the prices were unlikely to come down even with increased production because traders would not reduce them at supermarket level, sentiments shared by her the KTDA counterpart. Lorionka. Tiamnpati
The tea production for the first quarter of this year stood at 11 million kgs, a 69 per cent increases over the 65.8 million kgs recorded in the first quarter of last year.
Ends
leooderaomolo@yahoo.com