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The legal framework for value addition in the Tea sector is provided for in The Crops (Tea Industry) Regulations, 2020 under the Crops Act 2013

Tea is a major cash crop in Kenya and the single leading foreign exchange earner for the country. The Tea sub-sector has a US$40.5 billion market worldwide which is likely to grow to US$ 44.3 billion by 2022.

The major tea exporters in the world include China, Sri Lanka, and Kenya coming in third.

According to the recently released Economic Survey of Kenya, tea contributed a total of Kshs 122.2 billion to the Kenyan economy in the last year, making it one of the largest contributors to the country’s economy.

Value addition is the additional domestic processing of primary commodities, which entails increasing the economic value and consumer appeal of a commodity. The tea value chain extends beyond agricultural production to processing, trading, marketing and tourism. In tea, value addition is achieved through product branding, packaging and flavouring.

This includes:

1. Packaging of quantities of less than 10kg for export and local markets both as loose tea and tea bags.
2. Flavouring of tea.
3. Production of instant tea and iced tea.
4. Processing of tea extract.
5. Promotion of own garden brands by factories through compliance with consumer requirements such as fair trade.
6. Certification and other consumer requirements to increase competitive- ness in the global market.

Value-addition for tea will result in significant increases in foreign exchange income. Replanting with higher-yielding varieties will also boost Kenya’s production to the 600 million Kg mark by 2022. Among the strategies is a partnership with global hubs like the Dubai Tea Trade Centre, which account for over 60 per cent of all value-added global tea exports.

Value addition is the additional domestic processing of primary commodities, which entails increasing the economic value and consumer appeal of a commodity

Last year, the Industrialisation, Trade and Enterprise Development Ministry led negotiations with Pakistan that saw the removal of a Non-Tariff Barrier (NTB) in the form of the Attestation Fee of tea export documents between Kenya and Pakistan.

The Government’s transformative agenda is to strengthen agribusiness trade and international competitive-ness as envisioned in the Kenya Vision 2030.

Tea is Kenya’s leading industrial crop in terms of its contribution to the GDP and is the livelihood of over 600,000 smallholders making up on average 60 per cent of total tea production.

The goal is to increase the value addition in exported tea from the current 14 per cent in order to increase the exchange earnings from the crop. Key issues constraining growth along the value chain include:

1. High labour cost, which accounts for 68 percent of the production cost
2. Widening yield gap between small- holder farmers and estates due to continued use of moribund tea bushes and the type of tea clone grown.
3. The concentration of black CTC as most factories have only a single production line, thereby limiting product diversification. There are limited incentives for the production of other types of tea.
4. High cost of energy and heavy reliance on wood fuel in tea processing.
5. Low domestic consumption
6. The dominance of few multinational companies in the Mombasa Tea Auction who determine the prices
7. The limited number of export destinations and shrinking of current markets.
8. Unbranded Kenyan tea
9. Limited marketing research.
10. Delays in the adoption of national agricultural policy
11. Disconnect in the interpretations of the county governments’ devolved roles and functions and those of the tea directorate for tea. The County governments do not have a clear understanding of their role in the development of the Tea Sub-sector. This has resulted in the haphazard imposition of taxes and confusion surrounding the renewal of land leases for the tea estates.
12. Inadequate human and financial capacity for MoALF, Tea Directorate, KTDA, TRI, EPC, MoITC, and PSTD was assessed.
13. Lack of predictable and adequate financial mechanisms to enable institutions to discharge their mandates.

Solutions include:

1. Mechanisation of plucking and pruning activities.
2. Basic training of farmers on machine operations.
3. Supporting small scale farmers to replace moribund tea bushes with high yielding tea clones
4. Promoting alternative complementary enterprises.
5. Expanding factories’ capacity to produce teas other than black CTC (like specialty teas and extracts).
6. Investment in human skills development and production lines for manufacturing.
7. Adopting innovations for reduction of energy cost by shifting to energy-efficient technologies
8. Promoting domestic consumption of tea by, developing skills to redesign the marketing approach
9. Focusing on awareness campaigns and advocacy.
10. Diversifying export market destinations, for example targeting high tea consuming markets in Africa like Morocco and Nigeria through additional bilateral trade agreements as well as other trading blocks.
11. Investing in market research, especially market behaviour to consolidate existing markets and explore new ones.
12. Enhancing the capacity of the industry on domestication and harmonisation of international standards.
13. Promoting tea processing and branding within the Special Economic Zones to enjoy the associated incentives and make Kenyan tea more competitive.
14. Fast-tracking adoption of the agriculture policy and the national tea policy.
15. Separating the governance of tea from other crops.
16. Setting up of a one-stop shop for the AFA-Tea Directorate to provide information on the licences, taxes and levies in the tea industry as well as the incentives and opportunities.
17. Rationalisation of fees and levies across the different County governments’ jurisdiction through training on revenue and taxation.
18. Focusing tea research on marketing by providing resources and adequate numbers of qualified staff via linkages between the sub-sector and the higher institutions of learning.
19. Supporting County governments to develop appropriate strategies for the development of the Tea sub-sector with qualified staff and adequate financing of departments.

Reforms

The Government’s agenda is to ex- amine gaps along the value chain and ensure small-scale tea farmers enjoy their hard-earned sweat by improving the governance system and giving the farmers more authority in decision making.

The interventions necessary to address the challenges in the Tea Sector are categorized into four areas:

1. Executive Order
2. Legal and regulatory framework: Tea Policy and Bill/Act Fiscal Incentives,
3. Financing through Development Finance Institutions (DFIs)
4. Market access promotion

For instance, an Executive Order was made to increase the amounts of value-added exported tea from the cur- rent 12.2 per cent to 25 per cent in the next five years in line with Big Four Agenda and Agro-processing intents by the Government.

The Government has identified the dysfunctional and inefficient tea auction system characterized by lack of transparency, accountability and competition as prone to manipulation, capture, insider trading and cartelization by value chain players leading to ineffective price discovery, low prices and poor earnings to tea farmers.

To protect farmers, the Government has set a minimum reserved price for processed tea at the auction. Curbing the predatory behaviour of the Kenya Tea Development Authority (KTDA) and its subsidiaries on the value chain is also key. This includes a decision to ban the KTDA company secretary from participating in board meetings of tea factories.

The Government’s agenda is to examine gaps along the value chain and ensure small-scale tea farmers enjoy their hard-earned sweat by improving the governance system and giving the farmers more authority in decision making

KTDA under its agent model is contracted by as many as 66 tea factories as a management agent and this has meant that the KTDA company secretary would sit in on board meetings of the factories.

With the change, factory limited companies (FLCs) must employ their own company secretaries or outsource the service. Another change is that a director or affiliate of a management service provider like KTDA is no longer allowed to serve as a director or have a direct commercial relationship with a KTDA-contracted FLC. KTDA has been blamed for unwarranted delays in payments to small and medium-scale tea growers despite receiving payments from tea brokers within 14 days from the date of the auction.

The changes seek to lessen KTDA’s grip in the tea subsector and open the market to new management and more competition.

Another key change is the outlawing of the direct sale of tea overseas in favour of the auction. Teas not sold during a particular auction shall then be re-listed for sale in the subsequent one.

Registered tea auction organisers must set up an electronic trading platform, while buyers must submit a performance bond to the Agriculture and Food Authority (AFA) in the form of a bank guarantee equivalent to 10 per cent of the estimated value of the tea they intend to buy.

The money from the sale of tea at the auction shall be remitted directly to FLC accounts within two weeks of the auction date and FLCs shall within 30 days pay tea growers at least 50 per cent of their dues for green leaf de- livered every month, with the balance paid within the financial year.

Tea contributes immensely to the development of this country and is the leading foreign exchange earner contributing about 23 percent of the total foreign exchange earnings.

Most tea produced in Kenya is black tea, with green tea, yellow tea, and white tea following. Consumers in key markets are increasingly expanding their preferences from Black CTC teas to green, flavoured and ready-to-drink teas, necessitating diversification to the niche segments by producers. The Government is already implementing the Tea Act, 2020 to strengthen the regulatory framework for the tea industry. However, this has been hampered by ex-parte court orders issued by the Judiciary in several petitions filed against some provisions of the Act.

The Act establishes the Tea Board of Kenya with the mandate to regulate, develop and promote the industry.

Also in the Act is the process of electing Board members representing the small and medium scale tea growers, large-scale tea growers and the tea traders at the Tea Board of Kenya.

Between March and June 2021, Smallholder tea growers elected new directors for their tea factories using the system of one grower, one vote as provided for in the Tea Act, 2020.

All the 54 smallholder tea factories and KTDA Holdings have fully constituted their Boards and appointed their own company secretaries independent of the KTDA Management Agent.

The new directors of the smallholder tea factories and KTDA Holdings have successfully been inducted on Corporate Governance and financial management to enhance their over- sight role in the management of institutions within the smallholder tea sub-sector.

With effect from November 2021, smallholder tea factories reduced the brokerage fee pay- able to tea brokers from 0.5 per cent to 0.2 per cent of the net sales and the management agent fee paid by factories from 2.5 per cent to 1.5 per cent. The changes were projected to save smallholder tea factories over Ksh 1 billion annually.

One of the major reforms undertaken by the Government is to ensure farmers have access to fertiliser at a subsidized rate to improve the yields and increase production.

In October 2021, KTDA procured 86,288 metric tonnes of fertiliser on behalf of smallholder tea growers for application during the short rains season.

Despite an increase in the price of fertiliser, the Ministry of Agriculture and KTDA through the Ministry has requested the Government for fertiliser subsidy amounting to Kshs 1 billion, which will reduce the cost of fertiliser by Kshs.600 from Kshs3,073to Kshs2,473 per 50 Kg bag.

The request for subsidy was processed by the National Treasury. Among other key reforms in the Tea sub-sector is the reduction in the cost of credit to small and medium-scale farmers. KTDA was working to ensure small-scale tea growers get credit from Greenland Fedha Limited Micro-finance, a fully owned subsidiary of KTDA, at an affordable rate of 8 per cent per annum with effect from December 2021. This was to cushion them against the high-interest rates charged by microfinance institutions.

However, there was a challenge since Greenland Fedha as a subsidiary of KTDA enjoys an advantage over Savings and Credit Societies (Saccos) and could lead to heavy defaults on loans owed by the farmers to Saccos.

The Government now prefers that Greenland Fedha lend through Saccos or insist that farmers seeking Green- land loans be first cleared by their Sac- cos. Farmers prefer that KTDA focus on its core mandate of processing and marketing tea. Using the Government’s Public-Private Partnership (PPP) policy, Kenya Railways and KTDA signed a partnership for KTDA-managed factories to transport their produce via the Standard Gauge Railway (SGR) line from the Nairobi Freight Terminal to the Mombasa for export. This will lower costs for transporting tea for export and provide faster, safer and more convenient transportation of the commodity with the goal of a full migration from road to rail transport. On average 300 million kilogrammes of processed teas are transported to Mombasa annually for export.

One of the major reforms under- taken by the Government is to ensure farmers have access to fertiliser at a subsidized rate to improve the yields and increase production

The convergence of the SGR and the Metre Gauge Railway (MGR) at Lon- gonot station will further reduce the transport of tea by road to Mombasa, creating a seamless rail network for cargo from as far as Uganda, Rwanda and the Democratic Republic of Congo (DRC). KTDA is also setting up a tea handling facility next to the Nairobi ICD for export tea.

Online Solutions through Tea Soko

Tea Soko was established to provide ultimate solutions for the tea industry in Kenya under the stewardship of JKUAT Enterprises Limited. It serves the whole tea value chain through market connectivity, business partnership with small-scale farmers, cottages (tea factories) and other stakeholders.

In line with Kenya’s Vision 2030 and the Millennium Development Goals focusing on International Trade, Tea Soko gives buyers access to premium Kenyan Tea at their convenience, while producers can use it to access the global market.

Kenya is among the largest producers of black CTC, which is rich in antioxidants and has recently seen an uptake in specialty teas and Tea Soko connects farmers to the global market. Other popular varieties on the platform are purple tea, green tea, yellow tea, white tea and Oolong tea in both CTC and Orthodox (whole-leaf) formats.