Kenya is the world's largest exporter of black tea, but only the 5th largest producer behind countries such as China, India, or Sri Lanka. Tea has become a mainstay of the Kenyan economy. One in ten inhabitants depends on the tea industry. However, as a result of the COVID-19 pandemic, tea export volume and value dropped sharply in August 2021. According to a report from the Kenya Tea Commission, exports amounted to 296,700 tons in the first six months of 2021, from 250,600 tons exported over the same period in 2020. However, despite the increase in exports, overall production fell sharply to 274,100 tons in the first half of the year, from 300,700 tons in the first half of last year due to unfavorable climatic conditions that lasted throughout the year and the fall in tea prices.
An Unstable Pricing System in Kenya
The price of tea in Kenya is set at auction. Thanks to an automated platform, the auctions bring together representatives and agents of overseas buyers from more than 70 destination markets around the world. This system does not guarantee a fixed income for the producers, which continually creates uncertainty in the market. Indeed, tea producers are tempted to favor other types of safer and more profitable productions, to the detriment of national tea production. And that's what ended up happening. Following an alarming drop in tea prices at the Mombasa tea auction, the government has moved in to cushion the farmer from incurring more losses. In July 2021, according to local media, Agriculture Cabinet Secretary Peter Munya announced a raft of mitigation measures to ensure farmers do not abandon tea farming for other economic activities, including setting a minimum average price at the auction of $2.43 per kilo which translates to 261.9 Kenya shillings.
Good News for India?
India, like most raw material producers, has been severely impacted by the pandemic. According to the Tea Board of India, tea exports plunged to 204,000 tons in fiscal year 2020-21, from 241,000 tons in the corresponding period of the previous year. The value of exports fell slightly to INR 53.1 billion (€ 604 million) in 2020-21, from INR 54.6 billion (€ 621 million) the year before. In 2021-22, it was estimated that India's tea exports would not even reach 200,000 tons amid strong competition in global markets from low-value Kenyan teas. However, setting a minimum reserve price in Kenya could redistribute the cards. The main advantage of Kenyan tea, which was of lower quality than that of other competitors, was the price. However, this advantage will be lost if the minimum price fixed is above the purchase price in India, which will bring back to India a good part of the demand initially addressed to Kenya.
Kenyan growers have already started to diversify their tea production and come up with other varieties, which could spoil India's fun, however.
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