Does tea still have an investment opportunity for
smallholder farmers?
Every morning, as you have your daily cup of tea, have you ever wondered how tea is
produced?
How well do you know the sector and management of it?
Have you ever thought about how much effort farmers put into tea farming for you to have
refined tea leaves to use?
Do you have any idea how much tea farmers earn? You must think tea farmers are quit wealthy
having invested in a cash crop with worldwide demand.
Tea sector management and organization
The history of tea in Kenya dates back to 1903 when tea was introduced by G.W.L. Canine and
in the 1930's commercial planting began. Smallholder tea farming among Africans begun in
1963 after the newly Kenyan government gained independence and passed laws to support this.
Tea farming has been the backbone of Othaya over the last 50 years since its acceptance into
law. Farmers (85%) have dedicated their lives to tea farming making it their sole farm enterprise
and livelihood. Currently Kenya is ranked third behind China and India in tea production. The
average farmer in Othaya has about 2 acres of land with 1 acre being dedicated to tea farming
with an average of 2,300 bushes per farmer. On average, farmers pluck 2,000 kilograms (kg) of
tea per year. The primary role of tea farmers is to farm tea bushes, pluck tea leaf and deliver it
to tea collection centres.
Smallholder tea farmers contribute over 62% of total tea production in the country. Tea is the
third highest gross domestic product (GDP) earner for Kenya amounting to 4% every year. The
smallholder sector is comprised of more than half a million farmers across country who are
managed by the autonomous parastatal Kenya Tea Development Agency (KTDA). According to
the Tea Board of Kenya (2012), KTDA manages farmers through developing their tea husbandry
skills by regular farmer training in farmer field schools, coordination of plucking and collection
of the tea through tea collection centres, establishment of processing factories, and having
complete control of the marketing of the manufactured tea. Currently KTDA has 66 tea factories
serving over 500,000 small scale farmers cultivating over 100,000 hectares. The tea industry
operates under the umbrella of the Ministry of Agriculture for technical and policy guidance.
The industry is well structured right from the apex regulatory body, the Tea Board of Kenya,
the Tea Research Foundation of Kenya, through to the producers, tea manufacturing factories,
the trade and the blending and packing establishments (Tea Board of Kenya, 2012). Among the
key tea industry institutions include:
1. The Tea Board of Kenya (TBK), established in 1950 under the Tea Act (Cap 343) of the
laws of Kenya is mandated to regulate the tea industry in all aspects of tea growing,
research, manufacture, trade and promotion in both the local and the international
markets. The Board also disseminates information relating to tea and advises the
Government on all policy matters regarding the tea industry through the Ministry of
Agriculture.
2. Tea Research Foundation of Kenya (TRFK), is the technical arm of the Tea Board of
Kenya. With a mandate to carry out research on tea and advise growers on the control
of pests and diseases, improvement of planting material, general husbandry, yields and
quality. The Foundation has so far developed and released to growers over 45 welladapted clones.
3. Kenya Tea Development Agency (KTDA) Ltd, previously a state corporation was
incorporated as a private company in June 2000. KTDA Ltd. currently manages 66 tea
factories in the smallholder sub-sector serving over 500,000 growers.
4. Kenya Tea Growers Association (KTGA), established by large-scale tea producers to
promote the common interests of the members in the cultivation and manufacture of tea
and to promote good industrial relations and sound wage policies for the workers. The
plantation sub-sector maintains 39 tea factories.
5. Nyayo Tea Zones Development Corporation (NTZDC), is a State Corporation
established to manage the tea belts around the forest zones planted to create buffer
zones meant to protect the Natural forests from human encroachment.
6. East African Tea Trade Association (EATTA), brings together tea Producers, Brokers,
Buyers and Packers and is the auspices under which the Mombasa Tea Auction is
conducted.
7. Ministry of Agriculture (MOA) is mandated to promote and facilitate production of
food and agricultural raw materials for food security and incomes; advance agro-based
industries and agricultural exports; and enhance sustainable use of land resources as a
basis for agricultural enterprises.
The Tea Board of Kenya regulates and controls the cultivation of tea; registers tea growers and
management agents. It also licenses tea manufacturing factories and regulates and controls the
method of manufacture. While licensing a new factory, the Board ensures there is adequate leaf
to meet processing capacity, without creating over-capacity in any given zone. Licensed
factories are required to maintain a register of growers falling under them, on behalf of the
Board. The Board may vary, cancel or suspend any license issued to a company if the terms and
conditions of the license are violated. The Board monitors compliance on all aspects of tea
regulation and control of cultivation and manufacture of tea. As yet, the Board has licensed 66
smallholder-owned factories managed by Kenya Tea Development Agency Ltd and 39 private
estate companies. Before issuing of licenses, the Board ensures that no manufacturing overcapacity is created in any tea catchment area, and that any new manufacturer has more than 250
hectares of mature tea bushes to run the factory.
The tea industry operates under the Tea Act Chapter 343 and Agriculture Act cap 318. While the
former is vested with regulatory services, the latter is more managerial overseeing the whole
process of production as a technical arm. Small-scale tea farming in Kenya was placed under
Kenya Tea Development Agency (KTDA) formerly Kenya Tea Development Authority. Initially
these acts and other related ones were based on government-controlled policies. Tea Board of
Kenya remains the regulatory body for the industry and still intact are its restrictive powers
over the entry and exit into the industry, through licensing of tea growers and factories
(Githinji, 2001).
KTDA manages farmers at two levels i.e. factory and tea collection centre level. At both levels,
farmers are represented by elected officials whom they vote into office. At the first level of
representation, farmers annually elect tea collection centre committee members. According to
the tea regulations Cap 343 section 3 (2) committee members are tasked with monitoring the
smooth running of the collection centre, act as liaison between factory management and farmers
and liaise with extension to promote good husbandry.
However, committee members are not able to fully implement their functions due to incessant
undermining by the factory directors which frustrate their efforts. Their opinions are not
considered in meetings (Annual General Meetings or otherwise), especially if they highlight
farmers’ grievances. Factory directors are found of sabotaged such committee members leading
to loss of their elected position to someone considered more cooperative with directors.
Conversely, other committee members occasionally accept bribes by directors to abandon
farmers’ concerns.
Directors, on the other hand, are elected based on secret ballots using weighted voting system
of shares. Under the tea regulations Cap. 343, section 14 (1&3) factory directors are elected
according to respective Company Articles and must be registered tea growers in that company.
Each factory company has 6 electoral areas, each represented by a director. From the 6 directors,
2 of them must retire after serving for 3 years, although they may seek re-election, subject to set
rules. Factory directors are tasked with policy formulation, appointment of factory staff
(employees, auditors, and management agents), formulation of remuneration and service
among others.
Farmers rarely interact with factory directors except during annual general meetings (AGM). In
all three regions (Iriaini, Chinga and Gitugi) farmers are not aware of the functions of the 6
directors in each factory which seem redundant. Directors lack transparency in the management
of factories. For example, the factories do not provide pertinent information to farmers e.g.
announcing the bonus amount expected this year; wastage funds through purchasing of
firewood from far source while it is locally available; inefficiencies in factories ranging from
delayed transportation, poor weighing machines, torn weighing bags and insufficient staff.
Tea production and marketing
Tea farming is quit intensive and mainly involves family labour (husband, wife and grown
children) in tea plucking, application of fertilizer and weeding. Tea grows best on well-drained
fertile acid soil on high lands. Farmers use fertilizers to increase soil acidity in order to maintain
quality. There are no agrochemicals used in farming tea due to the favourable conditions
(tropical, volcanic red soils and rainfall ranging between 1200 mm to 1400 mm per annum) (Tea
Board of Kenya, 2012). Tea bushes require both application of fertilizer and pruning done once a
year, preferable in July during the cold season, while weeding is done as required. Farmers
purchase fertilizer from tea factories at a rate of KES 2, 200 for a 50 kilogram bag yearly. This
bag of fertilizer can be applied to 700 tea bushes. Additionally, some farmers hire tea pluckers
on causal basis as need be. Tea plucking constitutes majority of the work as a single tea bush is
plucked four (4) times a month. Usually, tea bushes are divided into sections whereby plucking
takes place in each section every 7-10 days after sprouting of new shoots. A tea plucker on
average plucks 20-30 kilogram of tea leaf per day. Tea pluckers are paid daily at a rate of KES 10
per kilogram of tea leaf pluck. Tea pluckers are known to dictate their pay therefore leaving
farmers at their mercy.
Once tea is plucked, it is delivered to the tea collection centre for weighing and collection by
factory lorries. At the collection centre, farmers wait for the clerk to weigh their tea leaf and
record the number of kilograms plucked per day. Much of farmers valuable time is wasted
waiting for the arrival of the factory lorries due to understaffing of factory personnel. Factories
hire one weighing clerk who simultaneously works as the driver, to service 5 tea centres twice a
day (in the morning and evening). Due to this, farmers are usually not aware of the lorries
schedule and the factory does not communicate this as well. Thus, farmers are forced to wait
because if they leave their tea leaf unattended, other farmers are likely to steal it in order to
increase their weighed tea.
Smallholder tea is sold around the world mainly through the Mombasa tea auction which
absorbs 75% of the tea sales. Prices are usually determined by world markets based on the
qualities of tea. Farmers therefore do not partake in the control of prices, consequently, leading
them to earning the lowest in the tea value chain. They occupy the bottom of the value chain
hierarchy and thus have no decision making powers in terms of participation, influencing and
contribution in the sector. Farmers are only involved in primary production.
Net effect in tea farming communities
Income
Farmers earn a living in tea farming through receiving a regular monthly income and an annual
bonus. The monthly income is based on the amount of tea leaves picked (in kilograms) per
month. Currently, farmers receive KES 14 per kilogram of tea leaf. The annual tea bonus is paid
out in lump-sum in late October to early November and is based on the total amount of tea leaf
picked for the year. Farmers support their family’s needs from their earnings in education of
children, food and clothing, small investments around the homes/homesteads such as water
tanks and home appliances. Farmers engage in demonstrative spending with the receipt of their
annual bonus. The table below shows a simple yearly income statement of two farmers
averaging 1,000 kilogram and 2,000 kilogram of tea leaves respectively.
Yearly Income statement
Volume of green tea picked
per year
Bonus (for 1 kilogram)
Regular monthly income
(net)
Total
Farmer 1
1,000 kg
Farmer 2
2,000 kg
KES 23
KES 14
KES 23
KES 14
KES 37,000 (1,000*23+14)
KES 74,000 (2,000*23+14)
Deductions:
Fertilizer
KES 2,200
Cess
KES 1,400
KTDA shares
KES 400
Bank loans repayment
KES 400
Total
KES 4,400
Net income
KES 32,600
Source: Tea Justice Baseline Survey, 2015
KES 4,400
KES 2,800
KES 800
KES 800
KES 8,800
KES 65,200
KES: Kenya Shilling
From the table above, farmer 1 earns KES 32,600 while farmer 2 earns KES 65,200 per year
respectively. When this amount is broken down on a monthly basis, farmers earn roughly
between KES 2,700 – KES 5,400. This is highlighted in the figure below which shows farmers
earning only 7% from KES 14 received.
Farmers' monthly deductions
7%
TEA PICKERS
10%
FERTILIZERS
4%
4%
4%
SHARES
BANK LOANS
100%
CESS
71%
TAKE HOME
Figure 1: Farmers monthly deduction from their tea payments
As observed from the figure above, tea pluckers get 71% of the farmers KES 14, 4% goes to
payment of fertilizer, 4% goes to payment of shares under KTDA, 4% goes to repayment of
bank loans and 10% is Cess. Thus farmers get 7% as their net pay.
The situation has been made dire over the last few years with the rapid fluctuations in tea
bonus. The figure below shows the fluctuations of prices in the last 4 years (2011-2014).
(2011
In 2011,
the bonus was a record high of KES 42, this dropped to KES 38 in 2012 and further down in
2013 to KES 34. Last year it stood at KES 17. This year, radio station
stations (Coro and Kameme FM)
announced the bonus will drop to KES 3.
Tea bonus fluctuations
50
40
30
20
10
0
2011
2012
Figure 2:: Fluctuation of annual tea bonus
2013
2014
With the volatility of tea prices, unpredictable markets and their sole dependence on tea,
farmers are constantly hit by market shocks. This has left farmers languishing in poverty. With
the meagre income farmers earn, they have turned to bank loans to supplement their income.
Close to 70% of the farmers in Othaya have taken loans in the last five years from various
financial institutions. This is despite the loan being pegged to tea income notwithstanding the
volatility of tea prices and unpredictability of tea market. Since tea prices have always been low,
farmers highly depend on tea bonus to meet their needs as they fetched a higher price (tea price
last year was KES 14 versus tea bonus at KES 38 per kilogram of tea leaf). Farmers borrow loans
based on the amount of tea leaf (in kilograms) plucked. They borrow loans up-to 4 times a year
with each top-up undergoing new loan charges which subsequently increase their interest rates.
Each time farmers borrow a new loan, it based on the increased kilograms of tea from the
previous period.
Farmers lack good assessment of the risk that come with multiple loans and thus easily get
trapped in taking loans without considering the interest rates (ranging between 13%-20%).
Farmers repay these loans using their annual bonus and after repayment, little left to take home.
Those unable to repay their loans face auctioning.
Farmers financially illiteracy is emphasized by their continued habit of borrowing multiple
loans against high interest rates. Of the 350 farmers (involved under Caritas Nyeri Tea Justice
Baseline survey, 2015) interviewed, 66 admitted to taking loans with 18% interest rate while
17.7% of the farmers did not know the interest rates of the loans they took as demonstrated
below.
Percentage of farmers
Interest rate of loans taken
18.9
17.7
20.0
15.0
10.0
6.6
3.7
3.4
5.0
.9
.3
.3
1.4 1.7
1.4
.6
.3
.3
.3
1.7 .9
.3
.3
1.4
.3
.0
Interest rates
Figure 3: Interest rates of loans taken by farmers
Farmers lack understanding
ing of the implication of such high interest rates on their future
earnings. When they borrow loans, they only focus on satisfying the current need of the loan.
Furthermore, since the arrival of financial institutions in Nyeri County in 1998, they have been
competing aggressively amongst themselves to easily avail loans to farmers. Financial
institutions created a niche of easily availing loans to farmers to the degree that farmers believe
they cannot do without loans. These instituti
institutions even go insofar as approving loans farmers are
not eligible for (for
or some offer farmers loans up to KES 200,000 when they are eligible for KES
60,000). This is how farmers find themselves easily allured into multiple loans.
Even when productivity is high,, tea prices are still low due to surplus tea in the world market.
Countries such as Uganda, Rwanda and Tanzania were former markets for Kenyan tea and are
now producing higher quality tea than Kenya. Thus buyers are purchasing their tea in higher
quantities than Kenyan tea. Furthermore, the limited product line of tea other than processed
black tea reduces farmers’ probability of earning higher income. Additionally, poor marketing
processes by the government has left farmers vulnerable to market shocks. For example,
Kenya’s key markets (Egypt,
Egypt, Sudan and Pakistan
Pakistan) have recently suffered political instability
resulting in reduced tea sales and low prices
prices.
Wealth and Assets acquisition
Over the years, farmers have only investment in sustaining their lives through education of
children (36%) and purchase of cows (49%). Illiquidity preference to saving their income were
pronounced with purchase of goats, poultry, sheep, rabbits, and pig with 20%, 8%, 1% and 1%
respectively. There is little tangible evidence in investment in productive assets (real estate
rentals, land, equipment, machines etc.).
Health
Farmers suffer from regular joint aches (particularly lower back aches and knee aches) owing to
prolonged periods of carrying tea baskets. Upper respiratory tract infections (URTI) such as
colds and pneumonia are common due to repeated and lengthy exposure to cold and rainy
weather while plucking tea. Farmers cannot afford personal protective equipment while
working in extreme conditions. Moreover, poor dieting habits among them lead to malnutrition
(arthritis, for example, is prevalent among women due to vitamins deficient diets; rickets
among children is prevalent due to vitamin deficiency and lack of sunlight; insufficient
breastfeeding of children for two months only before weaning leading to stunted growth).
Farmers feed poorly before heading to the farms and only have a proper meal in the evening.
These dietary deficiencies are compounded by lack kitchen gardens leading to purchasing foods
from local green grocery markets. Farmers put much of their land under tea farming hence no
land left for subsistence food farming. Thus when they buy foods, they buy what they deem
necessary and leave out fruits (vitamins) which are vital to maintaining good health.
Farmers seek medical attention at local government dispensaries where all services are free. In
cases where there is a shortage of medicines, farmers are given prescriptions at out of pocket
expenses which are unaffordable (e.g. one month doze for Arthritis is around KES 500). Health
insurance - Kinga Mkulima- is provided by tea factories, but it is mainly for inpatient services at
hospitals. Adults are charges KES 180 and children KES 60. Other farmers have NHIF while
those who cannot afford medical covers pay out of pocket or bear their ailments.
Youth
Youth show little interest in getting into tea farming resulting from years of witnessing their
parents struggling with a cash crop deemed unrewarding. High unemployment rates in rural
areas has resulted in rapid migration to urban areas for employment opportunities. Jobless and
idle youth left behind in rural areas are becoming social misfits and getting involved in
destructive behaviour like drug and alcohol abuse and petty theft cases.
In conclusion, the smallholder tea farmer is facing numerous challenges some of which are
beyond their control. There is decreasing income with an uncertain future, unaccountable sector
structure to small holder farmers and unfavorable legal and policy framework. These challenges
seem to lead them to one predicament; the fear of abandoning tea farming versus the fear of
branching out into other livelihoods (such as dairy cows/goats, bee-keeping, poultry farming).
Taking all this in consideration, farmers are in need of support programs in order to assist them
in transitioning into other livelihoods and favorable legal and policy framework.
Additionally, favorable legal and policy framework need to be put in place to help farmers cope
with rapid market shocks. The government should go a step further and implement tax waivers
that cushion farmers against low prices.
References:
1. Githinji, B.K. (2003). A research project on Factors affecting production of tea in Kenya:
A case of tea farmers in Othaya division of Nyeri district (Masters Dissertation).
Available fromir-library.ku.ac.ke/handle/123456789/2572 show=full.
2. National Council for Law Reporting. (2012). Tea Act Chapter 343. Nairobi: National
Council for Law Reporting.
3. Tea Research Foundation of Kenya (2011). Tea Research Foundation of Kenya Strategic
Plan 2010-2015. Kericho: Tea Research Foundation of Kenya.