Sunday, June 14, 2009

Kenya under increasing pressure to brand its tea

By JOHN KARIUKI , The East African , June 8 2009

As top world tea exporters meet in Hong Kong this month, pressure continues to mount on Kenya to brand its tea so as to fetch more money in the international market.

The June 13-16 fair is billed as a crucial forum for those seeking business opportunities in the fast growing Southeast Asian market.

For the first time, tea will be exhibited at a separate venue. The emphasis on tea is driven by the region’s emergence as a lucrative market.

“We are hoping to draw attention to Kenya’s position as a leading tea producing country and the port of Mombasa as the venue for tea auctions in East Africa, ” said Conrad Hendry, Africa regional manager for Hong Kong Trade Development Council, the organisers of the fair.

Last year, Kenya produced 345 million kilogrammes of tea, much of which was exported and used to blend with inferior varieties in other countries.

“It is a shame that Kenya continues to sell bulk tea in its raw form which is later processed by foreign buyers who then brand it as their own country’s,” said Mr Hendry.

He said that by selling unbranded tea, Kenya not only loses due credit for its high quality produce but also the higher revenue it would earn from selling the finished product. Burundi tea is known for its high quality but export volumes are much lower than Kenya’s.

Last week, Walter Kamau, chief executive officer in charge of trade and policy at the Kenya Association of Manufacturers, called for a ban on the export of raw tea, saying this may be the only way to force the traders to move to the next level of processing.

“They have been too comfortable selling the raw produce in bulk and will not feel obliged to process it as long as they are making profits from the unprocessed product,” he said.

But while conceding that processed tea would fetch higher returns, Kenya Tea Development Agency general manager in charge of sales and marketing Charles Mbui argues that current costs of packaging are so high that processing and packaging in Kenya would make the tea uncompetitive in the world market.

He told The EastAfrican that the government needs to review current taxes on packaging material in order to compete favourably with tea from Egypt, Pakistan, Sri Lanka and India, which are the main players in tea exports.

“Our competitors enjoy all manner of tax benefits which create incentives and reduce their production costs. Without similar concessions, Kenya cannot compete favourably,” said Mr Mbui.

His sentiments were echoed by a manager with a leading exporter of raw tea, who said that at current costs, a kilogramme of tea packaged in Kenya would fetch at least $1.50 more than tea from other countries.

“We raised this issue of high taxation with the government five years ago and have not had a positive response,” said the manager, who requested anonymity.

Packaging is a crucial factor in the Southeast Asian market and exporters have to abide by specific requirements in different countries.

KTDA produces an estimated 62 per cent of all tea from Kenya, while the rest comes from mainly multinational companies like Sasini and Unilever, who are also exporters.

But appreciating the higher benefits from processed tea, KTDA is exploring prospects of strategic partnerships with investors in Hong Kong and Dubai.

While Hong Kong is the gateway to the Chinese and Far East markets, Dubai is an entry point to the Gulf region.

Both have vibrant economies. Here, the agency will enter into an agreement to supply the produce while the investor will do the processing.

Mr Mbui said that Russia is another huge market but has been ruled by an open credit system that is not conducive to business, especially in a volatile economic situation. There have also been complaints of Russians defaulting on payment prompting tea dealers to avoid the market.

Previously, India was a major supplier of tea to Russia through a 120-day credit system, but bad experiences with payments prompted Indians suppliers to renegotiate the arrangement.

Said Mr Mbui: “The pressure by the Indian exporters has worked in our favour and Russian importers are becoming more open to our requests for shorter term credits.”

But even as the agency seeks strategic partners, Mbui admits that Kenya needs to work towards doing its own processing as a long-term business strategy.

“We would require less than five years to recoup the initial capital and market the brands. After that we would be up and running, earning double the current revenues for our tea,” said Mr Mbui.

But there are fears that some of the existing top players in the tea trade may not welcome newcomers into the market. According to a source, there are indications big players would organise boycotts just to fend off new entrants.

However, Mr Kamau says that while such an eventuality cannot be ruled, the quality of Kenya tea should be able to stand the test.

“They might refuse to buy for a year, but would finally relent because we have a good product,” he said.

On several occasions, Kenya’s Agriculture Minister William Ruto has argued for branding of the country’s tea as the way to realising full financial benefits in the world market.