Kenya Suspends Tea Price Floor to Clear Backlog as Market Struggles

AFRICAN BUSINESS AND ECONOMYNovember 8, 2024 at 11:06 AM UTC

TLDR

Kenya suspends minimum tea price policy introduced in 2021, leading to a 100-million kilogram surplus and impacting small-scale farmers.
East Africa's tea market is oversupplied, with Kenya alone having 15 million kilograms of unsold tea, affecting prices regionally.
Uganda experiences a more than 50% drop in tea prices due to the surplus in the East African tea market.

Kenya, a leading global tea producer, has suspended its minimum price policy set three years ago to support farmers amid an oversupplied market. Introduced in 2021, the reserve price of $2.43 per kilogram was meant to protect small-scale farmers, but it led to a 100-million kilogram surplus, as buyers shunned lower-quality teas at the inflated price.

Despite efforts to reduce the stockpile, 15 million kilograms of tea remain unsold, enough to brew about 7.5 billion cups. The backlog, combined with aging reserves and fresh harvests, is keeping prices low and impacting the tea's quality.

The tea market in East Africa is now oversupplied, with weekly auctions in Mombasa receiving around 21 million kilograms, while the auction can only sell between 9 and 15 million. The surplus has affected prices for other regional producers, such as Uganda, where prices have fallen by more than 50% in recent years.

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Key Takeaways

Kenya’s attempt to shield farmers with a price floor has underscored the challenges of balancing supply and demand in the tea industry. The glut, driven by steady production growth but sluggish demand, has reduced prices by up to 30%, leading to cheaper but lower-quality tea in global markets. With East African tea supply exceeding demand, the industry faces intense pressure to manage production and improve quality. Other tea-producing nations, including Uganda and Rwanda, have also been hit by the surplus, with some Ugandan factories closing due to sustained low prices. For Kenya, the world’s top black tea exporter, stabilizing the market will require more than lifting the price floor; it may need to limit production, raise quality standards, and enhance global demand to protect its tea industry from further decline.

Kenya

Commodities

Tea Exports

Uganda

Rwanda