Kenya tea factories are now embarking on the production of orthodox teas that are gaining global popularity and fetching better prices, to mitigate against the country’s market concentration risk on black teas as well as overreliance on the four main markets which account for 70 percent of our tea exports.The performance of the factory companies this year comes on the backdrop of a severe drop in crush tear curl (CTC) tea prices at the Mombasa Tea Auction from an average of US$ 2.71 last financial year to US$ 2.14 in the 2018-2019 financial year, representing a 21 percent drop.
As compared to CTC blends, orthodox teas produce more authentic tea experience.
Orthodox blends of all types – oolong, white, green or black – have a delicate flavor. CTC teas have a generic taste and produces dark, strong liquor have a distinct astringent flavor.
The Mombasa auction, is the second largest black CTC tea market in the world.
“A multiplicity of issues in the global market has led to this drop in prices. Key among them is the overproduction of tea globally leading to high global surpluses,” Kenya Tea Development Agency(KTDA) said in a statement issued in Nairobi on Wednesday.
High inflation and depreciation of up to 50 percent of the Pakistani currency has greatly impacted prices. Pakistan is a key market for Kenyan teas accounting for up to 35percent of Kenyan exports.
Other key export destinations such as Egypt have seen high inflation and currency devaluations making import of tea expensive.
Sudan, which is another key market has lately faced political upheavals, coupled with the loss of oil revenue to South Sudan. The United Kingdom, a long standing export destination for Kenya has seen its consumption decline over time while its currency has sharply depreciated in the face of uncertainty over Brexit. Tea exports to Iran have also recently been affected by increased US sanctions on Iran.
A number of quoted tea companies in Kenya have issued profit warnings or registered losses during the year under review.
During the financial year, global made tea production increased from 5.5 billion kilograms to 5.7 billion kilograms to 5.7 kilograms.
Consumption of tea globally on the other hand increased from 5.2 billion kilograms to 5.4 billion kilograms, which was marginally below the increase in production.
This has seen surplus unsold stocks of tea increase to 196 million kilograms, exerting downward pressure on prices. The last similar drop in tea prices at the Mombasa Auction was in 2014 but the market recovered quickly to perform well for the next four years.
Since then, tea prices at the auction have been steady leading to increased investments in area under tea.
This also led to building of new private factories to process this increased production.