The Kenyan government is considering a 1.6 billion shillings($10 million) financing option for smallholder tea farmers across the country to help them diversify their products and target key foreign markets.
The plan involves a financing model for smallholder tea factories to set up black orthodox tea production units and in a move to reduce reliance on Black crush tear curl (CTC) tea. The strategy is aimed at diversifying markets for tea farmers.
The main markets for orthodox teas are Russia, Germany, USA, Dubai, Taiwan, Turkey, Iran, The Czech Republic, Kazakhstan and Canada.
Black orthodox Tea is loose tea which is produced using the traditional method of tea production: Plucking, withering. rolling, oxidation and drying.
It has an aroma that is easily identifiable and fetches more prices at the tea auction than the normal tea – thus the need for enhanced production of this type of tea to help cushion farmers from the volatile prices associated with traditional teas.
Speaking in Nairobi on Monday, agriculture Cabinet Secretary, Mwangi Kiunjuri, said the financing would come with the respite of a one-year moratorium to further cushion farmers from having to repay the facility immediately.
He added that the proposal is to have a concessional interest rate of 3 percent per year on the facility – down from the current market rate of 13 percent for commercial loans.
“To cushion the farmer from high-interest rates, we are proposing to have the interest rates attached on the facility to be substantially discounted to a level of around 3 percent per year as opposed to the prevailing rates of 13 percent.
“Further, we propose that farmers are given a one-year grace period before they can start repayment so that they can realize the immediate benefits of the new production units,” he added.
According to data from the East African Tea Trade Association (EATTA), tea prices slumped last year on the back of a host of factors among them increased global tea production against static demand. To mitigate against this, EATTA has called for product diversification in a bid to tap into new markets.
“The tea trade has not embraced and kept pace with the changing consumer demands from tradition and culture to health and wellness benefits in tea,” said EATTA in a briefing last month in Nairobi.
“This requires a need to shift towards premium tea and high-value specialty teas as consumers are more knowledgeable about tea varieties and origin. Producers need to diversify from Non-CTC teas to value-added and specialty teas. This has to be supported by incentives,” said EATTA.
With the intervention, Kiunjuri says farmers should start realizing stable tea prices over the short term as a result of enhanced production of alternative, but more profitable, teas.
Kenyan tea has been the leading major foreign exchange earner for the country. As per the last auction prices, traditional black tea, on average, fetched $2.67 per kilo of made tea; while black orthodox tea fetched $3.70 per kilo of made tea.
JK/abj/APA