What you need to know:
- Monitor has learnt that financially struggling factories have not paid the farmers for three months, largely due to low prices of tea they export to the major regional Mombasa auction.
Weak demand for tea at the Mombasa auction amid growth in volumes supplied has hit Uganda’s farmers and processors’ earnings harder, potentially dashing their hopes of celebrating the festive season.
With the bleak outlook, the industry leaders have run to President Museveni to rescue an industry in crisis. Monitor has learnt that financially struggling factories have not paid the farmers for three months, largely due to low prices of tea they export to the major regional Mombasa auction.
The Uganda Tea Association (UTA) said as much in a written statement submitted to President Museveni in October, blaming their woes on the political and economic turmoil in major tea consuming countries.
Transporting tea to Russia, one of the biggest consumers of East Africa’s tea, has become expensive, thanks to the ongoing Ukraine-Russia war.
At the beginning of the year, it cost a tea exporter about Shs11.3m ($3,000) to ship a 40-foot container to Russia. Today, the logistics industry spends about Shs23.5m exporting the container to troubled Russia and other neighbouring regions around the Black Sea due to the longer distance that the ships have to navigate to reach their final destination. This follows the closure of the Black Sea route.
The war, which broke out towards the end of February last year, disrupted movement and cut demand for the beverage to several countries that used the Black Sea as their main shipping route.
The volume of tea exported to Sudan, the largest regional market, has also significantly dropped following the civil war which started in October 2022. Besides, the tea demand in Pakistan also slowed down largely due to shortage of dollars in that country.
In East Africa, Ugandan tea has registered the biggest price hit, with trading data indicating that prices for the Mombasa weekly auction, sale 43, which closed on October 25, averaged Shs2,500 ($0.66) per kilogramme—a year-on-year decline from Shs5,500 ($1.46).
Some factories are paying smallholder farmers as little as Shs37.7 ($0.01) per kilogramme of green leaf. The farm gate prices of green tea leaves have also sharply dropped even as the cost of labour remains high. The casual labourers’ take home ranges from Shs75.4 ($0.02) to Shs113 ($0.03), per kilogramme of green leaf harvested.
Given the geopolitical challenges, Caroline Njeri, an executive at Tea Brokers East Africa Ltd, says the volume absorption at the Mombasa auction has not picked up as much. This has resulted in at least 50 percent of the export tea remaining unsold weekly.
“The competition on pricing of the tea died and Sudan has not been able to come back due to shortage of dollars in the domestic export market. The few dollars they get are for buying food,” she says, noting that Pakistan has started coming back and has been active in the auction for the third week running.
Egypt, another export market for the tea, has, per Njeri, not recovered from the spillover effects of the Covid-19 pandemic. But Owen Musiime, a tea farmer in Kyamuhungu, Bushenyi District, believes Ugandan farmers are being exploited largely due to the absence of a policy to guide regulation of the industry.
While the government made efforts to draft the policy, which would have protected the farmers, it is gathering dust in one of the government ministries.
Musiime proposes that a minimum reserve price for the green leaf be set to protect the farmers. Kenya’s Agriculture ministry set a reserve price in 2022 and has managed to protect the farmers from price swings. Rwanda also uses a reserve price. Denis Ainebyona, the commissioner of trade in Uganda’s Trade ministry, nevertheless, says a draft policy and law for the tea sector is in the offing.
The low prices the tea fetches is also blamed on its low quality grades when juxtaposed with that from Rwanda and Kenya. The average price of Rwanda’s tea at the auction is about Shs11,348 while that of Uganda trades below Shs3,785. Rwanda’s National Agricultural Export Board explains that their tea factories are ISO-certified by food safety, fair trade, and rain forest alliance.
Besides, tea growers are encouraged to prune at the right interval and respect the plucking cycle. There is enforcement of proper transportation of green leaves to the nearby factory, and adequate processing immediately follows. Some of Rwanda’s tea plantations are organically maintained.
In Uganda, the low usage of fertilisers in most plantations, picking of over matured tea leaves, and poor post-harvest handling have compromised the quality of the tea. UTA has suggested that the government subsidises tea fertiliser supply to generate blacker and denser better quality tea to increase Uganda’s international competitiveness.
The players in the industry also propose the standards body—Uganda Bureau of Standards (UNBS)—enforces quality regulation using the existing law.
“The pay systems can remain as flexible as now, but there must be traceability of green leaf in all tea factory records. This will make fertiliser supply systems possible and conform with international certification systems which demand traceability,” Onesius Matsiko, the chairperson of Uganda Tea Outgrowers Association (UTOA), says.
With the revenues from the sub sector taking a hit, he suggests that the government infuses Shs5b into farmers to use for pruning the mature tea gardens in the next two months, a development which could reduce industrial losses.
“This intervention will cover tea gardens that have been abandoned. It will also stop the unreasonable intercropping when the pruning cost is supported by a grant,” he said.
The farmers are also pushing the Uganda government to engage the Kenya government to reduce the cost of selling their tea at Mombasa auction. The proposal being floated is to treat Uganda tea as regional teas and level with Kenya tea.
The growers are also pushing the government to help in exploring regional markets, especially the DR Congo and South Sudan through developing and signing bilateral trade agreements on the commodity.
The drop in prices has also exposed a number of factories to liquidation by banks, others have been disconnected from main power grids.
Additionally, some factories face litigation from other creditors and farmers have stopped supplying green leaf over failing to pay three months arrears.
Onesius Matsiko, the chairperson of Uganda Tea Outgrowers Association, told President Museveni that some farmers have started uprooting tea to utilise land for alternative uses while others simply abandoning tea gardens in a wait-and-see strategy. Other desperate ones have cut the plantations down to ground level, waiting for industry recovery as they use the same land for other crops, especially maize growing.