The intrigues targeting KTDA do not augur well for health of tea industry

A tea picker in Nyeri on September 16, 2013. FILE PHOTO | JOSEPH KANYI |

What you need to know:

  • What is the current assault on KTDA all about?  It is politics, stupid.
  • At play is a perennial battle for control of the company.

I have gone through the findings and recommendations of a recent report by Deloitte on the tea sector in Kenya. My views on this report? What a hatchet job!

Clearly, the consultants approached this task as if it was an exercise in validating the preconceived views of their paymasters.

The consultants have completely failed to grasp the fundamentals of the tea industry, done a poor job of diagnosing the problems facing farmers, and ended up with recommendations that point to manifest disaster.

It is reckless to suggest that the Kenya Tea Development Authority (KTDA), the world’s largest tea marketer, be dismantled merely because some self-absorbed politicians are shouting at you to do so.

This consultancy job should have been left to experts on tea or commodity trading.

The current structure of KTDA is as a result of painstaking planning, the aim being to create a vertically integrated corporate entity that can enjoy economies of scale.

The  idea was to bring tea factories under one roof, manage high fixed costs, and have a balance sheet large enough to support long-term capital expenditure projects for tea factories.

In pursuit of this model, KTDA has over the years expanded into insurance, banking, electricity generation, tea packaging, and marketing.

KTDA is not the reason the tea industry is not doing well. The problems the industry is facing are a result of a fundamental structural problem. In fact, the success of the tea industry is usually a function of price multiplied by quantity.

Thus, if you track the value output of tea sold by this country over a long period of time, you will realise that it has been more or less a constant figure for many years. The more the quantity goes up, the more the prices come down.

And, how do you resolve this problem? You must fix two things: first, go into value-addition in a major way, by processing, packaging, and branding your tea and, second, aggressively promote a big and viable domestic market for the commodity.

In this country, we have failed to correct this structural problem.

You cannot have a sustainably successful tea industry in the long term if you do not do these two things. The Brazilians learnt this with their coffee several years ago and successfully built a domestic market that consumes nearly 50 per cent of their coffee.

We export in excess of 80 per cent of ours.

Indeed, the model of over-dependence on export markets is what has killed our tourism industry. The moment the travel advisories started coming in, everything went belly-up.

BATTLE FOR CONTROL

So, what is the current assault on KTDA all about?  It is politics, stupid. It is ironic indeed that the forces behind the current assault on KTDA claim to be motivated by the plight of the ordinary tea farmer.

At play is a perennial battle for control of the company, pitting the political elite from tea growing areas from the west of the Rift and their counterparts from east of Nakuru.

Since KTDA was privatised in 2000, it has more or less been insulated from intrigues and games of the political elite.

Yet every year, the company floats a massive fertiliser contract, which the eating chiefs are always itching to  have a hand in. Every year, KTDA floats a multi-million contract for supply for paper bags, tractors, and fleets of vehicles.

West of the Rift, private tea factories, the most recent owned by a Cabinet secretary, have recently come up.

The political elite from the west still grumble about  KTDA’s decision in 2012 to buy a 15 per cent stake in Family Bank.

And it is a matter of public record that an influential politician from west of the Rift has been putting pressure on the Mombasa tea auction for a brokerage licence.

Over the years, KTDA has been the stage where the well-connected suppliers and contractors test their political might.

I still remember the perennial probe committees that the State would routinely appoint during the Moi years — especially as  KTDA was about to invite tenders for fertiliser, paper bags, boilers, tractors, or fleets of vehicles.

When they could not force KTDA to cancel the contracts, they would either instigate tea boycotts or riots by farmers or sack the managing director.

It appears nothing has changed.