Diversion of the beverage from the auction to private sales is the main conduit for growers losing a lot of money.
For this KTDA formed Chai trading company – which is akin to a buyer company.
This company is given tea by KTDA marketing and for 30 days; which means that KTDA trades with farmers’ tea – or rather it gives barons farmers’ tea to sell and make profit.
Tea barons and brokers know there is money in the multimillion shilling private sales — a legal but back-door deal that allows smallholder farmers’ produce to be sold without going through the normal Mombasa auction.
Inside KTDA, the splitting of invoices is a common practice and tea farmers have lost huge amounts of money as a result. This is usually done by the marketing department in respect of teas consigned for sale.
Private sales were originally supposed to be an avenue for obtaining better prices.
The Nation has established that tea brokers are usually instructed to sell only a portion of the consigned teas to the auction and the balance through private treaty.
It is a practice that was once detected during the 2000 Leakey Audit of KTDA which also accused the KTDA marketing department of holding some factory teas for too long and then sell it as “old teas… (or as) forgotten in the warehouses.”
“Another loophole through which larger losses are incurred is in the practice whereby invoices with excess weight are sold privately through brokers, ostensibly because excess weight is not recognised at the auction,” the Leakey audit report had noted.
When Richard Leakey was appointed the Head of Civil Service and Secretary to the Cabinet, he started an operation that would have rectified the wrongs in the tea industry.
The KTDA audit, which he commissioned, revealed major operational loopholes and wanton waste of farmers’ income but Dr Leakey quit in March 2001 — just a year after the publication of the report and the structural reforms he had in mind never materialised to the chagrin of farmers.
The same practice featured in a Tea Board of Kenya Status Report for 2014 which accused various players, chief among them the Kenya Tea Development Agency (KTDA), of manipulating the price of the highest tea grade, PF1.
“The current low prices at the auction are precipitated by some unorthodox practices by KTDA, which controls over 65 per cent of the volumes dealt in at the auction. This is done in collusion with major brokers, warehouses and traders. The perpetrators continually divert attention from the real issues by citing the ad-valorem levy,” the report says.
With the opening of private sales, farmers cannot get the true value of their produce according to insiders privy to the tea trade.
The diversion of tea from the auction to private sales is today the main conduit through which farmers lose a lot of money — and factories have no say on this either.
“Any broker who does not play ball exposes themselves to the danger of not being allocated sufficient teas for either auctioning or private selling. In other words, the sales and marketing department can perpetrate the collapse of a brokerage firm that does not cooperate,” said the Leakey report tabled in Parliament in 2000. Some 19 years later, nothing has changed — and KTDA has not been interested in stopping the practice.
Instead its own subsidiary, Chai Trading, has been the king of this unorthodox practice. It has also opened an office in Dubai’s emerging auction centre, Dubai Multi Commodities Centre (DMCC) located at the largest free zone in UAE.
This opaque practice, which no farmer is informed about, marks the beginning of a rip-off since farmers are left at the mercy of brokers and barons. The later only interested in buying tea at a cheap price.
Although there is no limit on the amount of tea that can be sold at the auction, brokers appointed by farmers to sell their tea have been opting for private sale rather than the auction, and for a reason.
This way, according to insiders, farmers lose millions of shillings through the connivance of brokers and buyers.
At the auction, it is the tea brokers — appointed by the factories — who prepare the selling catalogue which gives specific information on the grade and taste. The auction is conducted in public and buyers compete for the tea by bidding against each other at the auction room. The teas are supposed to be sold in grades and under various factory names and buyers are usually given samples in advance to judge the quality. It is the broker who sets the minimum price for a particular lot. This practice, now a norm perpetuated by KTDA, has been making the auction unattractive to some buyers and farmers have no say on how their tea should be sold. At worst, they have no idea how their tea is sold — or how the prices are arrived at.
While the purpose of an auction – done on Monday and Tuesday - is to get a barometer on the prices, some brokers have been withdrawing tea from the auction in order to sell it privately. It is the KTDA marketing department which goes to these buyers and offers to sell the tea privately. The Dubai office was started for scouting such buyers.