The government now wants an update on the stocks of unsold teas currently held in warehouses in Mombasa, as it contemplates dropping the minimum auction price set in 2021.
This comes as the volumes of unsold tea are estimated to have hit 115.2 million kilogrammes, from stocks piled since last year.
In a letter to the Agriculture Principal Secretary Paul Rono, copied to the Kenya Tea Development Agency (KTDA) and Tea Board of Kenya chief executives, Prime Cabinet Secretary Musalia Mudavadi wants answers to the unsold stocks.
The PS has been tasked with providing information on the stocks of unsold tea currently being held in Mombasa, their shelf life, space occupied, warehousing charges and lessors of the warehouses holding the unsold tea.
Mudavadi also wants to know who will ultimately bear the cost of warehousing, the level of KTDA's indebtedness to the farmers per factory, as at June 30 and indebtedness to financial institutions (debts per factory and institution).
The minimum price has come under sharp criticism for failing to meet its intended purpose.
KTDA set the minimum reserve price at $2.43 per kilogramme for processed tea from its affiliated factories.
This was an unprecedented move that was aimed at cushioning smallholder farmers from losses when auction prices went below the two-dollar mark in 2021.
KTDA accounts for up to 65 per cent of tea produced by smallholder farmers in the country and have a huge influence at the Mombasa weekly auction.
The minimum pricing policy has however been blamed for creating a surplus of tea and disrupting market dynamics in tea growing regions.
According to Mudavadi’s office, available information shows that approximately 20 million kilogrammes of tea produced in 2023 remained unsold and continues to attract warehouses charges.
Additionally, approximately 95.2million kilogrammes of fresh tea was unsold as at the end of June, 2024, with the accumulation of unsold tea hampering producers' ability to pay farmers on time, significantly affecting their income.
“The intervention has led to several unintended consequences without addressing the root causes of the price decline. Specifically, the declining quality of Kenyan tea, a significant factor in the low prices, was not addressed by the minimum pricing policy.
Moreover, setting a minimum price did not incentivise improvements in tea quality,” Mudavadi said.
The Prime CS said the policy was applied exclusively to smallholder KTDA teas excluding independent tea factories, hence creating an uneven playing field.
This, even as independent factories continue to sell at flexible price, making their tea more attractive compared to KTDA's.
“Consequently, there is a market preference for independent factory teas over KTDA teas. This situation has resulted in accumulation of unsold teas at the auction, severely impacting prices and causing a market glut,” Mudavadi said.
President William Ruto’s administration has in recent times pushed for reforms to improve farmers’ earnings, with tea and coffee sectors among those targeted.
Investments PS Abubakar Hassan had earlier indicated that the government would hold talks with sector players and seek a way forward, on repealing the regulations that set the minimum price.
Tea is one of the country's leading foreign exchange earners, with an estimated annual value of Sh188.7 billion last year, as per the Economic Survey, 2024.