The Tea Market – a background study
draft for comments 26/06/02
Founding and running a factory requires a huge amount of initial capital so it is rare to find a small tea cooperative with a factory of its own. However in both Africa and Asia there are cases of small farmers who have managed to surmount the technical and scale difficulties. They can then produce tea of a quality and volume equivalent to the big plantations if they have the appropriate organisational structures in place. A well-known example of this is the small farmers’ organisation ‘Kenya Tea Development Agency’, the privatised form of the former Kenya Tea Development Authority and the largest single producer and exporter of black tea in the world. On a smaller scale, many Ugandan farmers own their own factory. The Kenya Tea Development Authority: a success story for smallholders? The Agency attempts to address many of the infrastructure problems afflicting the small producer sector. As well as purchasing the green leaf from farmers and processing it at its 45 factories, it supervises tea cultivation by growers so that small farmers have the same access to profitable farming methods as the large plantations owned by multinationals. Its Fertiliser Credit Scheme has ensured that all tea farmers are able to apply recommended quantities of the specified fertilizer. As the Agency oversees the production of 62% of the national tea output, this has contributed to Kenya’s world-highest yield in tea production. The KTDA has also come under criticism, however, for undercutting the value of small farmers’ tea. Essentially, green tea leaf has no market value before it is processed and marketed as made tea. Thus small farmers in Kenya rely on the KTDA to add maximum value to their tea, but the management of KTDA factories has been accused of inefficiency and political manipulation, and of not giving the farmer a just return. Indeed, the managing director of the former KTD Authority was quoted in the press as stating that despite the success of the tea sector in Kenya, smallholder tea farmers are still some of the poorest people in the Mount Kenya region.37 2.1.1.3 Bearing the brunt of higher costs Increasing costs are particularly hard on smallholders. On one hand, they pay more for inputs such as fertiliser as they do not buy in bulk, and on the other hand they have poor access to infrastructure and market information necessary to increase productivity, with the result that they have much lower yields than plantations. In Kenya, for example, the average yield per hectare for smallholder farms is currently around 60% or less of those of plantations38. This is unfortunate as yields are more important for small holders than workers in plantations, who are paid by the kilogram plucked and find higher yields advantageous to them only if there is a profit-sharing scheme in place, which usually distributes only a very small sum. For farmers with a small amount of land, yield can make the difference between a satisfactory income and poverty. They therefore need training and advice, but this demand is only inadequately met by tea boards who consider them too small to worry about. 2.1.2 Plantations Plantations generally focus solely on the production of tea, to benefit from the economies of scale which this offers. A large tea estate can be hundreds of hectares in size and is often completely selfcontained, with its own factory, schools, hospital, housing and place of worship. Plantations are not only large in themselves, but are often part of a chain of plantations owned by large companies. John Keells Holdings Ltd., Sri Lanka’s largest conglomerate, owns 20 estates producing 10 million kg of tea per annum, while the Indian company Tata Tea Ltd. has the majority 37 38
Prevailing situation: challenges and opportunities, Institute of Economic Affairs Liberalisation of the Smallholder Tea Sub-sector, IPAR
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