Mombasa tea auction.
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Dar tea auction goes live, picks 25pc out of Mombasa basket
Tanzania this week held its first-ever tea auction in Dar es Salaam, concluding a five-year project that is expected to not only boost incomes for the country’s farmers but also see the Mombasa Tea Auction lose over 25 percent of its volumes.
Tanzania, a mid-tier East African tea producer, is banking on the lower cost of logistics with key high quality tea producers in the region to trade about 65,000 tonnes of tea weekly.
This is bad news for the Mombasa auction, the leading tea exporter in the world, which handles about 247,000 tonnes weekly.
Since 2018, Tanzania has been laying the groundwork for a regional tea auction to compete with Kenya’s. Now producers such as Burundi, Rwanda and Mozambique — which faced high costs of transporting their produce over thousands of kilometres to Mombasa as well as the headache of maintaining their produces’ quality — are likely to take advantage of the new (and nearer) market.
In what is expected to disrupt the Mombasa auction status quo, Tanzania is banking on zero Customs fee charged to transit tea and lower costs borne by traders on warehousing and transport to rob Mombasa of some of its tea customers.
Disruption is here
Kenya Tea Buyers Association chairman Peter Kimanga acknowledges that the disruption is here.
“We have been observing Tanzania auction this week. Though it started low-key, it is likely to disrupt the Mombasa market and we will lose the high quality tea from Rwanda, which will take advantage of geographical location of Tanzania to move its teas (easier/faster) to the new auction,” he told The EastAfrican.
Mombasa sells, warehouses, and ships most of Africa’s tea, including more than 8,000 tonnes of mainly black tea from Tanzania every week.
Mr Kimanga said Kenya is likely to be impacted, considering that Tanzania does not charge the 16 percent Customs levy on tea from East African countries, thus reducing costs and delays.
“Kenya has been charging teas a 16 percent Customs bond levy apart from cess levied from different countries on the Northern Corridor, making business more expensive along with the delays in clearing cargo without jeopardising the quality of teas,” said Mr Kimanga, who is also director of Global Teas and Commodities.
With the loss of Rwanda supplies at the Mombasa auction, Kenya is going to lose valuable customers who seek the Rwandan tea, regarded as of high quality and maintaining the lead at the auction for many years on the back of high demand from international buyers.
East African Tea Trade Association (Eatta) data from the auction shows the price of Rwandan tea has remained at an average of $3.05 a kilo, against Kenya’s tea at $2.72, Burundi’s at $2.44, Uganda’s $1.27 and Tanzania’s at $1.15 for the same quantity.
Statistics show that the Mombasa market depends on the East African region for over 25 percent of supplies.
Eatta used to trade in tea from at least 12 African countries before the Covid-19 pandemic, but the number of participating states has fallen to five, as supplies from Zambia, Malawi, Madagascar, Zimbabwe and DRC Congo were cut short due to logistical challenges.
Apart from cost, the Dar es Salaam tea auction comes with another opportunity for tea traders – stability. During Kenyan election cycles, farmers from the region have suffered disruption on fears associated with violent campaigns, electioneering and post-election disputes.
Mombasa gained a reputation
Unlike India and Sri Lanka where tea is seasonal, production in this region is all year round.
Also read: Tea farmers set for record Sh44bn bonus
Further, Mombasa gained a reputation as a centre for some of the best CTC top grades in the world and an international blending floor with global teas for blending. This attracted interest from the major tea consuming countries (the UK, Pakistan, Egypt, Afghanistan, Sudan, Iran, Yemen, UAE, Ireland, Somalia, Canada and Singapore).
John Mumo, one of Mombasa tea brokers, says the new market will serve as an alternative during election time, especially since Tanzania and Kenya have different election cycles.
While officially launching the auction at Millennium Towers in Dar es Salaam, Tea Board of Tanzania director-general Mary Kipeja said the auction will transform Tanzania a regional tea hub.
“Apart from minimising market costs by 50 percent incurred transporting tea to Mombasa for auction, the tea auction is going to be part of the implementation of the local content agenda where players in the value chain, including buyers, brokers, warehouse operators and transporters will benefit from the auction,” said Ms Kipeja.
She added that 10 processors have already signed contracts with brokers and seven others were under discussion before inking the agreement.
Tanzania has five tea growing regions, including Njombe, where Unilever Tea Tanzania (Lipton) completed a $7.8 million factory that buys 70 percent of its green leaf from local smallholders. Other tea-growing areas are Iringa, Mbeya and Kagera.
Already, nine registered buyers are expected to participate in the auction, which will be conducted following world’s best practise.
Statistics indicate that tea has been attracting an average of $60 million foreign exchange a year for Tanzania.
The Dar es Salaam and Tanga ports will be used for transporting the auctioned teas, thereby increasing government’s revenue.
At the Mombasa auction, prices have performed well at the weekly trading since June 2022, after the Kenyan government introduced a minimum price of $2.43.
The government issued the directive after the price of tea dropped below $1.65 the production level, subjecting farmers to losses.
Recently, traders at the Mombasa tea auction have been sidelining expensive Kenyan tea because of the reserve price of $2.43 per kilogramme set by the government, leading to huge withdrawals of smallholder produce at the auction.
Ten-year roadmap
Tea buyers have opted for cheaper beverages from Uganda, Tanzania and Burundi that do not have a minimum price, giving a wide berth to Kenya Development Agency (KTDA) teas on account of being expensive.
In the past week’s sale, 45 of 2,023 lots handled November 6 to 10, the market offered 247,000 tonnes, but 44 percent remained unsold.
The larger offering was mainly caused by the KTDA, which reinstated older reprints into the auction system, with indications that the teas had been taken out six to 16 times and brokers were now allowed to sell these reprints below reserve price.
Tanzania’s Agriculture ministry has prepared the 10-Year Tea Industry Strategy (2021/22-2029/2030) to improve tea quantity and quality. It also involves enhancing institutional capacity, improving efficiency in the provision of extension services and creation of an enabling environment to attract investors into the sector.
Read The EastAfrican here.
