Gov’t in a Kes1.6Billion financing deal to smallholder tea farmers

Kenyan Government is considering a Kes 1.6 billion financing option for smallholder tea farmers across the country to help them diversify their products, according to Agriculture Cabinet Secretary, Mwangi Kiunjuri.

The proposal, before the Head of Public Service, Joseph Kinyua, and the Cabinet, involves a financing model for smallholder tea factories to set up black orthodox tea production units.

Black orthodox Tea is loose tea which is produced using the traditional method of tea production: Plucking, withering, rolling, oxidation and drying. It has an aroma that is easily identifiable and fetches more prices at the tea auction than the normal tea – thus the need for enhanced production of this type of tea to help cushion farmers from the volatile prices associated with traditional teas.

“In a bid to help our tea farmers realize better earnings, I have written to both the Head of Public Service, Joseph Kinyua, as well as the Cabinet, requesting that Government considers the option of extending a KShs 1.6 billion concessional loan to farmers to assist them put up orthodox tea production units over the next one year,” he said.

Kiunjuri said the financing would come with the respite of a one-year moratorium to further cushion farmers from having to repay the facility immediately. He added that the proposal is to have a concessional interest rate of 3 per cent per year on the facility – down from the current market rate of 13 per cent for commercial loans.

“To cushion the farmer from high interest rates, we are proposing to have the interest rates attached on the facility to be substantially discounted to a level of around 3 per cent per year as opposed to the prevailing rates of 13 per cent. Further, we propose that farmers are given a one-year grace period before they can start repayment so that they can realize the immediate benefits of the new production units,” he added.

Currently, only seven smallholder tea factories in Kenya (Kangaita, Imenti, Micimikuru, Itumbe, Kiru, Thumaita and Gitugi) have black orthodox tea production units with a further three (Chinga, Kimunye and Kagwe) scheduled for completion by end of the year – bringing the total number to ten.

According to data from the East African Tea Trade Association (EATTA), tea prices slumped last year on the back of a host of factors among them increased global tea production against static demand. To mitigate against this, EATTA has called for product diversification in a bid to tap into new markets.

“The tea trade has not embraced and kept pace with the changing consumer demands from tradition and culture to health and wellness benefits in tea. This requires a need to shift towards premium tea and high value specialty teas as consumers are more knowledgeable about tea varieties and origin. Producers need to diversify from Non-CTC teas to value-added and specialty teas. This has to be supported by incentives,” said EATTA in a briefing last month in Nairobi.

With the intervention, Kiunjuri says farmers should start realizing stable tea prices over the short term as a result of enhanced production of alternative, but more profitable, teas.

As per the last auction prices, traditional black tea, on average, fetched USD 2.67 per kilo of made tea; while black orthodox tea fetched USD 3.70 per kilo of made tea.