President Uhuru Kenyatta has directed the competition watchdog to look into the activities of Kenya Tea Development Agency (KTDA) to break the cartels that have been running the show at the agency and subjecting farmers to misery.
In a far-reaching directive that will see a review of KTDA governance structure, Mr Kenyatta wants the Competition Authority of Kenya (CAK) to investigate conflict of interest among the agency’s directors, whom for the first time have openly been accused by the head of state.
The President said the low prices that farmers have been earning are a result of the governance issues and ordered for the restructuring of KTDA. This outfit controls more than 60 per cent of the total tea produced in Kenya.
“There are some of the operational and governance challenges that have emerged in the last few years. Key among these is conflict of interest by directors,” said Mr Kenyatta in Mombasa this Tuesday.
Figures indicate that small-scale tea earnings dropped by a massive 22 per cent in the financial year ended June 2019, the lowest returns for tea growers over the past six years.
On the list of the worst-hit players are agro-based co-operative societies, whose main catchment area is the tea sector.
This follows the sharp decline in payments of green leaves delivered to Kenya Tea Development Authority (KTDA) between July 1st 2018 and 31st June, 2019. The figures are far much lower than what the farmers received in 2018.
“We will have to make huge provisions to cover for the unpaid loans as per the regulator’s guidelines. The society relies on bonus payments to recover its loans. So when these payments drop, we have to relook our loan portfolio and restructure some of the loans so that we reduce the loss provisions,” said Mr Antony Bitinyu, Chief Executive Tea Growers Sacco.
Executives in the co-operatives sector mention that while the narrative that a slump in global tea prices could have led to lower bonus payments this year, most point fingers at ‘cartels’ operating within KTDA.
Under sharp scrutiny is Greenland Fedha Limited, a microfinance firm that is wholly owned by KTDA Holdings Limited. Officers at this financial institution are accused of not sharing market intelligence with tea farmers and extending credit even in situations where world prices are moving south.
Greenland Fedha, being a subsidiary of KTDA, deducts what a farmer owes it at source, leaving a Sacco to fetch the leftovers. The firm has been singled out as one reason why most tea farmers are overburdened by debts, a situation that could lead to them abandoning the crop altogether.
President Kenyatta also directed the gazettement of the newly developed Tea Regulations 2019 in two weeks’ time.
The regulations include the establishment of the Green Leaf Pricing Formula Committee to determine the formula for the pricing of green leaf, the establishment of a self-sustaining stabilization fund to cushion farmers against price fluctuations and ensure implementation of guaranteed minimum returns.
The rules also include the establishment of Kenya Tea Council and regulation of the volume of teas sold through the Auction and through direct sales/ direct contracts to be set at 80 per cent Auction and 20 per cent Direct Sales window.
Organizations that provide credit to farmers, including tea growers, observe that this undertaking is getting riskier by the day.
This is due to the presence of cartels and middlemen who distort the market, leading to a fall in prices. Saccos that give credit to farmers are therefore unable to recover loans given out. Matters are made worse by meddling by the political class into the farming business.
President Kenyatta said while the market price of a kilogramme of tea is KSh 91, farmers were earning a mere Sh41 per kilo with the rest going to brokers and middlemen.