The Competition Tribunal has overturned an order from the Competition Authority of Kenya (CAK) seeking to stop brokers at the Mombasa Tea Auction from price-fixing.
In its ruling, the Tribunal thus allowed East Africa Tea Traders Association (EATTA), which runs the auction, to continue fixing the KSh1.4 billion fee for brokers. Usually, farmers partly pay brokerage fees.
According to CAK, the price-fixing is anti-competitive practice, and instead, market forces should be the ones to influence the fees and not the brokers.
However, the Tribunal mandated that the Tea Directorate must approve any changes in brokerage fees. The exemption is only allowed for two years from the date of delivery of the judgment.
Furthermore, the Tribunal also dismissed EATTA’s plea to set the warehouse fees.
Business Daily reports that the price-fixing means brokers get a 1.25% commission on the value of tea that goes through the auction, earning them KSh1.4 billion annually in fees. Farmers, through the tea factories, pay 0.75%, while buyers pay 0.75%.
On the other hand, the Kenya Tea Sector Lobby Group is also pushing for reforms in the sector, seeking to improve the earnings of the tea farmers. The proposed reforms include:
- Management fees to be reduced per global standards of 1% as opposed to the 2.5% that KTDA currently charges
- Maximum fees chargeable by brokers be capped at the global benchmark rate of 0.25% as opposed to the current 1.25% charged by brokers
- Government to scrap charge and VAT on tea bought for local consumption
- Funds from the sale of tea to be transmitted to the factory within 14 days of purchase
- The role of making investment decisions for the factory to be exempted from any management agent agreement
- KTDA be mandated to sell off all its non-tea marketing related subsidiaries and properties, and subsequently, distribute those funds to the factories.
- Price stabilization program be drawn up along global best practices
- Government to appoint an accredited international audit firm which will carry out a forensic audit on KTDA, its subsidiaries, and all its 68 factories
Kenya is the world’s largest black tea exporter. The Standard reports that in 2019, the tea sector earned the country KSh117 billion from exports, and KSh22 billion in local sales.