The Smallholder Tea Sub-Sector in Kenya

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The Smallholder Tea Sub-Sector in
Kenya FAO/IGG Meeting 5th to 7th November,
2014 Bandung, West Java - Indonesia
Alfred Njagi, General Manager (Operations)
KTDA Ltd
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Outline

1. Background
2. How the smallholders are linked to the processing
   factories
3. Production
4. Total quantity of tea accounted by the
   smallholders
5. The pricing structure
6. How the smallholders are linked to the value chain

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History of Tea In Kenya

• 1903 - Tea introduced to Kenya at Limuru.
• 1924 - Commercial large estates tea farming
  started.
• 1950 - Formation of Tea Board of Kenya to
  regulate the tea industry.
• 1954 - Smallholder cultivation commenced under
  the Swynnerton plan.
• 1957 - First small holder tea factory established
  in Ragati, Nyeri.

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The First Tea Bush In Kenya - Limuru 1903
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Kenya Tea Industry Structure
MINISTRY OF AGRICULTURE
POLICY
REGULATORY
TEA DIRECTORATE
TEA RESEARCH FOUNDATION OF KENYA
RESEARCH
Smallholder Sub-sector (KTDA NTDC)
Plantation Sub-sector (KTGA Independent Tea
Growers)
PRODUCERS
EATTA (Brokers, Warehousemen, Buyers Packers)
TRADERS
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Small Holder ownership structure
A private company owned by 54 corporate shareholders (factory companies) KTDA Board appointed by the 54 corporate shareholders
The 54 factory companies owned directly by the farmers as individual shareholders Directors appointed by the farmers Management through Management agreements
Each farmer is a shareholder of the respective factory company Shares allotted based on Green Leaf delivery to the factory between 1988 -1996
KTDA Holdings
FACTORIES
FARMERS
A unique model that empowers the farmer from the
grassroots, a worlds first.
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KTDA GROUP STRUCTURE
NB These investments have been made along the
tea value chain to manage costs more efficiently,
add value to the services to the small scale tea
farmers and distribute the surplus revenue to the
shareholders.
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KTDA (MS) Operational Structure

• Total - 68 processing factories
• (66 in Kenya and 2 in Rwanda)

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Factory Structure
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What are the linkages?
FARMER Plucks Green Leaf and delivers to
collection centre
FACTORY Collects Green Leaf and Processes it into
Made Tea Produce, Dispatches Tea to the Market
WAREHOUSE Receives Made Tea Stores it until
the Made Tea is Sold
Direct Sales Overseas
AUCTION Factory Brokers Sell The Tea to
Interested Buyers
BUYER Buyers collect purchased tea and ship to
their destination
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The KTDA transformation
Year Activity in Phase
1950s Small-holder cultivation commences
1957 First Small-holder Tea Factory started in Ragati, Nyeri Factory management through a management agreement with multi-national tea companies
1960 Special Crops Development Authority established
1964 The Kenya Tea Development Authority established under the Agriculture Act (Cap 318) Section 191. (Legal Notice No.42). KTDA (authority) takes over small-holder management from multinational tea companies.
1991 Parastatal Reform Strategy Paper developed, listing KTDA among other Strategic Parastatals for privatization.
1999 - 2000 KTDA Order revoked through Legal notice No.44 enacted as a result of recommendations of Sessional Paper No. 2 of 1999. KTDA (Authority) was transformed into a private company, KTDA (Agency) Ltd on 30th June 2000 registered under the Companies Act. (45 factories)
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KTDA Group Overview 2014
Annual sales turnover Over Kshs52.97 Billion ( 600 million) 67 paid to farmers (2013/14) Over Kshs 69.2 billion ( 790 million) 75 paid to farmer (2012/13) NB Drop of 24 attributed to decline in tea prices
Established staff Approximately 10,000 across the Group
No. of growers Over 560,000 small-holder farmers, also shareholders
Managed Companies 68 Kenya Tea Factories, KTDA Farmers Company a company 100 owned by small-scale tea farmers), and 2 Tea Estates (Kagochi Kangaita farms).
Subsidiary Companies KTDA Management Services Ltd (KTDA MS Ltd) Chai Trading Company Ltd (CTCL) Majani Insurance Brokers (MIB), Kenya Tea Packers Ltd (KETEPA), Greenland Fedha Ltd, KTDA Power Company Ltd. Tea Machinery Engineering Co. Ltd (TEMEC) KTDA Foundation (handles CSR Initiatives)
Principal Activities Leaf Husbandry, Field Logistics, Processing, Procurement, Quality Assurance, Warehousing, Blending, Packaging, Trading, Marketing, Customer-Service, Consultancy, and Insurance brokerage.
Average factory turnover Kshs1 Billion ( 11 million) per year
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TEA PRODUCING CONTINENTS
ASIA 4164 m kg, 84
AFRICA 643 m kg13
SOUTH AMERICA 95 m kg, 2
OCEANIA 5 m kg1
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Kenya Tea Production 1963 - 2013 Smallholder vs
Estates Volume
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KENYA TEA PRODUCTION KEY PLAYERS - SHARE
FINANCIAL YEAR 2013/14
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KTDA MARKET OUTLETS- SALES (B) KSH
B
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MSA AUCTION PRICES PER ORIGIN USD/KG
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KTDA AVERAGE SELLING PRICE TREND IN USD/KG- 5 YRS
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Avg. PAYOUT TO THE FARMER
2014
2013
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Avg. cost of production excluding GL
payment-2014
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Challenges

• Fluctuating tea prices, exchange rates, interest
  rates and other business variables
• Input cost inflation (Energy, Fertilizer, Labour
  and others) and improved productivity
• Coping with climatic changes
• Decreasing tea farm sizes
• Certification across a huge supply base

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Factory Mechanization
2. Weigh Feeders
1. CFUs
Output
Output

• OUTPUT
• Consistent product.
• Smooth operations.
• Hygienic.
• Reduction in Cost .

4. Grading
3. Driers
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Environmental/Waste mgt
Green Treatment and elimination of effluent from
the factories.
Establishment of wetlands and compact system for
treating and eliminating effluent from the
factories.
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Mini Hydro Projects

1. Diversion of the River to the canal

1. Power House

1. The head pond

Out put 0.9MW Factory requirement 0.5MW
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Energy Initiatives
Wood fuel Land Development
Firewood Sheds
Efficient Boilers
KTDA MS Seeking Growth and Operational
Excellence
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End Thank you