A team appointed by President Uhuru Kenyatta to look into how to improve tea farmers’ earnings has come up with radical proposals that could change the way the highest export-earning industry operates.
Among its proposals is restructuring of the Kenya Tea Development Agency (KTDA) and review of its contracts with farmers; reduction of levies and the establishment of a regulator for the industry, years after a similar body was scrapped.
The task force was chaired by Mr Kagiri Kamatu and started its work last year.
If implemented, the KTDA could lose the grip of the country’s small-scale tea industry.
The task force’s report recommends a review of governance of the small-scale tea subsector, particularly in terms of employees of KTDA (MS) and directors of KTDA Holdings being board members of tea factories which are independent.
“Directors and employees of management agents should cease being directors of factories they manage,” says the report and calls for investigation on why KTDA Holdings directors sit on factory boards.
The report recommends a study of its model with a view to addressing grievances of the farmers and other stakeholders.
The thorny issues raised include lack of competitive bidding in the appointment of management agents for over 60 tea factories owned by about 600,000 small-scale farmers across the country.
The KTDA charges 2.5 per cent as management fee, which the stakeholders say is too high and want it reduced to one per cent.
A director for the Ndima factory in Kirinyaga, Mr John Mithamo, said the recommendations of the task force are good, but the agency was against its implementation.
“KTDA has over the years arm-twisted farmers to long contracts as a way of continuing with its monopoly of being managing agents for their factories,” Mr Mithamo said.
The report is clear that factories, as independent companies, were at liberty to seek any new management agents.
It further recommends that a consultant be hired to interrogate the management fee and agreements for other factories and compare them with those of the KTDA.
The task force had the agency’s managing director Lerionka Tiampati among its members.
INDEPENDENT ENTITIES
Although the tea processing firms are independent entities, they do not have an independent company secretary and use one from KTDA Holdings.
The existing management agreement allows the managing agent to hire some senior staff but ironically they are paid by the factories.
Though registered as independent legal entities under the Companies Act, tea factories are run by KTDA staff and use its company secretary, which is seen to be against the law but also causes conflict of interest.
“We want the factory directors to hire a managing director, a factory manager and a company secretary,” Mr George Kinyua of the Kenya Union of Small-Scale Tea Organisation (Kussto) told the Nation.
The report also recommends that the KTDA follows the regulations while issuing credit facilities to farmers. There is a high level of indebtedness among farmers as a result of credit given by the agency.
In addition, the team wants to develop and implement a sustainable fertiliser subsidy.
The task force has, however, advised against setting up of a price stabilisation fund.
Instead of a price stabilisation fund, the task force recommended the putting in place of a productivity improvement programme.
It noted that the government – through the Ministry of Agriculture, Livestock and Fisheries – is implementing a productivity improvement scheme targeting 406,000 growers with less than 0.5 acres under tea to uproot their old bushes and plant new high-yielding clones to improve their incomes.
Growers have been putting pressure on the government to set the fund to cushion them against fluctuating global prices, especially after they slumped in the 2014/2015 season.
“The task force reviewed the performance of various price stabilisation funds in India and Sri Lanka and noted that they performed poorly, are impractical, unsustainable and generally lead to price distortions,” the report says.
The KTDA has been leading the calls for the setting up of the fund and it was among the issues agreed upon during a meeting between government and stakeholders of the industry at Safari Park Hotel last year.
The report also calls for government incentives to facilitate cottage tea manufacture and marketing of high value tea.
Re-establishment of the defunct tea industry regulator, the Tea Board of Kenya, is also among the raft of recommendations by the task force that investigated the sustainability of the subsector.
WEAKEN POSITION
The report says that the absence of the board has weakened the country’s position in global tea markets.
Also recommended is the re-establishment of the industry’s research arm, the Tea Research Foundation of Kenya.
Some industry players have come out to strongly criticise the move to regulate the industry through a directorate under the Agricultural and Food Authority, saying it was not only ill-advised, but retrogressive and inconsistent with global trends.
“We proposed the re-constitution of the board because other countries have very strong boards while we have relegated ours to an invisible directorate yet tea is such an important and strategic crop nationally,” Kenya Tea Development Agency chairman Peter Kanyago said.
Both India and Sri Lanka, which are world leaders in tea production and marketing, have tea boards as the apex bodies in the industry that enable them to deal with emerging issues and place strategic focus on tea.
It recommends the enactment of legislation to re-establish the tea board.
But Kussto says instead of re-establishing the board, each county should have its own tea board.
“This was the proposal that we presented to the task force in Meru, that counties create tea boards to set roles and regulations for the industry. But it seems the government does not want to devolve tea issues,” Mr Kinyua said.
In 2013, regulatory functions of the tea industry were put under the Tea Directorate of the Agriculture and Food Authority, while research activities were transferred to the research institute under the Kenya Agricultural and Livestock Research Organisation.
The interim head of the directorate, Mr Samuel Ogola, said the directorate is up to the task and the Agriculture Cabinet Secretary has already rejected the proposal to re-establish the board.
“The directorate should be strengthened and the minister did not accept the proposal. It should be allowed to operate for at least five years to see if there is need to review it,” Mr Ogola told the Nation.
The task force, comprising key players in the sector, was formed to find ways of making the industry sustainable, with a view to improving returns for tea farmers, whose fortunes have plummeted in recent years.