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
1
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
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.
4
The First Tea Bush In Kenya - Limuru 1903
5
Kenya Tea Industry Structure
MINISTRY OF AGRICULTURE
POLICY
TEA DIRECTORATE
REGULATORY
TEA RESEARCH FOUNDATION
OF KENYA
Smallholder Sub-sector
(KTDA & NTDC)
Plantation Sub-sector
(KTGA & Independent
Tea Growers)
EATTA (Brokers, Warehousemen,
Buyers & Packers)
RESEARCH
PRODUCERS
TRADERS
Small Holder ownership structure
KTDA Holdings
FACTORIES
FARMERS
• 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
A unique model that empowers the farmer from the grassroots, a world’s first.
7
KTDA GROUP STRUCTURE
NB:
TEA
FACTORY
COMPANIES
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
KTDA
(Holdings)
LTD
KTDA
(MS) LTD
CHAI
TRADING
CO.LTD
Factory
Companies
management
MAJANI
INSURANCE
BROKERS
LTD
Tea trading
&
warehousing
KENYA
TEA
PACKERS
LTD
Insurance
Brokerage
farmers and distribute the surplus
revenue to the shareholders.
GREENLAND
FEDHA
LTD
Tea blending,
Packing and
marketing
KTDA
POWER
LTD
TEA ENGIN.
KTDA
& MACHI.
FOUNDATION
CO. LTD
(TEMEC)
MicroPower
finance Generation
services
Group
CSR
Engineering
&
Fabrications
KTDA (MS) Operational
Structure
KTDA
MS
Region 1
Region 2
Region 3
Region 4
Region 5
Region 6
Region 7
12
Tea Factory
Companies
9
Tea Factory
Companies
8
Tea Factory
Companies
8
Tea Factory
Companies
13
Tea Factory
Companies
12
Tea Factory
Companies
4
Tea Factory
Companies
Total - 68 processing factories
(66 in Kenya and 2 in Rwanda)
9
Factory Structure
FACTORY COMPANY BOARD
Elected by and from among the farmers to handle policy issues
FACTORY MANAGEMENT STAFF
Professionals to handle managerial and operational issues
FACTORY EMPLOYEES
Assigned none managerial duties within the various factory operational areas
10
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
AUCTION
Factory Brokers Sell The Tea to
Interested Buyers
BUYER
Buyers collect purchased tea and ship to their destination
Direct
Sales
Overseas
The KTDA transformation
Year
Activity in Phase
1950’s Small-holder cultivation commences
1957
1. First Small-holder Tea Factory started in Ragati, Nyeri
2. Factory management through a management agreement with multinational tea companies
1960
Special Crops Development Authority established
1964
1991
1999 2000
1. The Kenya Tea Development Authority established under the Agriculture
Act (Cap 318) Section 191. (Legal Notice No.42).
2. KTDA (authority) takes over small-holder management from
multinational tea companies.
Parastatal Reform Strategy Paper developed, listing KTDA among other
Strategic Parastatals for privatization.
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)
12
Ltd on 30th June 2000 & registered under the Companies Act. (45 factories)
12
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).
1.
KTDA Management Services Ltd (KTDA MS Ltd)
2.
Chai Trading Company Ltd (CTCL)
3.
Majani Insurance Brokers (MIB),
4.
Kenya Tea Packers Ltd (KETEPA),
5.
Greenland Fedha Ltd,
6.
KTDA Power Company Ltd.
7.
Tea Machinery & Engineering Co. Ltd (TEMEC)
8.
KTDA Foundation (handles CSR Initiatives)
Subsidiary Companies
Principal Activities
Average factory turnover
Leaf Husbandry, Field Logistics, Processing, Procurement, Quality
Assurance, Warehousing, Blending, Packaging, Trading, Marketing,
Customer-Service, Consultancy, and Insurance brokerage.
Kshs1 Billion ( $11 million) per year
13
13
TEA PRODUCING CONTINENTS
AFRICA
643 m kg13%
SOUTH AMERICA
95 m kg, 2%
PRODUCTION, AREA AND AVERAGE YIELD OF TEA (2009-2013)
YEAR ( CALENDAR YEAR)
2009
2010
2011
2012
2013
AREA (‘000 Ha.)
Smallholder....……………..
Estates……………..................
107.3
51.1
115.0
56.9
123.3
64.5
124.9
65.7
127.3
71.3
TOTAL
158.4
171.9
187.8
190.6
198.6
PRODUCTION (‘000 Tonnes)
Smallholder……………………
Estates……………………………………..
172.6
141.5
225.0
174.0
218.6
159.3
218.5
150.9
249.8
182.6
TOTAL
314.1
399.0
377.9
369.4
432.4
AVERAGE YIELD(Kg/Ha)***
Smallholder……………………
Estates……………………………….
1,862.0
2,909.0
2,291.0
3,412.0
2,040.0
3,149.0
2,036.3
2,953.0
2,172.0
3,209.1
Source: Economic Survey, 2014
Kenya Tea Production 1963 - 2013
Smallholder vs Estates Volume
KENYA TEA PRODUCTION – KEY PLAYERS - % SHARE
FINANCIAL YEAR 2013/14
Unilever
8.6%
Finlay's
6.5%
Eastern P.
7.8%
Williamson
4.0%
Other
13.8%
KTDA
59.3%
17
KTDA MARKET OUTLETS- SALES (B) KSH
Msa auction,
Msa auction,
39.9
50.7 B
74%
KETEPA
KETEPA
0.6 0.3 B B
1% 0%
75%
FDS
1.1
FDS
2%
1.1
2%
DSO
DSO
11.6
11.5 B
21%
17%
DSLDSL
0.9
2%
3.8 B
6%
MSA AUCTION PRICES PER ORIGIN – USD/KG
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14
KTDA
1.67
1.96
1.91
2.18
2.50
3.12
3.08
3.18
3.19
2.37
Other Kenya
1.43
1.67
1.67
1.85
2.39
2.52
2.40
2.53
2.64
2.27
Other Africa
1.39
1.64
1.69
1.85
2.41
2.55
2.42
2.50
2.67
2.29
KTDA
Other Kenya
Other Africa
KTDA AVERAGE SELLING PRICE TREND IN USD/KG- 5 YRS
3.50
3.11
3.07
3.20
3.26
2.43
2.50
1.50
0.50
2010
2011
2012
2013
2014
Avg. % PAYOUT TO THE FARMER
2014
2013
Financial costs
Labour
Selling Expenses
3%
Furnace oil
Admin costs Mgt Fees 4%
3%
Admin costs HO
2%
Admin costs FF
2%
packing expenses
3%
leaf collection
2%
Fuel wood
4%
Electricity
4%
Furnace oil
0%
Labour
6%
Total GL payment
67%
2%
3%
2%
2%
2%
2%
1%
3%
4%
0%
Electricity
Fuel wood
leaf collection
75%
packing expenses
Admin costs FF
Admin costs HO
Admin costs Mgt
Fees
Financial costs
4%
Selling Expenses
Total GL payment
% RETURN TO FARMER 2006-2014
76%
75%
75%
75%
75%
74%
72%
70%
70%
68%
67%
66%
65%
65%
2007
2008
64%
64%
62%
60%
58%
2006
2009
2010
2011
2012
2013
2014
Percentage return to farmers has improved from 64% in 2006 to 75% in 2010 and
5
maintained in 2011 to 2013.This has dropped to 67% in 2014
Avg. % cost of production excluding GL payment-2014
Labour
16%
Selling
Expenses
8%
Furnace oil
1%
Electricity
14%
Financial
costs
13%
Fuel wood
11%
Admin costs
Mgt Fees
9%
Admin costs
HO
6%
leaf collection
5%
Admin costs
FF
8%
packing
expenses
9%
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
Factory Mechanization
2. Weigh Feeders
1. CFUs
OUTPUT
3. Driers
•
Consistent product.
•
Smooth operations.
•
Hygienic.
•
Reduction in Cost .
4. Grading
25
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.
26
Mini Hydro Projects
1. Diversion of
the River to
the canal
3. Power
House
2. The head
pond
Out put – 0.9MW
Factory requirement – 0.5MW
27
Energy Initiatives
Wood fuel Land Development
Firewood Sheds
Efficient Boilers
KTDA –MS: Seeking Growth and
Operational Excellence
28
End
Thank you