NAIROBI, KENYA – A depreciating dollar against the appreciating value of the Kenyan shilling is likely to affect earnings from tea exports to the global market.
This, coupled with the rising production costs and global over supplies, could eat into local tea revenues after conversion to the dollar, the Kenya Tea Board (TBK) said in statement.
“It is highly likely that our total earnings of tea could drop substantially due to the twin reasons of the ever strengthening shilling against the dollar and the ever increasing production costs,” said the board’s Managing Director Sicily Kariuki.
Tea prices at the local auction have recorded a drastic drop in prices to an average Ksh100 per kilogramme within the last two years from between Ksh150 (US$ 2.2) to Ksh 180 (US$ 2.7) a decade ago.
“While prices fall, production costs remain on a high and the overheads leave no margins for dividends,” the official said.
Production cost remains highest in Kenya compared to other countries in the region with an average (US Dollars 1.3) (Ksh93.10) per kilograme compared to Uganda US US$ 1.2(Sh84), Tanzania $1.2 (Sh81.20), Malawi $1.1(79.80), and Zimbabwe $1.1 (71.70).
Kenya’s economy relies heavily on tea earnings as it still remains the highest cash crop revenue earner with a record Ksh 47.3 billion($ 70million) in the last financial year. But due to market liberalization, the country could lose out on the gains as it is pitted against giant and efficient producers like Sri Lanka, Vietnam and Indonesia where production costs are relatively lower due to cheap labour, incentives to farmers and market subsidies.
It costs an average of Ksh70 to produce a kilogramme of tea in Kenya’s major competitors.
Two months ago, a government taskforce formed to probe into the woes afflicting the lucrative industry listed a number of recommendations, key among them that Kenya should sign bilateral trade pacts with its major competitors to curtail the losses and safeguard its share of the market in the globe.
The task also recommended that the country should explore the option of adopting the use of other currencies like the Sterling pound, the Euro. The shilling has been on a roll against the dollar in the last year gaining by 7.7 percent having moved from Ksh72.61 against the dollar in September 2006 to Ksh66.97 in 2007.
