By Nelson Mandela Muhoozi
Uganda’s tea market continues to demonstrate resilience at the Mombasa Tea Auction, with prices holding steady at just above $1 per kilogram, marking the seventh consecutive week that the nation’s average tea prices have surpassed the one-dollar mark.
In Sale Number 45, which concluded on November 5, 2024, Uganda’s tea fetched an average price of $1.02 (sh3,760) per kilogram, maintaining the same price as the previous two weeks.
Experts said this consistency offers a positive outlook for Ugandan tea, particularly as the industry strives for sustained growth.
The current price performance marks a significant improvement from the same period last year. In Sale Number 43 of 2023, Uganda’s tea averaged only $0.74 (sh2,725) per kilogram.
An increase of $0.28 (sh1,035) over the past year signals an encouraging trend, though industry experts believe there is still considerable room for improvement.
Regional comparison
Neighboring countries continue to perform strongly, providing valuable benchmarks for Uganda. For example, Kenya, a dominant player in the tea market, saw its tea prices average $2.30 (sh8,480) per kilogram in Sale Number 45, a modest increase from $2.25 (sh8,300) one year ago.
However, Kenya faced a challenge with 38.4% of its tea remaining unsold in this sale, compared to only 12.5% for Uganda.
Tea sector expert Onesimus Matsiko noted that this higher absorption rate for Ugandan tea suggests untapped potential, especially if Uganda can improve quality while maintaining competitive prices.
Rwanda’s performance remains noteworthy as well. In the same auction, Rwandan tea averaged $3.31 (sh12,195) per kilogram, up from $2.97 (sh10,950) one year ago.
Rwanda’s ability to secure higher prices consistently provides a strong example for Uganda, particularly in exploring alternative markets that may offer greater value.
Stagnant green leaf prices
Despite the gradual improvement in auction prices, farm-gate prices for green leaf in Uganda remain largely stagnant.
Unlike Kenya and Rwanda, where government regulation helps determine fair prices for tea farmers, Uganda’s market lacks such oversight. In Kenya, tea farmers receive 75% of the market price through the Kenya Tea Development Agency (KTDA), while Rwandan farmers are entitled to 50% as stipulated by government policy.
Meagre farm gate prices
Uganda, however, operates on free market principles, and factory owners independently set the price split, which ranges between 30% and 50%, often leaving farmers with less favorable terms.
In practical terms, the lack of regulation means that Ugandan tea farmers have little control over green leaf prices, a situation unlike in Malawi, where farmers negotiate prices through a tea outgrowers’ union.
Matsiko said that under the current prices, and assuming a 33% share, Uganda’s top-end producers offer approximately sh340 per kilogram, while the bottom end provides about sh220.
In the Tooro sub-region, prices predominantly hover around sh150, with minor exceptions reaching sh200.
Meanwhile, farmers in the Ankole sub-region see prices around sh200, with recent increments up to sh250 and sh300 from a factory known for payment delays, underscoring the need for price stability.
Naboth Nuwagaba, a tea farmer said “Factories should be paying farmers at least 33%, which aligns with current made tea prices. This is indeed what most factories in Ankole are following.”
However, he said that even though farmers receive their share, the 66% left for factories is often not enough to keep operations running without government support or additional borrowing.
“With fixed or rising costs like power, taxes, water, fuel, and salaries, factories face financial strain whether tea prices are up or down in the market. While product prices may fluctuate, operational costs remain high or increase, making it challenging for factories to maintain sustainability without external support,” he added.
On his part, William Mbonigaba another tea farmer, said that they have been engaging the government in countless meetings, hoping for solutions, but it feels like their concerns fall on deaf ears. “If some factories close, it could serve as a wake-up call for the government to finally step in, but we can’t afford to wait for that.”
“Our tea processing factories are struggling under immense debt because, regardless of market performance, costs like power, taxes, water, and fuel remain fixed,” said Naboth Nuwagaba, a tea farmer.
“We’ve been pressing the government for relief since last year, but meeting after meeting, there’s still no support,” Nuwagaba
“It’s heartbreaking to see tea factories on the verge of closure, yet the government remains silent,” he said.
“We hoped that the threat of shutdowns would prompt action, but instead, our calls for help have fallen on deaf ears.”
Other farmers said that the stagnation of green leaf prices, despite gradual improvements at the auction, is largely due to financial constraints faced by factories.
They said many factories incurred heavy losses in recent years, limiting their liquidity and making it difficult to pass on auction price gains to farmers.
Until factories recover financially, they said they may struggle to increase green leaf prices, leaving farmers with limited income improvement despite the upward trend in tea prices at auction.
A call for sustainable solutions
According to Matsiko, in order to achieve a sustainable solution, both yield and quality must improve.
He said higher-quality tea will fetch better prices, while increased yields allow for greater economic volumes.
In addition, he noted that fertilizer application plays a crucial role in both areas, as does quality control of green leaf, which can benefit from government or industry-led regulations.
“To ensure mutual benefits for factories and farmers, it is essential to boost production and implement fair profit-sharing practices. Factories should aim to improve efficiency and liquidity, enabling them to provide timely payments to farmers,” he said.
In other tea-producing countries, governments and industry associations have established systems that allow farmers to access their earnings without relying on factory liquidity.
Addressing payment delays
A significant challenge for Ugandan tea farmers is delayed payments from factories. Unlike other businesses, tea production has a longer cash cycle, taking about 45 days from green leaf reception at the factory to the final remittance from brokers in the East Africa Tea Trade Association system. This delay strains farmers financially, as they rely on timely payments to sustain operations.
For struggling factories, crafting a reliable payment arrangement and segregating green leaf financing could prove beneficial according to Matsiko.
“A dedicated financing system for green leaf payments would prevent situations where factories collect green leaf, process and sell it, then report delays in payments to farmers due to financial obligations,” he said.
Instead, he suggested that payment structures should allow factories to pay farmers as soon as revenues are available from sales, with financing options in place to handle factory obligations separately.
For Uganda’s tea industry to thrive, he said all stakeholders must commit to a more structured approach that includes increasing yields, improving quality, ensuring equitable profit sharing, and developing mechanisms for timely payments.
