By Nelson Mandela Muhoozi
Over the past one year, farm-gate prices have seen a steep decline, plummeting from around sh500 to a current range of sh130 to sh300.
In some areas, Onesimus Matsiko, a tea sector expert and farmer, says middlemen are offering as little as shillings 130 per kilogramme, with the person harvesting the tea taking shillings 100 of that sum.
“This leaves farmers with a paltry shillings 30 per kilogramme — an amount insufficient to maintain their tea gardens, let alone turn a profit,” he says.
The dwindled farm gate prices, he said, is one of the most significant cost-cutting strategies by factories that depend on tea outgrowers’ leaf to survive in the challenging environment.
However, this solution comes with dire consequences for the very farmers the industry relies on according to Matsiko. As a result, he revealed that many farmers are finding it impossible to maintain their tea gardens, leading to a growing number abandoning their farms altogether and others burning their tea estates to plant maize and beans.
“Others have opted to suspend operations, leaving their gardens unattended in the hope that prices might recover in the future. This exodus from tea farming not only threatens the livelihoods of thousands of Ugandans but also the future of the country’s tea industry,” he said.
Mombasa Tea Auction prices continue to plummet
As the crisis deepens, the need for intervention becomes more urgent as prices at the Mombasa Auction continue to plummet.
The recently concluded Sale Number 32 at the East African Mombasa Tea Auction on August 6, 2024, painted a grim picture for Ugandan tea producers as the average price for a kilogram of Ugandan tea stood at a meager $0.82 (about shillings 3,050).
In stark contrast, neighbouring Kenya and Rwanda saw their teas fetch much higher averages of $2.27 (about shillings 10,300) and $2.70 (about shillings 10,000) per kilogramme, respectively.
This drastic drop is part of a disturbing trend that has persisted for nearly 2 years. At the same auction date in 2023, Ugandan tea sold for an average of $1.00 (about about shillings 3,830) per kilogramme, already a concerning figure, but far better than today’s prices.
Nicholas Rukuura, a tea processor and farmer, said the current performance raises alarm bells, especially as the cost of production in Uganda (at over $1.20) remains stubbornly above the earnings from tea sales, leading to a crisis for both tea farmers and processing factories.
Without swift and decisive action, he said Uganda’s once-thriving tea sector risks being decimated, with dire consequences for the economy and the communities that depend on it.
“The situation calls for a concerted effort from all stakeholders, including the government, tea factories, and international buyers, to find sustainable solutions that will ensure the survival of Uganda’s tea industry and the livelihoods of its farmers,” he said.
He stresses the importance of consistent government support. “The government’s promise to support us with fertilizers and financing is commendable, but the delays are hurting us. We need consistent, timely interventions to keep the industry afloat.”
International market status
In Sale 32 at Mombasa, 53.94% of Uganda’s tea remained neglected according to the market report by Tea Brokers East Africa Limited, highlighting the fact that global production is grossly exceeding effective demand.
Uganda’s volume of tea exports is approximately 15% of East Africa’s total which is small enough to be absorbed compared to the more than 70% offered by Kenya according to Matsiko.
According to Matsiko, an international tea buyer looking for average price and quality tea may opt for improved Ugandan tea as they shun the more expensive Kenyan teas.
“Uganda’s competition segment is actually large-scale Kenyan tea plantations, and Uganda has a relatively lower cost base despite its inland disadvantage. Incidentally, smallholder tea farming has a higher potential for product quality assurance compared to the large-scale plantation model,” he said.
However, Matsiko said the fact that there is an oversupply of tea and weakened buying capacity in major tea-consuming countries creates opportunities for Uganda’s “affordable teas” when manufactured to acceptable standards.
Quality assurance
Farmers said the most urgent, practical, and affordable intervention that can be implemented in the short term is the establishment of a tea green leaf standard.
They said this is the most effective and affordable intervention for the tea industry, yet it was, unfortunately, the least considered in the cabinet resolutions for industry recovery.
Victoria B. Ashabahebwa, Director, Swazi Highland Tea Co. Ltd, said that she sees the current crisis as a test of the industry’s resilience.
“It’s a time to test the resilience of the industry and our ability to bend and survive any storm,” she said, adding, “As we adopt more efficient production processes to reduce our costs, we are emphasizing premium quality leaf standards.”
Seeking alternative markets
Tea exporters in Uganda decry distortions at the Mombasa tea auctions, where top grades sometimes fetch lower prices than secondary (off) grades.
As such, producers are aggressively seeking alternative markets, sometimes securing a few cents more than auction prices.
“However, despite these efforts, Ugandan teas continue to struggle in the competitive global market which situation should drive Uganda’s primary focus on product quality improvement, coupled with a review of marketing strategies, said Matsiko.
He said regional markets in the Democratic Republic of Congo (DRC), Sudan, and farther west in Africa appear to be more promising for Ugandan teas compared to Mombasa.
While Mombasa complains that these markets are logistically distant, they are only a few kilometres from Uganda’s tea factories, which are concentrated in western Uganda according to tea farmers.
Matsiko said improvements in infrastructure, security, and trade relations could significantly boost Uganda’s tea exports to these markets.
With this direction, he noted, the global oversupply of tea is no justification for Ugandans to abandon their tea gardens, which have cost the country and individuals heavily.
Cabinet resolutions on industry recovery
The cabinet resolutions on industry recovery, announced in February 2024, seem to be making little progress according to Matsiko.
Cabinet recommended the Ministry of Finance avail sh126 billion as aggregate financing for working capital for tea processing factories, which are unable to access financing ordinarily.
The cabinet also passed a resolution of sh41 billion ($11m) for the fertilizer intervention which Matsiko said could generate more than 100% extra earnings from the financial investment within six months.
The fertilizer intervention had targeted the supply of subsidized fertilizers to tea farmers during the March rainy season, but it is doubtful if this will be achieved even for the September rains according to him.
Uganda’s tea industry supports around 100,000 households directly, provides about 150,000 direct employment jobs, and sustains the livelihoods of approximately 1.5 million people according to Uganda Tea Out-growers Association (UTAO).
According to Matsiko, who is also the association’s national chairperson, the normal annual production of Uganda’s tea industry, valued at $80 million, has the potential to generate close to $100 million in foreign exchange for the exported portion.
He said the combined effect of fertilizer on yield and price increases holds the potential to double Uganda’s foreign exchange earnings from the current estimated $25 million to $50 million for a season.
He added that there is a need to support industry actors in restructuring their loan financing. “This has focused on tea factories alone, but tea farmers, employees, and key suppliers are in the same dilemma. Industry actors are crumbling one by one, quietly.”
Matsiko said the national policy orientation on tea farming scale deserves closer engagement between industry experts and policymakers.
Other farmers said President Museveni’s latest pledge to meet tea growers for a discussion on potential impactful government interventions is eagerly awaited.
