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Kenya Seeks COCOBOD’s Help On A Remunerative Pricing Mechanism For Tea Industry

Kenya is the leading exporter of black tea in the world. The East African nation earned about US$1.1 billion from exports in 2019, and an additional 200 million dollars from domestic sales.

Kenya, which has been growing tea since the 1950s, produced 458,000 tons of black tea in 2019 aside other specialty varieties.

An estimated 500,000 small scale tea farmers account for about 60 percent of the country’s produce, with the rest from commercial plantations, some of which are owned by multinationals like Unilver.

But the Kenya tea industry has been facing difficult times with small scale farmers bearing the brunt.

Their returns have been dwindling against falling international market prices amidst increasing cost of inputs and operation.

The prevailing situation is a far cry from the glorious 1970s and 80s, when Kenya’s tea farmers reaped handsome rewards from the crop brewed into the world’s most popular beverage.

Sadly, like many an African country, Kenya exports more than 90 percent of its tea produce unprocessed, thereby missing out on extra revenue and jobs.

Hard times, indeed, call for drastic measures as the government of Kenya, like all over Africa, has a huge unemployed younger population to contend with.

The situation is further exacerbated by global job losses due to the coronavirus pandemic (COVID19) of the last two years, which Kenya is not immmune.

The country’s Ministry of Agriculture has been mulling over plans to revive the tea industry to offer more opportunities to its people.

Quite a number of changes are expected in the areas of legal and tax reforms.

The government wants to abolish taxes, especially Value Added Tax (VAT) on Kenyan tea, and instead slap 100% import duty on foreign processed tea.

“The VAT on tea is a levy that reduces farmers’ earnings and complicates the market and is actually one of the factors that make it difficult for people to invest in processing tea locally,” Peter Munya, cabinet secretary for the Ministry Agriculture, Livestock, Fisheries and Cooperatives told Xinhuanet, early on this year.

Munya sees earnings in the local tea industry picking up significantly when the Kenya successfully shifts into the tea processing and value addition.

The second critical pillar of the Kenyan tea sector reforms is the pricing of the commodity to offer better earnings to improve the livelihoods of thousands of poor farmers.

For this, a high-powered delegation from Kenya was sent to Ghana to learn about the West African country’s cocoa pricing mechanism, designed by Ghana Cocoa Board (COCOBOD) for the payment of a remunerative producer price to its cocoa farmers.

The team was led by the country’s High Commissioner to Ghana, Eliphas Mugendi Barine.

During a courtesy on the management of Cocobod, Barine observed that Ghana’s cocoa pricing formula provides an excellent model for designing pricing schemes for cash crops exported by other African countries.

He explained for that reason, Kenya’s National Technical Working Committee for the Design, Development and Implementation of a Price Stabilization Framework had come to learn about Ghana’s modalities for determining cocoa prices.

He was optimistic that the interactions will enable the team of experts responsible for Tea Price Stabilization in Kenya to acquire extra knowledge to enhance their pricing mechanism using the Ghanaian system as a benchmark.

Joseph Boahen Aidoo, the Chief Executive of Cocobod, said Ghana’s farmgate cocoa price is determined by the Producer Price Review Committee (PPRC), an independent body.

Membership of the PPRC comprises representatives of cocoa farmers, academia, licensed cocoa buying companies, transporters of cocoa, the Ministry of Food and Agriculture, the Ministry of Finance, among others.

The PPRC also works with a Technical Committee set up by the Management of COCOBOD to arrive at a price that is realistic, objective and fair to ensure that cocoa farmers are well paid.

“As a policy, cocoa farmers in Ghana enjoy a guaranteed cocoa price of not less than 70% of the Free On Board (FOB) price of cocoa. The team looks at other parameters which include exchange rate, operational costs among others. We do this painstakingly to arrive at the best price to safeguard our farmers against price volatility”, Aidoo explained.

He further shared insights about the novel Living Income Differential (LID) pricing mechanism as an additional intervention by both Ghana and Cote d’Ivoire to further cushion the incomes of their cocoa farmers.

“Through the institution of the LID, a US$400 extra amount on every tonne of cocoa sold is paid directly to the cocoa farmers to enhance their livelihoods,” Aidoo stated.

The Kenyan High Commissioner to Ghana lauded Ghana and Cote d’Ivoire, which account for more than 60% of cocoa supply, for going the extra mile to protect the toil and efforts of farmers, adding the mechanism was worth considering by his country.

“As you enjoy chocolates, you must be part of a process that makes producers of cocoa enjoy decent life through improved income”, he urged.

Kojo Hayford
Source Cocoa Post
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