Enough Tea to Brew 7.5 Billion Cups Is Piled Up in East Africa

Three years ago, Kenya — one of the world’s biggest tea producers — set a minimum price for the commodity to cushion farmers from losses in an oversupplied market. Now, it’s been forced to suspend the plan and set about clearing a huge inventory at bargain rates instead.

Supply began piling up after Kenya set a reserve price of $2.43 a kilogram in 2021 and buyers began snubbing lower-quality teas that had been artificially inflated by the mechanism. The base price applied to all the tea grown by small-scale farmers contracted by Kenya Tea Development Agency, that produces some 60% of the nation’s leaf.

The effort was recently scrapped, and a glut that touched 100-million kilograms at its peak has been whittled down. But a backlog of 15 million kilograms remained as of October, according to the government, enough to brew roughly 7.5 billion cups. That could take until the middle of next year to clear. And aging reserves mean its taste is also likely to suffer, heralding more bad news for the East African tea industry, with prices set to remain depressed for the foreseeable future.

“The growth in Kenyan production has tanked farm prices globally by between 10%-30%,” said Jem McDowall, vice president of trading at Bronxville, New York-based Universal Commodities (Tea) Trading Inc. “Consumers are getting cheaper, but poorer quality tea. The stocks that have been sold off are up to two years old in some cases, and tea is still accumulating.”

The attempt to protect Kenyan farmers with a state-set price has drawn out the global supply and demand mismatch at the heart of the problem. The region’s tea production has been boosted by as much as 3.5% annually over the past 15 years, while demand has been growing at under 1%, said McDowall.

The combination of higher output, poor quality and globally low prices resulted in the introduction of the reserve price. “A minimum price was a political intervention that they could do to try and help the farmers,” McDowall said. “Not enough has been done to say, hey, we are producing too much tea, we need to pull back.”

While the backlog lingers, fresh supply is also pouring in.

Producers across East Africa bring their tea to a weekly auction in Mombasa, from where it heads to global beverage makers around the world. The auction has the capacity to sell between nine to 15 million kilograms a week, according Martin Ochieng, the chief executive officer of Kenyan agri-business firm Sasini Ltd. However, the market is currently receiving around 21 million kilograms, with 50%-60% remaining unsold, which is compounding the problem, Ochieng said.

The glut and the cooling global demand has impacted other regional producers too. Uganda, which sells more than 90% of its produce through the auction in Mombasa has seen prices slump more than 50% over the last two years, averaging $0.75 a kilogram in September. At least 10 of the country’s 37 factories have shut down in the last three years due to subdued prices, according to Uganda Tea Association.

Kenya, the world largest exporter of black tea, is the biggest supplier to the auction, followed by Uganda, Rwanda and Tanzania. Other members of the East African Tea Trade Association are Burundi, Malawi, Ethiopia, Democratic Republic of Congo, Mozambique and Madagascar.

So far this year the highest volume of unsold tea was 60% during an auction in late July. Prices have ranged between $1.97 and $2.24 for a kilogram in the first nine months of the year. Tea was sold at an average price of $2.49 in 2022 and slipped to $2.24 last year.

“There are quite severe implications for the Kenyan industry unless they can somehow move all this excess tea, rein in the amount of tea that they produce, increase the quality and get a better price,” McDowall said. “This is not an easy conundrum to sort out.”

This article originally appeared on Bloomberg.