Kenyan tea growers facing losses due to production cost

Kenya's tea producers are making less profit because of rising costs that are beyond their control, a senior official said.
Nicholas Nganga, the chairman of industry regulator the Tea Board of Kenya said producers had done all they could to cut costs but had not reaped the fruits of their efforts.
"On cost reduction, the industry has run out of practical options for cost cutting: we've retrenched; mechanised some processes; and increasingly outsource some services," Nagger said in a speech obtained by Reuters on Monday.
"All these measures have been totally inadequate, owing to the fact that most of these costs are externally driven." Kenya's tea production costs were approaching $1 a kg, yet the average price had remained at $1.54 between 1995 and August 2005, Nagger said.
The significant cost components of producing tea in Kenya included electricity, fuel, fertiliser and labour. "Electricity is purchased from a state monopoly, fuel oils and fertilisers are imported at huge costs, while labour cost is fixed by collective bargaining agreements that appear insensitive to productivity and sustainability of the sector," Nagger said.
Kenyan business has long complained that inefficiencies at state-controlled power distributor Kenya Power & Lighting Company have made electricity expensive compared with other countries in the region.
Kenya's tea production hit a record high of 324.6 million kg in 2004, compared with 293.7 million the previous year, due to good rainfall and improved planting inputs.
The board said Kenya produced 166.7 million kg of black tea from January-June, down from 169.8 million in the same period last year.
Kenya is among the three largest black tea producers in the world along with India and Sri Lanka. Nganga said tea exports to key markets in the European Union could be undermined by non-tariff barriers from next year.
"When we thought we had met all the sanitary and phytosanitary requirements, the European Union sprang up the issue of 'ethical production' and 'good agricultural practices' requirements to be met by March 2006," he said.
Nganga was speaking during a prize giving ceremony for the country's producers of the highest quality tea.
Kenya's tea sector employs about 3 million people directly and indirectly.