EATTA Advocacy Initiative

: 16 December 2010

EATTA Advocacy Initiative

East African Tea Trade Association is the premier body representing the interests of tea producers, tea buyers, tea brokers, tea packers and tea warehouses. EATTA has 167 members in 9 countries in Africa. EATTA runs the Mombasa tea auction that is the second largest tea auction in the world after the Colombo auction. Of the tea exported globally, 32% passes through the Mombasa auction.

The auction has grown by a remarkable 300% in the past 20 years, by offering teas from all the member countries. The tea task force report of 2007 made specific recommendations based on challenges facing the industry. EATTA has identified four areas that need urgent address by the Government of Kenya;

The Governance Structure in The Tea Industry

Currently there are two Bills in Parliament aimed at the Tea sector. One sponsored by the Government and another, a Private Member (Kones Bill). There needs to be a harmonization of the two Bills. The harmonized Bill should take into account the following provisions:

A liberalized environment which is regulated only to the extent of avoiding chaos but not so much as to bring the hand of government to interfere with the running of the industry.
The Government through the Ministry of Agriculture has responsibility to make appointments for its representatives to the Tea Board of Kenya. EATTA requests that the allocation from the tea industry be as follows; producers five slots -three representing the smallholders sector and two representing the plantations-, packers one slot, EATTA (auction organizer) to represent the trade one slot.
The Government Bill gives the TBK sweeping powers to issue, refuse, revoke, cancel, suspend, or vary, with or without conditions of licenses and registration certificates under this Act. This is draconian and will drive away potential investors.
The Ministry of Agriculture operationalize the Agricultural Sector appeals tribunal so that players in the tea industry that have grievances have an avenue to seek redress.

Multiple levies and taxation of the tea industry

The tea industry is subject to more than 30 taxes, fees, levies, charges and payments that increase the cost of doing business and adds the administrative burden on organisations seeking to comply. In some situations no direct service are rendered and makes the work of complying difficult and expensive. This acts as a barrier 10 investments as any additional investment is also subject to tax. Very small margins the farmers earn make it impossible for them to invest in research and development of the product and manufacturing process. In the last year, the gains to the farmer have been primarily because of the favourable exchange rate. If the dollar depreciates in value the gains will definitely be reversed. Ultimately the costs of the charges, levies and other payments are paid by the farmer, suppressing their earnings

Value Addition and Marketing Support

An analysis of the Sri Lanka tea export market shows that Kenya exported more tea in volume than Sri Lanka in 2009 by 15% but earned 26% more from their exports than Kenya did. This is because apart from selling her tea in bulk Sri Lanka also sells tea in value added form i.e. in packets, tea bags, instant tea and other forms. Sri Lanka sells 61 % of her tea in bulk and 39% in value added form. Tea industry players who may want to go into value added exports have to pay expensive duty at 25%to import packaging equipment and packaging material that can compete with other international brands. Kenya is not known as a tea growing country in some of our major consumer markets. It is packed in those markets after being blended with other teas, an arrangement that causes massive loss of value and taste. It also results in loss of jobs and intellectual property value.

Establish a Tea Development Fund

The Tea Amendment (No 2) Bill proposes to introduce an ad valor em levy at 2% to be charged at the point of import and export that will replace the current agricultural cess and manufacturing levy. We would wish to make a proposal that the levy be capped at 1% of the export value. It is proposed that the money from the levy be collected into a pool to be called a Tea Development Fund that is to be managed by a Board of trustees from the tea industry. We propose that the tea development fund will receive contributions from the exchequer and donors. We also propose that the Tea Board and Tea Research Foundation share 90% of the money from the fund on a 50:50 ratio. We would like the remaining 10% to be shared as follows; 6% to be placed into a contingency fund that will be used to cushion the trade from price and currency fluctuations. Of all the tea produced by factories in Kenya, 87% is sold through the Mombasa auction. EATTA that runs the auction is funded completely by the trade with no contributions from the Government. We would like to make a case for EATTA to be allocated 4% from the tea development fund.

As a start on the way forward, EATTA wishes to request a stakeholder driven approach by the Government to address the challenges to ensure a vibrant tea industry in Kenya.

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