Drought Hurts Kenya Tea, Coffee Yields, Higher Prices Hold Fort at Auction

A severe drought which hit horn of Africa nations in late 2016 and extended to early 2017 has cut tea and coffee production in Kenya by more than a third compared to the same period last year, but similarly lower global production levels from rivals could keep earnings buoyed as prices keep rising.

An El niño phenomenon that impacted weather patterns in several regions across the region, causing food shortages, cut Kenya’s tea production by 30 percent in the nine months to May, according to data compiled by Kenya Tea Development Agency.

Preliminary data from Ministry of Agriculture, Livestock and Fisheries also showed that coffee witnessed a drastic fall in harvests this year in main growing areas. Kenya’s Coffee Board is yet to release official data for the 2016/17 year.

The quantity of coffee auctioned in April fell to 4,562 tons from 5,460 tons in March, according to data released by the Nairobi Coffee Exchange.

Kenya is one of the world’s leading tea producers and exported an estimated 473 million kilograms of the commodity in 2016. It is expected that this year’s tea produce could fall to as low as 420 million kilograms, according to the Agriculture and Food Authority (AFA).

The drop in tea and coffee output has, however, been compensated by high prices at the auction houses. The two commodities are major foreign exchange earners for the country.

“In terms of volumes we are going to register a decline in production, however, this will not have a big effect on earnings as we expect the prices to improve,” Alfred Busolo, Director General at AFA, told delegates at a Tea Convention Workshop and Exhibition held in Nairobi in May.

Depressed output from other major producers of tea (India) and coffee (Brazil and Ethiopia) has helped sustain earnings for the two commodities.

The average coffee price at the Nairobi Coffee Exchange jumped 30 percent year-on-year to $228.64 per 50 kilogram bag in the fourth quarter of last year, lifting the total earnings by 69 percent in that period. The trend was expected continued according to an exchange official who spoke to Reuters in January.

The average hammer price for Tea at the Mombasa auction have recovered from a five year low of $2.29 per kilo at the end of 2016 to $3.92 earlier in June. Tea exports from Kenya, which is the world's biggest exporter of black tea and is quickly diversifying into purple tea, generated income worth $840 million in 2016.

Improved weather in the second half of the year is expected to lead to higher production of tea and coffee, but dealers expect increased yields to dampen the price rally in the second half of the production year.

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