Kenya is facing a sharp drop in export earnings due to falling tea and coffee prices. Tea exports have been declining since February this year, from a high of $133.3 million in January to $89.8 million in September, data from the Kenya National Bureau of Statistics has shown. The drop in earnings has sparked fears of lower tea bonuses for farmers for the second time in a row. To the year ending June 2013 , farmers were paid a bonus of Sh31 per kilogramme of tea from Sh32 paid last year by the Kenya Tea Development Agency (KTDA). Tea prices at the auction for the last three months have stagnated at Sh213 ( $2.2 ) and producers are worried that if the trend continues, factories could close down. "The prices offered at the Mombasa auction are not sufficient to cover the cost of production for tea factories, as most of them are already posting losses," said Lerionka Tiampati, chairman of the East African Tea Trade Association (EATTA). Stakeholders in the industry met last month and attributed the low prices to overproduction which had particularly swamped markets served by African teas. READ: Coffee, tea farmers hit by fall in prices to seven-year low Smallholder tea farmers delivered approximately 1.1 billion kilogrammes of green leaf to the 66 factories managed by KTDA, against the 907 million kilogrammes over the same period last year. East Africa produced 60 million kilogrammes of made tea which was over the normal production, creating a glut in the market during the 2012/13 financial year. KTDA says that the rising cost of production resulting from the new levies that include the 16 per cent VAT charged on farming inputs and the 1.5 railway levy will affect the production for the 2013/2014 financial year. "We do not see the rationale of levying a tax on teas that are already posting losses making an already bad situation worse. We ask the government to exempt tea from taxation," Mr Tiampati said. Kakuzi Limited issued a profit warning this month, informing investors that its net income for the full year ending December could fall by at least 25 per cent. The NSE-listed company posted a 25.36 per cent drop in profit after tax to Sh77.17 million over the six month period ended June 2013 from Sh103.39 million posted over a similar period in 2012. Other NSE-listed agricultural firms such as Williamson Tea , Kapchorua Tea and Limuru Tea have already indicated that the sharp drop in prices could hit their profits for the full year. Tea production is expected to go down by 10 per cent this year owing to increased cost of production and harsh climatic conditions. "Kenyan tea will become uncompetitive in the world market if the government will not intervene on some of these levies that are charged," says Mr Tiampati, who is also the chief executive officer of KTDA. Mr Tiampati noted that neighbouring countries such as Rwanda , Uganda and Burundi are not charging the levies, a move that is likely to give these countries an upper hand at the market. Edward Mudibo, managing director of EATTA says the group has engaged the government on several occasions over the high cost of production and on levies that are charged on tea but so far they are yet to get any feedback. Agriculture secretary Felix Koskei said the government will form a taskforce that will look into taxation in the tea sector. "We will be form a taskforce that will advise us on the way forward regarding taxation in this sector," says Mr Koskei. Stakeholders are exploring production of orthodox teas, value addition, new products like purple tea and seeking new markets to cushion themselves price swings. "We want Kenyans to develop a tea drinking culture and this can better be promoted by introducing juice tea," said Tea Board of Kenya acting-managing director Zakayo Magara. Ninety per cent of made tea is exported with Kenyans consuming the remaining percentage.
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