Kenya’smassive and methodical tea industry is under stress as forces of nature combinewith human nature to reduce exports.
Precipitationduring the country’s “long rains” season from March to May is well below thelong-term average, leading forecasters to predict dry conditions that willresult in food scarcity and water shortages. Meteorologists say that tropicalcyclone Idai, a storm that killed thousands across East Africa, redirectedmoisture away from the region putting 1.1 million Kenyans in jeopardy.
Teaproduction is down by half since the beginning of the season. Last weekplantations sent halftheir workers home on leave, assigning others to lower payingnon-core duties. Kenya earns one-third of its revenue from agricultural exportsled by tea and including coffee and flowers. Small holders responsible for 60percent of Kenya’s tea have experienced a 17 percent price drop at auction. Thatis likely to change as Kenya now expects to harvest no more than 416 millionkilograms of tea, down from a record 492 million kilograms harvested in 2018.At $1.93 per kilogram, prices last week were only $0.5 per kilogram aboveoperating costs.
The onlybright spot are tensions between Pakistan and India that virtually haltedexports between the two sabre-rattling countries. Sales picked up after Indiarefused to sell tea to Pakistan, the world’s second largest tea importingcountry. Pakistan imports 70 million kilograms of Kenyan tea annually and isnow the biggest buyer of Kenyan teas, paying $500 million in 2018, according toTheEast African.
Sanctions disrupt trade
In 2016, when a previous round of sanctions was lifted,exports surged and profits rose for traders supplying CTC (cut, tear, curl) toIran’s 80 million tea drinkers. Iran is the world’s fifth largest tea consumerat 88,000 metric tons. Tea exports steadily increased with India, Sri Lanka andKenya earning $350 million in sales through November 2018 ―only to be halted once again.
Kenya’s share of the Iranian tea market amounted to $280million in 2018. Last year Iran consumed almost 20 percent of Kenya’s $1.4 billionin exports. Rwanda, Tanzania, Uganda and Burundi also supply tea to Iran viathe tea auction at Mombasa.
In Februarythe Kenya Tea Development Agency (KTDA) announced that lower earnings for2018/19 are due, in part, to sanctions that caused a severe economic downturnin Iran. Oil continued to flow during the past six months and tea continued tofind its way to Iran but that may stop entirely next week following a U.S. decisionto cancel waivers as of May 2. Turkey, India, Italy, Japan, South Korea, Taiwanand China, all of which held waivers, must now weigh the possibility of U.S. sanctionsrestricting their own trade if they do not stop buying petroleum products fromIran.
President Donald Trump has warned countries not to do business with Iran. Kenya appears to be heeding that warning as trade with Iran fell from $5.79 million to $3.49 million during the first three months of the year. India is also likely to curb exports, according to reports in the Hindu Business Line. Iran purchased 31 million kilograms of tea from India last year totaling $100 million.
Sanctions are broad, naming 50 Iranian banks andsubsidiaries, more than 200 shipping vessels and the nation’s airline. Teatraders are scared to transact with Iran for fear of not getting paid. The EuropeanUnion said it will not comply with U.S. sanctions, which could enable bankersto trade in euros instead of dollars. But dealing with Iran’s banks could alsolead the U.S. to blacklist Kenyan banks, preventing the exchange of dollarswhich could prove catastrophic.