The collapse of Pan Paper Millers at Webuye has lead the packaging cost of tea to rise by 15 percent, locally. The tea companies import the papers at a much high price than they used to buy them from the local miller.
The rising cost of fuel coupled with persistence drought the country has been experiencing has too scaled up the buying price of tea from farmers raising the input costs incurred by companies, Kenya Tea Packers Limited (KETEPA), Managing Director and chief executive officer (CEO), Timothy Chege has said.
Mr Chege who was speaking during a one month consumer promotion, first car winner ceremony said running the business has been difficult from the high cost of distribution of their products across the country. “We have been absorbing the cost as a company by selling more, outsourcing better tea and being innovative.”
In Kenya, over 450,000 tea farmers drive their livelihood from tea growing, over the years they have been complaining that they are not reaping from the rising global prices of tea, the CEO said it's because of the rapid fluctuation of tea prices within a short period while farmers are paid annual average of the selling price as monthly payment or annual bonus.
“The price of tea is determined by the market forces globally. Tea is sold in auction based system were we compete with other global business companies from across the world,” he said we want to provide leadership that can carry the business through turbulent moments to sustain and create jobs. We have been marketing the brand by encouraging our consumers to buy more through a month promotion.
Benard Njoroge kinuthia from Mau Narok, Tipis was declared the first car winner as Kennedy Karanja from Rongai was declared a KETEPA tea winner. The manager said they have invested Sh15 to Sh 20 million on the promotion.
To mitigate the high cost of production they have come up with medium term contracts to avoid pushing the prices to the consumers. The CEO confirmed inflation has not affected the consumption of tea and its related products – “consumption has been constant – it has not gone down with the rising prices other commodities.”
To ensure that consumers are buying their tea they have been innovative in packaging it into small packages.
Diversification has been KETEPA's secret weapon to respond to the changing habits of their consumers. They have been trying to be relevant in the market that is very dynamic where a majority of the Kenyan population is young people, 68 percent who have their own preferences and consumption habits.
The company is offering ice tea and drinking water to resonate with the youthful population and the changing social structures – where the size of the family is growing smaller and smaller. “Every week we are talking about what to bring to the market,” the MD pointed out.
Only 5 percent, 1,600 million tonnes of tea grown in Kenya is value added and is consumed locally. The rest, 95 percent, 300,000 million tonnes is exported without value addition.
“We are challenged to sell tea with added value because of the regulations of some governments which do not import value added tea, example Russia – because they want to create job opportunities for their own people from packaging.”
On the use of Kenyan tea brand to sell that of other countries, the MD said such branding is a gain that makes Kenyan tea to fetch better prices internationally. He said the challenge lies in running Kenyan tea companies that require best marketers and exceptional human resource managers that are far between to cut a edge at the global market for the Kenyan tea.
Notwithstanding that whenever something happens in the Arab world affects the global market adversely, the on going crisis in some Arab countries that are major Kenyan tea importers, he said consumption has been normal just like any other other food stuffs.
Chege said they do not expect favorable tax from the coming budget because the government is struggling to meet its budget deficit. However, they are proposing to the ministry of finance to consider tea as a food product, an argument the ministry has refused to buy over the years thus treating tea as any other manufactured products.
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