* Good weather, bigger harvest lead to glut
* Farmers have seen prices fall by 40 percent
* Some now threaten to pull up the bushes
* Tea exports are a major dollar earner for Kenya
By Edith Honan
NANDI HILLS, Kenya, Nov 16 (Reuters) - Emerald-coloured tea bushes blanketing the rolling hills of Nandi County have long provided a livelihood for small-scale farmers, helping make Kenya one of the world’s biggest tea exporters.
But ideal weather and bigger harvests, instead of producing bumper earnings, have led to a glut of Kenya’s speciality black tea. Samuel Busienei, a 72-year-old tea farmer, says he earns 40 percent less for each kilogramme of tea sold than he did three years ago and is considering tearing up his crop.
“It was a very good life,” said Busienei, who first planted the crop in the 1980s. “But if the price doesn’t change, we will have to remove the tea.”
The threat facing Busienei and other smallholders, who produce about two thirds of Kenya’s tea output, could spell broader trouble for the east African nation’s economy.
Tea exports are now one of Kenya’s biggest sources of foreign exchange, alongside flowers and other horticultural exports, and generated $1.3 billion in 2013 on record output of 432 million kg.
In contrast, coffee exports earned just $214 million in 2012/13.
As Kenya’s economic growth has slowed to below 6 percent, from 7 percent in 2007, tea has become a main driver of growth, overtaking tourism which has been hit by attacks blamed on Somalia-based militants, including the 2013 attack on Nairobi’s Westgate shopping mall.
Tea revenues are also helping support the Kenyan shilling as it faces pressure from a dollar shortage.
“Kenya is at the top of the scale in terms of quality,” said Edward George, head of group research at Ecobank in London. “It should be looking to maintain its very powerful position as the key supplier of black tea to the global market.”
Tea prices have been under pressure globally as other countries have increased output and exports. Top grade Kenyan tea, which fetched a maximum price of $3.78-$4.38 per kg in 2012, was sold at auction in Mombasa last week for $2.10-$3.40.
Kenya vies with China and Sri Lanka as the world’s top tea exporter. But more small farmers in Kenya now produce tea, so even as export earnings rise the proceeds are spread more thinly.
To ensure small farmers don’t switch away from the cash crop or sell land for real estate, analysts say the government must introduce a more effective mechanism to cushion price swings and find new export markets.
For now, 70 percent of output goes to five countries with a taste for Kenya’s black tea. One of them is Britain, the former colonial power which established tea planting in Kenya on a large scale in the 1940s but whose domestic consumption has reached a plateau. The others are Egypt, Sudan, Afghanistan and Pakistan, where political turmoil frequently hits purchases.
Agriculture Minister Felix Koskei visited Nandi, about 300 km (190 miles) northwest of Nairobi, last month to urge farmers to keep growing and promised help.
“The more we rely on these traditional markets, the more we lose,” Koskei told Reuters from his office in Nairobi. Kenya was seeking to attract new buyers in eastern Europe and the Middle East, two big tea-drinking regions, he said.
He said the government plans to set up a price stabilisation fund, which would involve the state buying up some of Kenya’s tea when prices are low and selling it onto the global market once prices stabilize, to cushion farmers against fluctuations. The government is in the process of hiring a consultant for the plan, Koskei said, adding it was too early to give details.
Most small-scale farmers are members of the Kenya Tea Development Agency (KTDA), a cooperative since the government sold it in 2000. Tea is also produced on big farms run by firms such as Williamson Tea Kenya and Unilever.
KTDA, which represents 560,000 farmers, offers a guaranteed sum for each kg of tea on delivery at tea-collecting stations, plus a sum paid annually linked to global prices. Overall, farmers received 31.61 shillings (35 U.S. cents) per kg in the 2013/14 season, down from 50.01 shillings (55 U.S. cents) in 2011/12.
The system is set up to ensure that growers get some income immediately on delivery, but they do not get the full amount until a sale is made on the global market.
There are other pressures. Tea pickers are demanding higher pay. Many now earn just 10 shillings per kg, working from daybreak to pluck new leaves from bushes that sweep across the main tea-producing areas, including Nandi, Kericho, Mount Kenya, Aberdares and Kisii, in the Kenyan highlands.
“People really have been crying about the prices,” said Leah Metto, 53, who grows tea on a three-acre plot in Nandi to supplement her teacher’s income.
Some farms have already shifted to grow vegetables and other crops, or turned to dairy cattle, Nandi’s main source of income before the British took to tea planting.
Once uprooted, returning to tea is a long process because a bush only fully matures after seven years.
“We are telling our members to diversify,” said Wilson Tuwei, chairman of Siret Tea Company, a cooperative. His members are investing in a six-storey office tower under construction in Nandi to generate rental income.
KTDA’s chairman, Peter Kanyago, has urged the government to simplify 24 different taxes that he said affected producers.
The government needs tax revenues from the tea sector as it seeks funds for development projects and aims to narrow a budget deficit running above 7 percent of GDP, but Koskei said the government is studying KDTA’s request. (Editing by Edmund Blair and Susan Fenton)