Traders withdraw Sh851m of tea as auction prices fall

Market News

Traders withdraw Sh851m of tea as auction prices fall


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Mombasa Tea Auction in session. FILE PHOTO | NMG

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Summary

  • Data from the East African Tea Trade Association (Eatta) indicates that 3.2 million kilograms of tea was withdrawn on Tuesday as the price dipped to $ 2.3 (Sh262.6) a kilo from Sh280 in the previous sale.
  • The government set $ 2.45 (Sh279.7) as a minimum price for tea at the auction in June last year after the earnings fell below the production cost.
  • The tea that was not sold in this week’s trading represented 25 percent of the total volumes that were offered for sale, marking one of the largest quantities to have been withdrawn this year.

Traders withdrew teas worth Sh851 million from the latest auction as prices continue to tumble, falling below the government minimum price in the wake of the Russia-Ukraine war that has hurt demand.

Data from the East African Tea Trade Association (Eatta) indicates that 3.2 million kilograms of tea was withdrawn on Tuesday as the price dipped to $ 2.3 (Sh262.6) a kilo from Sh280 in the previous sale.

The government set $ 2.45 (Sh279.7) as a minimum price for tea at the auction in June last year after the earnings fell below the production cost.

The minimum price is applicable to tea from Kenya Tea Development Agency (KTDA), meaning that average selling prices at the auction can fall below the set threshold as other producers bid lower to move their stocks.

The tea that was not sold in this week’s trading represented 25 percent of the total volumes that were offered for sale, marking one of the largest quantities to have been withdrawn this year.

“There was a fair demand for the 204,463 packages (13.2 million kilos) for sale with 153,330 packages (10.0 million kilos) being sold,” said Edward Mudibo, Eatta’s managing director.

Prices have been declining consistently in the last four weeks. This looks set to continue hurting incomes from one of Kenya’s leading foreign exchange sources as the war in Eastern Europe rages.

Mr Mudibo said exporters to the Russian market were quiet at the auction this week and did not place any orders.

Russia has been slapped with sanctions by European countries and the US. Some sanctions include the exclusion of Moscow from SWIFT – a payment system that allows banks to transact with other financial institutions.

The US has also banned the Central Bank of Russia from trading in dollars, a move that will make it difficult for the country to trade commodities with the world market as most global trade is conducted using the greenback.

Traders are jittery of selling tea to Russia, which is one of the top 10 buyers of Kenya’s beverage, for fears that it will take them long to get payments for supplies made as the business is normally transacted in dollars.

Traders have had millions of shillings stuck in Iran after the US slapped the country with sanctions that restricted them from trading in dollars.

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