Kenya unveils final draft of tea industry regulations to streamline the value chain

KENYA – In efforts to cultivate robust and progressive tea regulations that will steer the tea industry well into the future, the government of Kenya has unveiled the final draft of regulation that will govern activities around one of the country’s top export earner.

The final draft regulations, which were presented by the Cabinet Secretary (CS) in the Ministry Of Agriculture, Livestock, Fisheries And Cooperatives, Peter Munya seek to improve the management of the tea value chain with a view to improving operational efficiencies of various actors and guarantee better earnings for the tea farmers.

Among the challenges that the reforms seek to eradicate include corruption, exploitation of farmers, conflict of interest in the management of tea value chain, diminished earnings for farmers, inefficiencies in the tea value chain, lack of transparency  as well as the problem of low value addition of Kenyan tea destined for export.

CS Peter Munya said that the draft tea regulations draw on an in-depth analysis of the systemic problems facing the tea value chain, plausible regulatory remedies for the problems and considerations made by various stakeholders.

According to the CS, the new regulations have incorporated some of the submissions from stakeholders submitted during a 14-day stakeholder consultation process that was initiated on 16th April 2020.

“Some of these submissions have already been incorporated into the final regulations while policy and legislative proposals together with the others I announced earlier will be pursued and implemented through appropriate policy, legislative and administrative actions as communicated to the public then on 16th April 2020,” he said.

Key highlights of the final regulations

The new Tea Regulations require all teas processed and manufactured in Kenya for the export market (with exception of orthodox and purple teas) be offered for sale exclusively at the auction floor. Consequently, the sale of tea by private treaty has been outlawed.

In addition, any tea not sold at the auction shall be relisted for sale during the subsequent auction in a move that also requires all buyers at the auction, prior to the auction submit to the authority a performance bond equivalent to 10% of the estimated value of the tea or teas they intend to buy at the auction.

The new regulations also require tea buyers to pay in full the value of tea they have won at auction before collecting the tea.

According to the new regulations, all tea factory limited companies will have to be registered and enlisted with the authority and the auction organizer in order for them to participate in the tea auction directly.

“Management agency service providers or other service providers shall not register and/or enlist at the auction on behalf of tea factory limited companies,” the draft regulations read in part.

To address the governance challenges embedded in the tea value chain, the management agent agreement between a smallholder tea company and the management agent will henceforth run for a period of 5 years.

In addition, the regulation propose that a director or affiliate of a management service agency provider shall not serve as a director or have any direct commercial relationship with the smallholder tea factory limited company they offer the management agency service.

“Directors for smallholder tea factory limited companies shall be elected through a democratic process and serve for a term of three (3) years renewable once. Election of directors for smallholder tea factory limited companies shall ensure compliance with one-third gender rule during election and membership of the directors,” the draft copy additionally highlights.

Upon commencement of the regulations, new registered tea brokers will be restricted to offer tea brokerage services to a maximum of 15 tea companies with the total fees for tea brokers at the auction restricted within 0.75% of the gross value of tea sold divided amongst tea companies/farmers and tea buyers at 0.2% and 0.55% respectively.

Subsequently, farmers shall within thirty days of receipt of the proceeds of the sale be paid farmers at least 50% of the payment due for green tea delivered every month.

The new regulations follows President Uhuru Kenyatta’s directives issued in January this year, calling for sector wide policy, administrative and regulatory reforms targeted at operational efficiency improvements in the entire tea value chain seeking to save the sector from the underwhelming and adverse cascading impact on the macro economy.

“These regulations have particularly sought to rebalance power and influence wielded by various value chain players, reduce unnecessary cost burdens imposed on vulnerable tea farmers; and guarantee better and decent returns on tea farmers’ labour,” CS Peter Munya said.

“In addition, these regulations will significantly improve productivity and efficiency in the tea value chain, create transparency and accountability among various value chain actors including auction organizers, improve competitiveness of our tea exports in the international market and generate more earnings to the country and farmers from tea exports.”

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