Kenyan Tea

Since it was first introduced to Kenya in 1903, tea has flourished in the east African country, becoming Africa’s largest tea producer. Globally, Kenya is the fourth largest producer of black tea after India, China and Sri Lanka, and it’s second only to Sri Lanka as the world’s leading tea exporter.

Tea farming represents a significant livelihood for more than 315,000 Kenyan tea farmers and smallholders. Smallscale farmers grow over 60% of the tea to be sold at market, with privately owned large-scale farms supplying the remaining 40%. These small-scale tea farmers own their land and have tea licenses permitting them to grow and pluck the green leaf, and deliver it to buying stations run by the Kenya Tea Development Authority (KTDA). KTDA acts as managing agent to the smallholder tea sector and is technically owned by all of Kenya’s small-scale tea farmers. KTDA’s remit is to support smallholders. Nevertheless, KTDA has not been able to optimise earnings in line with the rising retail value of specialty teas despite the growth in direct sales contracting for premium teas outside the national auction system.

The advances in premium teas and single origin teas offer new opportunities to all whose teas fit in quality terms, and to those able to forge effective marketing partnerships. The existing popularity and high reputation of Kenyan tea in both blends and single origin teas is a testimony to this. Kenyan tea has a benchmark role in many established blends with fixed flavour profiles.

Within the past 10 years, Kenyan tea has also begun to be recognised as specialty tea, and sold as single origin tea. One example is Milima tea – sometimes called ‘golden Milima’. Milima is a fine, high quality estate tea produced in the Kericho region. Milima has a wonderful astringency in the mouth and plenty of body but with a pleasing smoothness and elegance to it. Milima can generate retail prices even higher than premium teas.

These two opportunities suggest a dual IP strategy – one for increasing the amount sold as named origin or named region tea, i.e. ‘Kenyan’, and one for increasing the amount sold more explicitly as single origin or estate tea, such as Milima.

In 2008, the benchmark retail price in the UK for standard blends (i.e. tea packaged without distinctive elements) was the equivalent of $13.98 per kilo. Kenya sold around 280,000 tonnes of tea through auction in 2007 at an average export auction price of $1.75 per kilo. This equates to about 13% of the retail price of standard tea.

In contrast, the average retail price of named region tea from all sources was $20.95 per kilo. Experts believe that there is potential to shift 10-20% of Kenyan tea exports to be sold as a named region at retail. If the 13% ratio of export prices to retail prices is sustained, export income gained from shifting only 10% of Kenyan tea exports to named region end product positioning would represent an additional $25m p.a. If 20% of exports are shifted, the additional export income would be around $50m p.a.

Combined with the above strategy, experts also believe that 2% of these Kenyan named teas could be moved to single origin or estate premium tea positioning. Since single origin or estate premium teas show an average retail price equivalent of $67.85 per kilo, if just 2% of Kenyan export tea is shifted to the higher market position, this could generate a further gain of around $19m p.a.

To achieve these two goals, an IP-based approach would include structuring the marketing and managing the brands, enhancing the reputation in both retail and wholesale markets. The total gains of both strategies would be in the range $44m p.a. to $69m p.a. An additional strategy of improving the returns from Kenyan tea that is essential to blends, such as English Breakfast, would add further gains.

Value chain analysis will be available here shortly.

Reference materials will be available here shortly.