Speaking to local publication in September 2020, the Tanzania Board of Tea (TBT) managing director, Nicholas Maurya, told a local publication that a new Dar es Salaam tea auction was set to officially start by October of the same year, pending a few more approvals¹.
This is major news in the tea world, given that, to date, the only existing tea auction in East Africa is Kenya’s Mombasa Tea Auction. This has meant that East African countries such as Rwanda, Burundi and even Tanzania have been forced to incur extra transportation costs in getting their product to the market.
However, should this new plan come to pass, as it is looking very likely to, the Tanzania auction is set to challenge this status quo. The Board is targeting tea producers within East Africa, offering a more cost-sensitive alternative to the Mombasa Tea Auction. One could see Rwanda and Burundi opting to transport their tea to their closer geographical neighbour, mitigating the higher costs of getting their product to Kenya.
History of the Mombasa Tea Auction
The Export Auction System was initiated in November 1956 in Nairobi on a very small scale, with only small quantities of secondary grade teas offered under the umbrella of the East African Tea Trade Association (EATTA).
With quantities and volume increasing over the years, incentive for international buyers to set up offices in Kenya grew, which had the knock-on effect of spreading interest to international markets beyond the United Kingdom.
The decision to move the Auctions to Mombasa from Nairobi was taken in 1969, relocating to the hub of the main warehousing, handling and shipping activities².
Auctions are held weekly on Mondays and Tuesdays, with main grades auctions held on Tuesdays, and secondary grades auctions held on Mondays from 9:00am.
In what can be considered somewhat of a monopoly, the Mombasa Tea Auction presently handles tea from fellow East African nations Uganda, Tanzania, Ethiopia, Rwanda and Burundi, even handling product from the Democratic Republic of Congo, Malawi and Mozambique.
Major markets such as the United Kingdom, Sudan, Egypt, the United Arab Emirates and countries in the Middle East rely on the Mombasa Auctions to access the vast majority of tea they import, placing all the countries that use the Mombasa Tea Auction at Kenya’s behest.
This means that significant political and economic forces, for instance, that affect Kenya internally, end up indirectly affecting all the African countries seeking international market for their product through Mombasa.
Instances that Disrupted Operations in Other Countries
In January 2008, ongoing post-election violence in Kenya forced the Rwanda tea authority (Ocir-The) to call off tea auctions for a number of days³. The violence, which forced the Africa Tea Brokers Ltd to suspend auctioning operations, also had a similar effect on the tea industries in Uganda⁴ and other Eastern and Southern African states⁵.
While these suspensions of operations lasted only days, it was telling that a single country’s political atmosphere had threatened to upend the livelihoods of farmers, brokers and other actors along the value chain.
More recently, the most pertinent example of this seemingly flawed system lies in the region’s response to the novel coronavirus pandemic.
In March of 2020, the first case of COVID-19 was recorded in Kenya. Although different measures were employed to help curb infection rates (to varying degrees of success), the scale of the matter was yet to be truly grasped.
The tea sector was among those hit hard, with tea prices falling to a then year’s-low. The 12th Sale report (25th and 26th March 2020)⁶ revealed that the initial scare of the first wave of the pandemic drove prices of multiple commodities down, with the tea auctions temporarily suspended amid fears for individual health and safety.
COVID-19 was as unexpected as it is deadly, with unprecedented ramifications felt in every facet of life. Pinning the aftermath only on Kenya would be short-sighted and reactionary at best. Every country dealt with the pandemic in wildly different ways.
Tanzania, for example, has all but opted out of reporting daily figures on COVID-19 infection rates as of 29 April 2020⁷, with President John Magufuli declaring the country coronavirus free through prayer.
The East African nation was also embroiled in post-election turmoil of its own, with reports of excessive force being used to detain and assault opposition leaders and protesting citizens in November of 2020⁸. Clearly, post-election violence is not unique to Kenya.
Yet, it is worth considering the implications of having more than one tea auction, placing less emphasis on the economic and political winds of a single state while mitigating certain avoidable cost factors.
Reduced Cost to Dar es Salaam Instead of Mombasa
The tea value chain is spread out across 5 key areas – inputs, tea gardens, factory, handling and market. The costs involved at each level are varied and significant, as tea farms can cost up to KES 300,000 just to set up, not to mention taking 3-4 years before becoming viable.
In an average factory, the cost of transporting tea to the auctions sits at around 2% of total costs involved, with warehousing a further 2% and brokerage at 0.75% (figures accurate in 2014). These figures are mostly based on proximity to the port city, as one would imagine that the cost of transportation is significantly influenced by geography.
Countries like Burundi, Rwanda and Mozambique are faced with transporting their product over thousands of kilometres, all while sinking more costs into trying to preserve the quality of the tea and prevent bruising as it is en route to Mombasa. Additional costs must then be accounted for in warehousing and storage of the product leading up to the auction.
What are the possibilities?
With Tanzania set to break Kenya’s hold on the tea trade in Eastern Africa, one cannot help but think of the possibilities this would facilitate.
The most obvious would be reduced transportation and warehousing costs, as the cost of transportation would reduce with reduced distance. Beyond this, however, is the possibility of spurring further economic growth in Tanzania through empowering smallholder farmers and offering them a more easily accessible market to sell their product.
Another opportunity that could prove pivotal is the difference in election cycles between Kenya and Tanzania. Kenya typically holds its general elections in separate years from Tanzania. Should election violence rear its head in any of the states, regional and international tea trade would be poised to adapt and continue without being forced to suspend operations. Even more telling would be the aftermath of such an unwanted scenario on the auction that is hit by this, as rebounding may end up not being as easy in the presence of a regional competitor.
The tea trade has shown its resilience over the years, having bounced back from the political turmoil of Kenya’s post-election violence, to maintaining its importance to African economies during a global pandemic.
Having a duopoly of sorts will be interesting to watch, as the possibility of undercutting each other’s sales presents a unique dynamic to the relationships of the two states, as well as setting the stage to observe who will take their product to the new auctions and who will stick with Kenya.
One thing is for certain. The power dynamics will be interesting to watch.
¹ Start of tea auction in Dar a boon for Tanzanian farmers - The Citizen
²The Mombasa Tea Auction - East Africa Tea Trade Association - East African Tea Trade Association (eatta.com)
³Kenyan violence halts Rwanda tea auction | The New Times | Rwanda
⁴Uganda: Tea Industry Stalls As Mombasa Auction is Suspended - allAfrica.com
⁵Kenya's turmoil could cost economy $1bn (tradearabia.com)
⁷Coronavirus: John Magufuli declares Tanzania free of Covid-19 - BBC News
⁸UN rights chief Bachelet condemns Tanzania election violence | | UN News