The Chairman's speech as delivered during the 53rd Annual General meeting of East African Tea Trade Association.
Chairman’s report at the 53rd Annual General Meeting of East Africa Tea Trade Association
26th March 2010
Good morning Ladies and Gentlemen. On behalf of EATTA, I would like to welcome you all to the 53rd annual general meeting of the association.
World Economic Situation
The first half of 2009 was characterized by contraction in most of the world’s economies as the effect of the global financial crisis, which took hold in September 2008, began to impact various sectors of the real economy. This trend also affected emerging economies negatively, owing to lower commodity prices and reduced demand from international trading partners.
In the second half of 2009 some small signs of recovery began to manifest. The major economies showed signs of recovery and in particular the stimulus package launched in the USA boosted consumer confidence. Economic indicators also showed positive trends in Germany UK and China. Japan started showing a slow recovery though it is still too early to determine if the trend has been established.
The US dollar weakened against most major currencies in 2009. Against the Euro for example, the dollar was 20% weaker for most of 2009. Against the pound the dollar lost 25% of its strength. However against the currencies of our member countries the dollar strengthened in the case of Kenya, Uganda, Tanzania, Rwanda and Malawi making the export price of our tea cheaper. Coupled with the high prices prevailing as a result of the tight supply of tea many of our members will have had a good 2009.
Global Market Trends for Tea
The price of black tea was traded at an average of $ 2.82 per Kg as Kenya, Sri Lanka and India experienced drought while the consumer demand for tea surged. The three countries together produce 50% of the world’s tea exports.
According to the Food and Agricultural Organization demand for tea has been growing faster than production since 2005. This was most apparent between 2007 and 2009. According to International Tea Committee reports the gap between production of tea and consumption was 3.4% in favour of consumption for 2009.
It is interesting to note that demand for tea remained robust despite the global economic recession. I believe this tells us that consumption of tea is habit forming and is relatively price inelastic. Response to high tea prices is expected to delay as any investment decision takes time to yield results. It takes three years for a tea bush to be ready for harvesting. It is a concern of mine that tea producers do not over- react to the current high prices by planting more tea as this may result in oversupply.
The black tea market continues to dominate the tea trade with a 70% market share of all the tea exported. The main market for black tea is Europe, Africa and some Middle East countries. Green tea however is making inroads and is growing at 3 times the pace that the market for black tea is growing. The main, markets for green tea are North and South America, Japan, North Africa and the CIS countries.
Recent developments in the world tea market suggest that the major players have adapted very well to the uncertainty in prices in the short term, particularly for black tea. A recent study conducted by the Secretariat on value chains indicated that, of the 27 agricultural commodities studied, tea showed the second lowest variability in prices (2 percent decline in tea prices compared 39 percent for cocoa and 38 percent for coffee).
Financial Performance
I am happy to present to you EATTA’s annual report and financial statement for the period ended 30 September 2009. This reflects the period when EATTA as an association was dissolved and a new company incorporated. The association posted an operating income of Kenya Shillings 32.9 million. The association has continued to use the member’s money prudently and the surplus for the year was Kenya Shillings 7.5 million.
You will note that the surplus is higher this year than it usually is. It had been planned that EATTA was going to recruit permanent staff at the beginning of the year. This was delayed because of the delay in registration of EATTA as a company to October 2009 resulting in significant saving to the association. The accumulated reserves as at the end of period were 28.4 Million shillings
Auction
Tight global supplies as a result of dry weather conditions in various tea producing countries pushed prices to record levels in 2009. The year will go down as a good year even if sales volumes decreased.
Overall less tea was sold at the auction in 2009 because of the prevailing drought particularly in Kenya. Kenya with 203 million kilograms accounted for 73% of the tea sold in the auction at an average price of $ 2.71 per Kg. This was an 18% increase over the average price for 2008. Uganda with 44 million kilograms accounted for 16% of the tea sold at the auction and this was at an average price of $ 1.84. Rwanda with 13.8 million kilograms followed at 5% of the auction quantity at an average price of $ 2.60. Tanzania with 10 million kilograms constituted 4% of the tea sold at the auction and this was at an average price of $ 1.48. Burundi with 4.5 million kilograms at an average price of $2.44, Malawi with 1.2 million kilograms at an average price of $ 1.2 and Mozambique with 1.3 million kilograms and at an average price of $ 1.43 rounded up the list that sold more than a million kilograms of tea.
Democratic Republic of Congo and Madagascar sold 424 thousand and 220 thousand kilograms of tea at an average price of $1.53 and $ 1.68 respectively.
The main buyers at the auction were Lipton Limited who purchased 21.4% of the tea on offer in the auction. This is a 6% increase on the percentage of tea sold in the auction though it is a 2.5% decrease in the absolute amount of tea they bought as less tea was on offer this year as a result of the prevailing drought. The next big buyer was Global Tea Commodities Ltd whom purchased 9% of the tea in the auction. James Finlay, LAB International and Van Rees were the next big buyers with 8.6%, 7.6% and 7% respectively.
The biggest seller of tea in the auction was Kenya Tea Development Agency. Unilever tea, Eastern Produce and James Finlay also sell a lot of tea. We want to thank all those who have supported the Mombasa Tea Auction.
What We Have Accomplished
To make it more responsive to the needs of its members, EATTA embarked on developing and implementing a 5 year strategic plan. I am extremely delighted to report that today we have made excellent progress. In October 2009 EATTA was dissolved as an association and registered as a company limited by guarantee. The Management Committee was converted into a Board of Directors. The company embarked on recruiting a full complement of staff that will be responsible for implementing its mandate. As a company EATTA will be better placed to respond to the needs of our members in a dynamic and ever changing global environment.
The tea trade in our region is hampered by logistic challenges. Tea is still treated as an agricultural commodity making it vulnerable to supply and demand pressures. It is an established fact that value adding would add substantial margin to the earnings of the producer and exporter. The cost of production has been steadily rising with labour, farm inputs and energy taking more than 60% of the cost of production. To illustrate my point - Sri Lanka sold 18.7% less tea than we did in 2009 yet their earnings from the same were 76% higher. Sri Lanka sells 40% of their tea in value added form hence earning them significantly higher earnings. EATTA in collaboration with TRFK, Ministry of Foreign Affairs Tea Board of Kenya, Ministry of Agriculture and Ministry of Trade are working on developing an Intellectual Property Value Creation so as to establish an African tea trademark that will enable us move away from positioning tea as a commodity. We started an engagement with Lightyears IP who have experience working with the coffee industry in Ethiopia. We want to develop an African tea brand that will be recognized all over the world.
We recognize that we need to support our members acquire the necessary tools to better serve the needs of their customers. In this regard we made a memorandum to the Ministry of trade in Kenya raising a whole number of issues we want addressed. As a show of their commitment to look at our issues, the Permanent Secretary in the Ministry of Trade made a courtesy call to EATTA in the year so as to better understand what we do. It is our intention to develop a close working relationship with the Ministry of Trade so as to ensure we have all the support we need to facilitate trade.
We also presented a case to Ministry of Finance seeking zero rating on VAT levied on services supplied to tea for export. The Minister zero rated the VAT levied on services to the tea industry however the Revenue Authority did not follow through to gazette the exporters. This is a matter that we at EATTA are still pursuing. Our members have asked us to make presentations to the government to get waivers on importing tea packing and blending equipment. We believe this will enable more of our members earn more from a value added product than they have been doing.
Coupled with the above, the need to make our auction more efficient is very apparent. The tea industry is very dynamic and has many moving parts. The need to make the tea auction cycle efficient and fast brought to rise the need to modernize it. So far we have introduced the tea collection account that majority of our members have signed on to. The collection account gives reassurance that the producer’s payments are secure. We commissioned a consultant to carry out a feasibility study that will form the blue print of automating the whole tea value chain. We have a vision where the auction will be fully automated and members have access to information online. In line with this vision we launched the EATTA website and started uploading the catalogue on it so that members can see what is on offer at the auction.
Tea being a food we recognize that we need take all necessary precautions to make sure it is safe for the end user. It is for this reason that we have settled on the principal food safety management systems (FSMS) ISO 22000:2005 standard. To reflect due diligence in the management system of the tea trade industry, EATTA and the brokerage firms are going to go for Quality Management System (QMS) ISO 9001: 2008.
We recognize the need for our membership to join the Distributive and Allied Trade Association (DATA) to harmonise the wages with other industry stakeholders. We cannot afford as members of the tea trade to experience disruptions in our operations. It is in this regard that in February when there was a labourers strike at Shimanzi, we met and it was agreed that as a bare minimum all the warehouse members should join DATA.
Market development has been a major drive of EATTA in 2009. Early in the year the MD made a visit to China together with the representation from Tea Board of Kenya. The visit was primarily to explore opportunities to sell black tea. There is an emerging market for black tea and Sri Lanka has made major inroads already.
EATTA sourced and obtained significant support for € 49,984. 00 from European Union for marketing efforts of the association. The EU funding will be used to build capacity within our members to better develop marketing strategies for our existing markets as well as to identify new markets. The consultants are expected to begin in the second quarter of 2010.
A taskforce was formed in 2009 to engage with the Kenya Revenue Authority on the procedure of handling African tea. EATTA had a meeting with the Commissioner of Income Tax in December 2009 and presented a report. We are awaiting implementation of the report.
For the GTIEA project we are making good progress. Feasibility studies have been completed in Gura and Gicive and they are ready for implementation. The projects in Nchwera and Suma are almost complete while work in Kapchorua, North Mathioya and Tagabi have experienced delays.
Finally I would like to thank all those who served in the board for their inspiration and contributions. This has indeed been an eventful year for EATTA. I want to pay special tribute to the members of the previous board who will not be part of the new board.
I would like to thank you all for the support you have provided to me in the past two years that I have been your Chairman. I would like to thank you for your support and ask that you give your new Chairman the same level of support. I am extremely proud of what we have accomplished so far. We still have a lot to do. I am confident that our best days are ahead of us.
Thank you.
Mr. Francis Kiragu
Chairman EATTA
