Agriculture Cabinet Secretary Peter Munya has tabled regulations to protect tea and coffee farmers from middle men who exploit the vulnerabilities of small-scale growers. The move comes after President Uhuru Kenyatta’s. directive on January 14 for the tea sector to reformed.
First to feel the pinch will be the Kenya Tea Development Agency (KTDA) which is set to lose all the 69 factories the company manages across Kenya as part of the far-reaching measures announced by the CS.
KTDA currently holds all farmers earnings centrally, the new measures, however, will see all earnings from the tea auction being remitted directly to individual factories edging it out. The CS says KTDA Holds large amounts farmers’ money in low interest earning fixed deposit accounts in commercial banks while syndicating expensive commercial loans for the same tea farmers.
Munya proposed that all teas produced in Kenya for the export market be sold exclusively through the auction process. Sale by private treaty, commonly known as Direct Sales Overseas, will be outlawed. This also means KTDA, through its subsidiary Chai Trading Limited Company, will no longer be able to sell tea directly to international buyers.
PROPOSED POLICY INTERVENTIONS
In order to address these challenges and guarantee long term growth and stability of the tea sector, the Government has developed the following interventions for implementation in the immediate, short and medium: a) Immediate Regulatory Interventions a) The following regulatory remedies have been proposed for implementation immediately these regulations come into effect: i. All teas produced in Kenya for the export market in shall within two (2) months after coming into effect of these regulations be sold exclusively through the auction process. ii. Henceforth, sale by private treat commonly known as Direct Sales Overseas is outlawed iii. Any teas that are not sold during a particular auction shall be re-listed for sale during the subsequent auction; iv. All registered tea auction organizers shall establish an electronic trading platform for tea auction. However a tea auction organizer existing before commencement of these regulations shall establish and migrate tea trading to an electronic trading platform within two (2) months from the commencement date of the regulations; v. All tea buyers shall henceforth submit to the Regulatory Authority (AFA) a performance bond in the form of a bank guarantee equivalent to 10% of the estimated value of the tea they intend to buy to underwrite commercial risks associated with buyers who fail and/or refuse to pay in full for the tea bids they win at the auctiovi. All buyers shall pay in full for all teas they win at the auction before they take custody and lift the tea for export vii. All factory Limited Companies (Tea Factories) shall henceforth register and enlist with the Authority and auction organizer to participate at the tea auction directly; viii. A registered tea broker shall offer brokerage services to a maximum of fifteen (15) factory limited companies. Brokers that are already in operation shall continue with their business uninterrupted until the tenure of their registration is due for renewal; ix. All monies from the sale of tea at the auction shall be remitted directly to Factory Limited Accounts within fourteen (14) days from the auction date less only the agreed commission for tea brokers; x. Factory Limited Companies shall within thirty (30) days from receipt of proceeds from sale of tea pay tea growers at least 50% of payment for green leaf delivered every month; xi. The balance due to tea growers shall be paid by the factory limited companies within the financial or calendar year as shall be agreed with the growers b) In order to address the challenges associated with the lopsided nature of the existing management agreement framework with Factory Limited Companies, the following regulatory interventions are proposed: i. Any management agency agreement with a factory limited company shall be for a tenure not exceeding 5 years; ii. The remuneration for any management service shall not exceed two percent 2% of the value of tea sold per year; ii. Company secretary services shall be excluded from the services offered by management service providers; iv. Factory Limited Companies shall either recruit in-house company secretaries or outsource the service; and v. A director or affiliate of a management service provider shall not serve as a director or have a direct commercial relationship with a factory limited company they serve 1. Short to Medium Term Policy and Administrative Interventions In order to address other systemic challenges facing the tea sector, the Government propose to engage professional consultants with the necessary experience in the tea industry to provide technical advise on further necessary policy and administrative reforms to improve efficiency and productivity in the value chain. In particular, the following interventions are proposed in this respect: a) Undertake a technical study to define a clear migration path and governance framework from the current tea auction structure to an efficient, competitive and responsive Commodities Exchange for tea. In particular, the study will provide technical advise on the governance framework to deal the inherent weakness of the current auction system that includes predisposition to conflict of interest, capture by vested interests, insider trading, dominance in the auction market and ineffective price discovery system. b) Undertake a study to evaluate the impact of KTDA commercial behaviour on the entire value including and more particularly the earnings to small holder tea growers. In particular, the study would undertake a historic audit and tracing of deductions of money belong to small holder tea growers over the last 10 years, evaluate the management of the KTDA holding and reserve accounts, evaluate and document losses occasioned by the pooled management of farmers’ earning by KTDA including cash held banks and monies held and/or lost to banks in distress, assess the application and use of public and farmers assets by KTDA, evaluate the risks associated with the sale of tea by private treaty by KTDA and losses that farmers have incurred due to this arrangement; evaluate the extent of application of farmers’ resources in the initial and on-going capitalization of KTDA subsidiaries and value of these subsidiaries to the tea growers among other considerations. c) Undertake a study on the set up, resourcing and management of a price stabilization fund for tea growers and develop a framework for implementation of a sustainable Minimum Guaranteed Return (MGR) for tea farmers; and d) Establishment of a steering committee to oversee, monitor and evaluate implement these policy, regulatory and administrative reforms and report to the cabinet secretary
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