Page 23 - Abyssinia Business Network ABN August 2019

value chains. The relative simplicity and horizontal concentration company, fully owned by some of
of the production process and of the characterize the tea value chain. the farmers that supply it, and all
associated legal framework relating The three largest companies, of them in turn own the Kenya Tea
to rules of origin make the analysis of Lipton (Unilever), Tetley (Tata Development Agency. Whether
the value chain fairly straightforward Global Beverages) and Twinings they hold a share in the factories
from a technical point of view. At the (Associated British Foods) control or not, smallholder producers are
same time, tea is a key cash crop, one fifth of the world market required by law to sell through the
especially in Eastern and Southern (FAO, 2018a; FAO, 2018b). Agency, which provides inputs
Africa, and widespread consumption This is particularly pronounced to farmers and management and
is high. Further, the study of African in relation to the downstream secretarial staff to the factories
regional value chains makes it stages of the value chain. The and is tasked with marketing the
possible to identify some of the main governance structure is thus a tea. Since most of the sales profits
constraints imposed by the current key determinant of the extent flow back to the smallholder tea
trading arrangements, as well as to which participation in the tea growers, Kenyan tea farmers
some potential gains achievable industry translates into broader benefit not only from higher
under the Continental Free Trade developmental gains among factory-gate prices for made tea
Area. the players involved, especially (processed tea in bulk) than in
smallholders (UNCTAD, 2015c). neighbouring countries, but they
The tea value chain can be subdivided In particular, brokers and also capture a larger share of it 75
into five stages: production, intermediaries play the crucial per cent, compared with 25 per
processing, trading, blending/ role of linking often-dispersed cent (Trade Law Centre, 2017).
packaging and retail. Tea is made producers with international
of leaves from an evergreen shrub buyers; they can greatly enhance After a decade of robust growth,
(Camellia sinensis) that is cultivated the transparency and inclusivity the global tea industry was
mainly by smallholders. Plucked of the chain by sharing with such estimated to be worth over $14
leaves must be rapidly brought to buyers valuable information on billion in 2016 (FAO, 2018a). This
the processing factory, where they prices and quality requirements, expanding trend, mainly caused
are withered and undergo different or by favouring the diffusion of by buoyant demand in developing
types of processing, depending key inputs (FAO, 2014; FAO, countries, is expected to continue
on the tea varieties. In the case of 2018a). at a rate of 5 per cent per year
black tea, leaves are either crushed until 2024. Simultaneously, the
or rolled, then fermented (to obtain Kenya is one of the most dynamics of the tea value chain
the classical dark colour through the successful examples of the have evolved radically. After
oxidation process) and finally dried; inclusion of smallholder farmers years of “commoditization”, when
green teas are steamed or pan-fired in the tea value chain, owing to undifferentiated price competition
to stop the fermentation process deliberate efforts to enhance their was the driving factor, there
before being rolled and dried. Once stake in the governance of the appears to be a gradual shift
processed, leaves are then sold to processing and marketing stages towards greater differentiation
international buyers, which ship them (FAO, 2014). They account for and higher value added products,
overseas and perform the blending over 70 per cent of national tea which can accrue substantial price
and packaging, and at times even the production, with half a million premiums on the international
retailing. It is estimated that 70 per people deriving their livelihood market. In this respect,
cent of global tea production is sold from this cultivation. Kenyan tea certification schemes could enable
through auctions; the rest is mainly growers deliver their products the emergence of a broader range
traded within vertically integrated to buying centres which also of diversified products, especially
companies that retain control of the function as quality-control points in niche segments, such as organic
entire processing phase (Food from where they are transported tea and geographical indications.
and Agriculture Organization of to tea factories, each receiving tea This could improve the inclusivity
the United Nations (FAO), 2018a from roughly 60 buying centres. of the value chain, even though
High levels of vertical integration Each tea factory is a separate there is considerable variability

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