KENYA INDUSTRIAL RESEARCH AND DEVELOPMENT INSTITUTE

PROCEEDINGS OF STAKEHOLDERS WORKSHOP ON TEA PACKAGING

held at Silver Springs Hotel, Nairobi
On

February 20, 2004

April 8, 2004

Project Title: Project Team:

Opportunity Study on Investment in Tea Packaging of Kenyan Tea Dr. Felix Muhindi Mr. Adam. Wako, Mrs. Phyllis W. Ngunjiri Dr. F. Muhindi P. W. Ngunjiri A. Wako G. C. Koech

EDITORIAL COMMITTEE:

TABLE OF CONTENTS TABLE OF CONTENTS...................................................................................................... 3 LIST OF ACRONYMS ........................................................................................................ 9 FOREWORD .................................................................................................................. 10 1.0
1.1.

WORKSHOP OPENING CEREMONY......................................................................... 11

REMARKS BY PROF. RICHARD MIBEI, CHAIRMAN, KIRDI BOARD OF MANAGEMENT............................ 11

1.2. KEYNOTE ADDRESS, BY MRS. MARGARET ROTICH, DIRECTOR OF INDUSTRY, MINISTRY OF TRADE AND INDUSTRY ................................................................................................................................................. 13

2.0 2.1. 3.0 3.1.

3.1.1. 3.1.2. 3.1.3. 3.1.4. 3.1.5. 3.1.6. 3.1.7. 3.1.8. 3.1.9. 3.1.10. 3.1.11.

SUMMARY OF PROCEEDINGS ................................................................................ 15 RECOMMENDATIONS AND WAY FORWARD ............................................................. 17 PAPER PRESENTATIONS ...................................................................................... 18 OVERVIEW OF THE TEA INDUSTRY IN KENYA, ......................................................... 18
INTRODUCTION.............................................................................................................................. 18 HISTORICAL PERSPECTIVE ............................................................................................................ 18 GOVERNMENT POLICY ................................................................................................................... 19 IMPORTANCE OF TEA TO KENYAN ECONOMY ................................................................................ 19 MAIN PLAYERS IN THE TEA INDUSTRY ........................................................................................... 19 PRODUCTION ................................................................................................................................ 20 PROCESSING................................................................................................................................. 20 MARKET ........................................................................................................................................ 21 VALUE ADDITION ........................................................................................................................... 21 CHALLENGES AND CONSTRAINTS IN VALUE ADDITION .................................................................. 21 CONCLUSIONS AND RECOMMENDATIONS...................................................................................... 22

3.2. OPPORTUNITY STUDY ON INVESTMENT IN PACKAGING OF KENYAN TEA - SURVEY REPORT, ...................................................................................................................... 23

3.2.1. 3.2.2. 3.2.3. 3.2.3.1. 3.2.3.2. 3.2.4. 3.2.5. 3.2.6. 3.2.7. 3.2.8. 3.2.8.1. 3.2.8.2. 3.2.9. 3.2.9.1. 3.2.9.2. 3.2.9.3. 3.2.10. 3.2.11. 3.2.12.

ABSTRACT .................................................................................................................................... 23 INTRODUCTION.............................................................................................................................. 23 OBJECTIVES .................................................................................................................................. 24 General Objective ......................................................................................................................... 24 Specific Objectives ....................................................................................................................... 24 JUSTIFICATION .............................................................................................................................. 25 IMPACT/OUTPUT ............................................................................................................................ 25 BENEFICIARIES ............................................................................................................................. 25 KEY STAKEHOLDERS .................................................................................................................... 25 Materials and Methods .................................................................................................................... 25 Materials ..................................................................................................................................... 25 Methods...................................................................................................................................... 26 RESULTS AND DISCUSSION ........................................................................................................... 26 Problems affecting the Tea Industry................................................................................................. 26 Identification of the Products in the Market and their Packaging Materials: ............................................. 28 Examination and Documentation of Packaging Material characteristics ................................................. 28 CONCLUSION ................................................................................................................................ 30 RECOMMENDATIONS ..................................................................................................................... 31 REFERENCES ................................................................................................................................ 31

3.3.
3.3.1. 3.3.2. 3.3.3. 3.3.4. 3.3.5. 3.3.6. 3.3.7. 3.3.8. 3.3.9. 3.3.10. 3.3.11.

TEA PACKAGING FOR THE LOCAL MARKET THE KETEPA EXPERIENCE, ................. 32
KETEPAS BACKGROUND .............................................................................................................. 32 KETEPAS OWNERSHIP .................................................................................................................. 32 KETEPA BRANDS........................................................................................................................... 32 KETEPA MISSION STATEMENT ....................................................................................................... 32 KETEPAS VISION STATEMENT....................................................................................................... 32 WHAT IS VALUE ADDING? .............................................................................................................. 32 REQUIREMENTS FOR VALUE ADDING ............................................................................................ 33 CHALLENGES OF VALUE ADDING .................................................................................................. 33 LOCAL MARKET OUTLOOK ............................................................................................................ 33 FUTURE PROSPECTS FOR TEA ...................................................................................................... 33 WHAT DO WE NEED TO DO?........................................................................................................... 37

3.4. EXPERIENCE OF A SMALL SCALE TEA PACKER - MARKETING OF KENYAN TEAS IN AUSTRALIA, ................................................................................................................. 38
3.4.1. 3.4.2. 3.4.3. 3.4.4. 3.4.5. 3.4.6. 3.4.7. 3.4.8. 3.4.9. 3.4.10. 3.4.11. 3.4.12. INTRODUCTION.............................................................................................................................. 38 THE COMPANY .............................................................................................................................. 38 OUR GOAL..................................................................................................................................... 38 OUR MISSION ................................................................................................................................ 38 SOME FACTS ABOUT KENYA TEA .................................................................................................. 39 DIRECT SELLING ........................................................................................................................... 39 METHODS OF DIRECT SELLING ...................................................................................................... 39 ADDITIONAL INCOME ..................................................................................................................... 39 HOUSE TO HOUSE DELIVERY. ........................................................................................................ 40 INCENTIVES AND REWARDS .......................................................................................................... 40 WHO IS THE TYPICAL DIRECT SALES PERSON? ............................................................................. 41 WHO'S GOING INTO DIRECT SALES? .............................................................................................. 41

3.4.13. A LOOK AT THE DIRECT SALES INDUSTRY: .................................................................................... 42 3.4.13.1. Education ................................................................................................................................ 42 3.4.13.2. Age ........................................................................................................................................ 42 3.4.13.3. Pay ........................................................................................................................................ 42 3.4.13.4. Promotions .............................................................................................................................. 42 3.4.13.5. Recognition ............................................................................................................................. 42 3.4.13.6. Time ....................................................................................................................................... 43 3.4.13.7. Holidays .................................................................................................................................. 43 3.4.13.8. Security................................................................................................................................... 43 3.4.13.9. Retirement............................................................................................................................... 43 3.4.13.10. Assets .................................................................................................................................... 43 3.4.14. WHAT ARE THE BENEFITS OF DIRECT SELLING TO THE CONSUMER? ............................................ 43 3.4.14.1. Personal Attention .................................................................................................................... 43 3.4.14.2. Convenience and saving of buying in the home ............................................................................. 43 3.4.14.3. Complete Demonstration and Explanation of Product ..................................................................... 44 3.4.14.4. Consultation of the Entire Family ................................................................................................. 44 3.4.14.5. Convenient Shopping Time ........................................................................................................ 44 3.4.14.6. Consideration Period ................................................................................................................. 44 3.4.14.7. Delivery................................................................................................................................... 44 3.4.15. GETTING STARTED ........................................................................................................................ 44 3.4.15.1. You Start as a Distributor ........................................................................................................... 45 3.4.15.2. Sample the future ..................................................................................................................... 46

3.5.
3.5.1.

CHALLENGES OF VALUE ADDITION TO TEA FOR THE EXPORT MARKET, ................... 47

INTRODUCTION.............................................................................................................................. 47

3.5.2. 3.5.3. 3.5.4. 3.5.5. 3.5.5.1. 3.5.5.2. 3.5.6.

IMPORTANCE OF VALUE ADDITION ................................................................................................ 47 CONSTRAINTS TO VALUE ADDITION............................................................................................... 48 CHALLENGES FACING THE TEA INDUSTRY .................................................................................... 49 STRATEGIES TO MEET THE CHALLENGES...................................................................................... 49 Short term strategies ..................................................................................................................... 49 Long-term Strategies..................................................................................................................... 50 REFERENCES ................................................................................................................................ 51

3.6. EXPERIENCES AND CHALLENGES IN VALUE ADDITION TO TEA FOR LOCAL AND EXPORT MARKETS, ....................................................................................................... 53
3.6.1. 3.6.1.1. 3.6.1.2. 3.6.1.3. 3.6.1.4. 3.6.1.5. 3.6.2. 3.6.2.1. 3.6.2.2. 3.6.2.3. 3.6.2.4. 3.6.2.5. 3.6.3. 3.6.3.1. 3.6.3.2. 3.6.4. 3.6.4.1. 3.6.5. 3.6.5.1. 3.6.6. 3.6.6.1. 3.6.6.2. REQUIREMENT FOR VALUE ADDITION TO TEA ............................................................................... 53 Registration ................................................................................................................................. 53 Machinery ................................................................................................................................... 53 Health Standards.......................................................................................................................... 54 Sourcing Tea ............................................................................................................................... 54 Infrastructure ............................................................................................................................... 54 DEALING WITH COMPETITION, LOCALLY AND INTERNATIONALLY .................................................. 54 Historic Background ...................................................................................................................... 54 VAT & Level Playing Field.............................................................................................................. 54 Availability of Cheap and/or Stolen Teas .......................................................................................... 54 Supermarkets .............................................................................................................................. 55 Innovative Packaging .................................................................................................................... 55 MARKETING................................................................................................................................... 55 Identity........................................................................................................................................ 55 Quality Tea and Extras ............................................................................................................... 56 GOVERNMENT POLICY CONCERNS ................................................................................................ 56 Surveillance................................................................................................................................. 56 VAT ............................................................................................................................................... 56 VAT on Exports ............................................................................................................................ 56 RECOMMENDATIONS ..................................................................................................................... 57 Imported Teas and Substitutes ....................................................................................................... 57 Task Force ..................................................................................................................................... 57

3.7.

THE TEA INDUSTRY POLICY IN KENYA; .................................................................. 59

3.8. REQUISITE TECHNOLOGICAL CAPABILITY FOR MSES IN VALUE ADDITION TO KENYAN TEA,. 63
3.8.1. 3.8.2. 3.8.3. INTRODUCTION.............................................................................................................................. 63 POTENTIAL OF THE TEA INDUSTRY ................................................................................................ 64 MARKETS ...................................................................................................................................... 64 6

3.8.4. 3.8.5. 3.8.6. 3.8.7. 3.8.7.1. 3.8.7.2. 3.8.7.3. 3.8.8. 3.8.8.1. 3.8.8.2. 3.8.8.3. 3.8.9. 3.8.9.1. 3.8.9.2. 3.8.10. 3.8.11. 3.8.12. 3.8.13.

EXPORT MARKETS ........................................................................................................................ 64 VALUE ADDED EXPORTS ............................................................................................................... 64 RAW MATERIALS ........................................................................................................................... 65 THE MSE SECTOR. ......................................................................................................................... 65 The Role Of The MSE Sector In Industrialization ............................................................................... 65 The Role Of The MSE Sector In Industrialization in Kenya. ................................................................. 65 MSE in Value Addition To Kenyan Tea............................................................................................. 66 REQUISITE TECHNOLOGICAL CAPABILITIES FOR MSE IN VALUE ADDITION TO TEA. ....................... 66 Investment Capabilities ................................................................................................................. 66 Production Capabilities. ................................................................................................................. 66 Learning Mechanisms ................................................................................................................... 67 OVERVIEW OF INDUSTRIAL TECHNOLOGICAL CAPABILITY IN KENYA............................................. 67 Overview of Investment Capabilities ................................................................................................ 67 Overview of Production Capabilities................................................................................................. 68 QUALITY CONTROL........................................................................................................................ 68 INDUSTRIAL ENGINEERING. ........................................................................................................... 68 OVERVIEW OF LEARNING MECHANISMS ........................................................................................ 68 CONCLUSION AND WAY FORWARDED............................................................................................ 69

3.9. DIVERSIFICATION OF THE UTILIZATION OF TEA IN KENYA SO AS TO PROMOTE LOCAL CONSUMPTION, ............................................................................................................ 70
3.9.1. 3.9.2. 3.9.2.1. 3.9.2.2. 3.9.2.3. 3.9.2.4. 3.9.3. 3.9.3.1. 3.9.3.2. 3.9.3.3. 3.9.3.4. 3.9.4. 3.9.4.1. 3.9.4.2. 3.9.4.3. 3.9.4.4. 3.9.5. 3.9.6. INTRODUCTION.............................................................................................................................. 70 WORK DONE ELSEWHERE IN THE AREA OF DIVERSIFICATION ....................................................... 71 Green Tea Powder ....................................................................................................................... 71 Packaged pure and flavored tea beverages and juices ...................................................................... 71 Green tea catechin extracts............................................................................................................ 72 Super Green Tea Extract Supplements ............................................................................................ 72 ALTERNATIVE TEA PRODUCTS DEVELOPED LOCALLY ................................................................... 72 Research and Breeding studies ...................................................................................................... 72 Instant black tea ........................................................................................................................... 73 Green tea .................................................................................................................................... 73 Standardization of Green Tea ......................................................................................................... 73 CONSTRAINTS ............................................................................................................................... 73 Declining local consumption ........................................................................................................... 73 Overproduction ............................................................................................................................ 73 Low diversity of plant genetic resources ........................................................................................... 74 New technologies ......................................................................................................................... 74 FUTURE PROSPECTS IN THIS AREA ............................................................................................... 74 BIBLIOGRAPHY.............................................................................................................................. 75

4.0 5.0 6.0

APPENDIX 1 - ACTION PLAN MATRIX ...................................................................... 77 APPENDIX 2 - MEETING PROGRAMME.................................................................... 79 APPENDIX 3 - LIST OF PARTICIPANTS ................................................................... 81

LIST OF ACRONYMS AGOA ARF ASEAN BRC COMESA CTC DRBs EAC EATTA ECOWAS EGCG EPZ EU FAO GDP GM HACCP HPLC IFPRI ISO KARI KEBS KEMRI KETEPA KIRDI KTDA KTGA KRA KTZCC LSE MSE MTI NEMA NGO PSI SADC SME TBK TRFK UK US VAT WFP WHO WTO -

Africa Growth Opportunity Act Agricultural Research Fund Association of South East Asian Nations British Research Council Common Market for Eastern and Southern Africa Cut, Tear, Curl District Roads Boards East African Community East Africa Tea Trade Association Economic Community of West African States Epigallocatechin gallate Export Processing Zone European Union Food and Agricultural Organization Gross Domestic Product Genetically Modified Hazard Analysis and Critical Control Points High Pressure Liquid Chromatography International Food Policy Research Institute International Organization for Standardization Kenya Agricultural Research Institute Kenya Bureau of Standards Kenya Medical Research Institute Kenya Tea Packers Ltd. Kenya Industrial Research and Development Institute Kenya Tea Development Agency Kenya Tea Growers Association Kenya Revenue Authority Kenya Tea Zone Conservation Corporation Large Scale Enterprise Micro and Small Scale Enterprise Ministry of Trade and Industry National Environment Management Authority Non Governmental Organization Pre-Shipment Inspection Southern Africa Development Community Small and Medium Scale Enterprise Tea Board of Kenya Tea Research Foundation of Kenya United Kingdom United States of America Value Added Tax World Food Programme World Health Organization World Trade Organization

FOREWORD The Economic Recovery Strategy for Wealth and Employment creation acknowledges that the countrys traditional exports such as tea and coffee face declining prices in the international market. Low degree of value addition to our agricultural commodities, leading to low returns, compounds the problem. This state of affairs can be attributed to inadequate industrial policies, which have failed to put in place incentives to promote value addition. It is against this background that KIRDI set out to undertake a project entitled Opportunity Study on Investment in Packaging of Kenyan Tea. The objectives of the project were to identify the problem affecting the industry and to suggest appropriate solutions to these problems and to identify the viability of existing technologies for packaging tea for both domestic and export markets in Kenya. These objectives were realized by conducting literature and field surveys. After conducting the field survey, in which the major stakeholders in the tea industry participated, it became necessary to assemble the stakeholders in order to present and discuss the findings of the survey with them and get their recommendations of the way forward. This forum would also provide an opportunity to the project team to get additional information on this important aspect of value addition. The stakeholder workshop was held at Silver Springs Hotel on 20th Feb. 2004. The theme of the workshop was Promoting Value Addition to Tea for Local and Export Markets. I am glad to report that the meeting accomplished its intended purpose and these proceedings attest to this fact. I would like to express my gratitude to all the participants for availing themselves for the workshop and being actively involved in all that transpired that day. It is because of all of you that this workshop was a success. Special thanks to Mrs. Margaret Rotich, Director of Industry, Ministry of Trade and Industry, for accepting to give the key note address in this meeting. We were honoured by your participation through your able representative. We also appreciate the funding of this project by the Government of Kenya. It is my hope that it will have the intended impact in the tea industry and pioneer similar ventures with the other agricultural commodities. Thank you very much.

Patrick Muturi (Ph.D.) DIRECTOR - KIRDI

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1.0 1.1.

WORKSHOP OPENING CEREMONY REMARKS BY PROF. RICHARD MIBEI, CHAIRMAN, KIRDI BOARD OF MANAGEMENT

The Director of Industry, Director, KIRDI, participants from the tea sector, ladies and gentlemen, it is my pleasure to be with you this morning as you set to discuss and exchange ideas on this important commodity of our economy, tea. Tea as many of you are aware, is largely an export commodity with nearly 95% of all locally produced tea getting into the export market. The importance of tea cannot be overemphasized, as it is currently the leading export earner, contributing 20% of total foreign exchange earnings from over 125,000 hectares under production. Ladies and gentlemen, the Kenyan government has in the recent past formulated policy and regulatory guidelines aimed at liberalizing the agricultural sector as a catalyst for industrial growth. For instance, in 1999, the government amended the Tea Act to enable the tea industry to be more responsive to the needs, demands and aspirations of the industry. Following that move, farmers and other stakeholders have now taken full charge of decision making process with the government acting as a facilitator. Flexibility has thus ensued in terms of production, processing and marketing. Ladies and gentlemen,. tea production being largely a rural based activity, it has over three million people deriving their livelihood from it. Unlike many other crops, tea production is all year round thus ensuring an all round engagement to farmers and all those engaged in its various processes. Tea like many other agricultural cash crops has the potential to transform the national agribusiness sector and reinvigorate the manufacturing and service industry as well. Value addition in various stages of processing, packaging and marketing will result to higher incomes by the farmer who grows the actual produce and ensure an even higher foreign exchange earnings for the country, employment generation notwithstanding. However, huge price differences between the raw produce and final packaged products sold in Western Supermarkets is a reflection of low value addition particularly to secondary processing or high quality packaging of tea. Ladies and gentlemen, tea price at local auctions is less than $2 per kilogramme. Processed locally, the same can fetch $7 in export markets. However, if the same is processed in Europe, it can fetch as high as $16 per kilogramme. These price disparities suggest that there is certainly something in the transition from raw form to retail products that should be worth internalizing in our local economies, and this is the intricate process of packaging. Ladies and gentlemen, this seminar could not have come at a better time. Within new regional and international market opportunities such as COMESA and AGOA, agricultural produce will better compete if value is added in every stage of the value chain process. This way, rapid economic growth as a strategy for alleviation of poverty and employment creation can be attained as stipulated in various
11

government policy papers, particularly the "Economic Recovery for Wealth Creation and Employment Creation, 2003 2007. Thus ladies and gentlemen, your deliberations today on the findings of the "Opportunity study on investment in packaging of Kenyan tea" will go a long way in addressing issues that pertain to this crucial component of our economy. I thus wish you a pleasant discussion and hope that you will come up with workable recommendations for the sustenance of the tea sector. With these few remarks, ladies and gentlemen, its now my pleasure to declare this workshop officially open. Thank you all.

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1.2.

KEYNOTE ADDRESS, BY MRS. MARGARET ROTICH, DIRECTOR OF INDUSTRY, MINISTRY OF TRADE AND INDUSTRY

The Chairman of Board of Directors The Director, KIRDI Distinguished Guests Ladies and Gentlemen It gives me great pleasure to be among you and to share with you a few remarks at the opening of this very important meeting of stakeholders in the Tea sector. The representation here quite aptly reflects the main players in the sector and I am convinced that we shall have very interactive discussions. You are aware that Kenya is the third largest producer of black tea in the World after India and Sri-Lanka respectively and contributes to about 20 percent of the total world's tea export. From available statistics, tea is currently the leading foreign exchange earner, accounting for over 28 percent of the country's total export earnings and this points to the importance of this sector. Despite Kenya's advantaged position in the global tea production, the export of value added tea is dominated by developed countries. Many of these countries do not have even single tea bush! This appears to be contradictory, but the fact is that Kenya's tea is mainly sold in bulk and used to blend low quality tea from other countries. This practice has denied the country billions worth of export earnings and has also resulted in the exportation of employment in countries that do not own any tea plantation. The fact that our tea is used to blend other down grade tea varieties is enough evidence that Kenyan tea is superior and unique and should therefore be protected through the intellectual property system which is well entrenched in our national legislations. I must also underscore the medicinal value of tea and call upon the Kenya consumers to be aware of these added advantages of consuming tea. The role played by tea growing and processing cannot be overemphasised in the context of national economic development. Millions of families in rural areas derive their livelihood from tea growing and a big percentage of Kenyas population is directly and indirectly employed in the processing, distribution and packaging industries of the tea supply chain. This makes tea sector to be one of the key sectors ear-marked by the Government for promotion in order to realize the objectives of the recently launched Economic Recovery Strategy for Wealth and Employment Creation. Ladies and Gentlemen In spite of the contribution and the potential of tea sector in Kenya's economic development, a number of constraints both in the export market as well as in the domestic domain continue to stand in the way for the realization of full potential of the sector. The tariffs and non-tariff measures in the export market, particularly in respect of high value added products obstruct opportunities for increased local value addition. The domestic regulatory framework, although currently undergoing reforms, has not been conducive for value adding manufacturing and neither has competition in the global markets helped matters. There is very little value addition in the country and a majority of Kenyan consumers are not even aware that they consume what is grown and processed by them. This scenario has made Kenya lose out to countries such as India and Sri-Lanka that have enhanced their tea exports through packaging and branding.
13

Despite these setbacks, there remains a lot of opportunities in the tea sector. We have to adopt a proactive approach if we are to stay afloat and reap maximum benefits, the Kenya tea packers have to be awake to the realities of doing business in an increasingly competitive business environment. We must strive to exploit the opportunities arising from the comparative advantage Kenya has in the tea production and enhance our export earnings by moving into higher value added tea packaging. To further reinforce our export market dominance, the stakeholders in Tea Industry must create unique brands that will stand the test of international competition. This calls for concerted efforts, with the Government creating policy framework and necessary support measures to open up opportunities for the development of high value adding industries in the country. Some of the constraints I mentioned such as high tariffs and other non-tariff barriers are currently being addressed through the on-going multilateral negotiations. Regarding quality issues, our research institutions and standard organizations have the challenge of developing appropriate packaging materials that can meet the consumer taste and requirements in the export markets. The participation of SMEs in processing and value addition of tea must be stepped up considering the sectors importance in employment creation. The Government will support these enterprises to overcome their difficulties associated with funding, market entry barriers and standards. The SMEs in the tea sector must also vigorously pursue the opportunities available in the US market through AGOA arrangement, which is presently dominated by exports of textiles and apparel products. Lastly let me reiterate that the opportunities for increased local value addition of processed tea are real and enormous and the government is ready to give support to initiatives that will guarantee employment creation and increased export earnings. I hope that the survey that has been conducted by KIRDI and which will be presented shortly will stimulate discussions and enable stakeholders to make recommendations that can result in a plan of action for the promotion of value added tea for local and export market. I thank you and wish you fruitful deliberations.

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2.0

SUMMARY OF PROCEEDINGS

The importance of tea in the Kenyan Economy cannot be overemphasized. It creates employment for over 600,000 people and creates regular albeit unstable incomes for the farmers. It has maintained contribution to GDP at 5% in the last five years and has remained the single largest earner of foreign exchange currently at 26.2 per cent of total. This compares with 22 per cent for horticulture and 27 per cent for all manufactured goods. Kenya ranks number 3 in production of black tea after India and Sri Lanka. But due to high domestic consumption in India, it ranks second in exports after Sri Lanka. While 95 per cent of Kenyan production is exported, value added tea (packaged) accounts for only 1 3 per cent. Mostly because of the bulk sales in the auction, which is very competitive, prices have not been stable and this means farmers incomes have similarly suffered. However, there has been a general decline in tea prices in the world major markets, but reasons differ from country to country. Due mainly to the way tea is marketed, overproduction always ends with depressed prices meaning that increased production leads to stagnant or reduced levels of income to the producers. Compared to Sri-Lanka, Kenyan tea is low valued. This is because 40 per cent of Sri Lankan exports is value added. There has been pressure on Kenyan producers and policy makers to improve our tea export earnings through packaging. For a considerable period, this has been in Kenyas plans but little has happened. Improvement in packaging has obvious benefits to all those concerned in terms of increased and stable incomes, improved foreign exchange earnings to the country and increased employment opportunities directly and indirectly. Why then has value addition been slow to adopt these benefits? Are these benefits clear to investors and if so what are the constraints? KIRDI set out to investigate, identify the problems and suggest solutions. This culminated into a stakeholders workshop held on 20th February 2004 at Silver Springs Hotel, Nairobi. Through paper presentations and discussion, many issues emerged, constraints were identified and solutions suggested in terms of the way forward for the tea industry. These are presented in this section but are also presented at the end of this report in tabular form. Individual papers also contain the issues discussed. One of the major points is that value addition is a marketing issue, which should be pursued to the extent possible. Maintaining the status quo will continue to create employment out of the country instead of within and will arrest development of the tea industry. While pursuing value addition, domestic problems affecting marketability of tea must also be tackled. Production costs are a major issue with high costs of infrastructure particularly poor roads and high power tariffs which impact negatively so that market prices become less competitive. Another influence to production costs is high fuel costs, which create great difference between those who use fossil oil and those who use firewood. It was also noted that value addition has its costs. These arise from extra investment required before placing the product in the market as well as compliance and registration with marketing houses abroad.
15

Further, ways have to be found to overcome protectionism and acquire more penetration of foreign markets. Some of these are discussed below. It is generally known that Kenya produces about the best quality tea in the world. Those demanding such tea may not easily find it in the market because it is mainly purchased to blend other teas from other parts of the world. It is rarely marketed as Kenyan tea. The major issue here is that there is need to give Kenyan tea an identity through branding. This is a need that goes with standardization and accompanying compliance rules and regulations. Poor implementation of regulations end up with some teas diverted to local markets where it is sold in environmentally unsound and sometimes unhygienic conditions posing health risks to the consumers. Application of the standards will take care of importers in the market as well as set pace for diversification of products for a wider market. But this requires improvement of the institutional framework in which tea is produced and marketed. There seems to be good reasons why value addition has been slow to take shape. While government incentives have been missing, there is even at the time of writing no code of practice for tea processing and packaging. This has also encouraged counterfeiting. Kenya adopted the internationally agreed general standards for black tea but there is nothing to show how Kenyan tea is made. Further a potential packer and exporter does not know how to go about it despite the existence of the standards. Another hindrance to value addition has been lack of market information. Specific markets have their requirements, which may not be forthcoming even for relatively big producers. Access to this information is expensive and may even require to be synthesized on acquisition so that it is accorded correct responses. Even when one is already in the market there are occasional shocks that require quick solutions to maintain one in the market. Some of these may be tightening controls in the market, appraisal of standards and conditions of compliance, among others. These require either direct government support or large-scale producers who have enough resources to absorb the shocks. Both of these have been missing in the case of Kenya unlike India and Sri Lanka. It was mentioned earlier that value addition has its costs even when all other constraints have been removed. It requires technological capability, which Kenya does not have adequately at present. Packaging machinery is currently expensive and complex and few can afford them. Maintenance of this machinery also requires human skills, which also need to be acquired. In the face of low access to export markets due to protectionism and further costs to explore new ones as discussed earlier value addition becomes not only a costly investment but a risky one as well. This has hindered ventures into the sector. This is compounded by the fact that Kenyan tea is high cost with implications for the raw materials to value addition.

16

2.1. RECOMMENDATIONS AND WAY FORWARD What conclusions could be made then? Attempts to promote value addition should have inputs from the government as has already been pointed out. There is need to create and/or strengthen institutions such as Tea Board of Kenya and Tea Research Foundation. Tea Board of Kenya should be allocated more financial and human resources so that it can fully meet its mandate. These would help the Board to create an inspectorate department that will protect genuine producers by way of enforcing regulations and general compliance. It will also enable the Board to start a modern information resource centre that will source and disseminate information to potential users. This information will enable producers to be competitive and rapidly respond to market needs. Tea Research Foundation on the other hand should be strengthened so that they can deal more with or expand their products research. There is the need for more research on tea products development as well as diversification into multi-products research. Finally, KIRDI should be facilitated to do research and develop cheaper tea packaging equipment. Another need for government participation would be facilitation for joint ventures and contractual agreements in the export market. The joint ventures would help share costs of production and marketing as well as help to reduce effects of protectionism in the foreign market. But this is an area requiring exploration and research. Opening trade missions abroad in key consuming areas or of high market potential should be the first step followed by efforts for favourable trade agreements where bilateral agreements have taken place. Exporters have reported cases of cheating by their foreign traders in which consignments have been undervalued. This is an area whereby the government should investigate and help to find a solution. Provision of security is also necessary to avoid tea being lost in transit. To promote value adding both for domestic and foreign market, there is also need to reexamine government tariffs and taxes generally so as to harmonize with other sectors. The government should, for instance, consider tea a raw material so that machinery imports and other inputs attract low duties like as in other sectors At trading company level, contractual agreements between producers and market outlets are the most common form of export marketing. Producers should be encouraged to seek these agreements and make efforts to maintain them. There is also need for incentives to seek more markets abroad. One such incentive is to require that a certain proportion or percentage of total production by a producer be for export market. Meeting such a target would be rewarded. Another incentive would be facilitation of tea factories by according them EPZ status. This would add value to their products as well as enable them to step up value addition but it also should be accompanied with other strategies as earlier discussed. It would also increase domestic consumption of value added products, which in turn would increase farmers incomes. Finally, Tea Board of Kenya, East African Tea Trade Association and Kenya Tea Development Agency should play the role of policy drivers in the tea industry. They, together with the Ministry of Agriculture and Regional Development and Ministry of Trade and Industry should form a task force with an integrated approach for coherence and harmonization of all key issues in the tea industry.

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3.0 3.1. 3.1.1.

PAPER PRESENTATIONS OVERVIEW OF THE TEA INDUSTRY IN KENYA, BY DR. P. M. MUTURI, DIRECTOR, KIRDI INTRODUCTION

The widely consumed beverages world over include Coffee, Cocoa and Tea. Great physiological, social and economic importance world wide among its producers and users. Tea industry in Kenya is of utmost importance in terms of: Employment creation. Poverty alleviation especially in rural areas. Spurring general economic development in tea growing areas. Major foreign exchange earner for the government. potential to contribute significantly in the process of industrialisation.

3.1.2.

HISTORICAL PERSPECTIVE

Tea (Camellia Simensis) first drunk in China more than 5,000 year ago. Introduced into Kenya from India by G.W.L Caine in 1903. Commercial planting of tea in Kenya started in 1924. Tea growing by Africans started in 1956. Special crop development authority established in 1960 to speed up participation of Africans in cultivation of cash crops. Kenya Tea Development Authority (Now Agency) in 1964. After 80 years of Tea growing Kenya is: 4th Largest Tea producer and 2nd biggest exporter in the world

18

3.1.3.

GOVERNMENT POLICY

In recognition of the great economic potential of this commodity, the Government has proposed measures to improve the countrys market share in the world. Issues to be addressed include: Differential in yield and quality between estate and small holder producers - by provision of inputs and extension services to farmers. Involving farmers in important decision making regarding the industry. Expansion of processing capacity. Removing legal and administrative factors that inhibit setting up of private tea factories. Implementing legislative and institutional reforms e.g enactment of Tea Act. Putting up a new agricultural extension policy to promote collaboration with other extension service provider. To provide farmers with access to affordable credit 3.1.4.

IMPORTANCE OF TEA TO KENYAN ECONOMY Employment - 3 million Kenyans (10% of the population - directly and indirectly employed by tea industry. Currently leading agricultural forex earner for Kenya (28% of export earnings) Earning 34.2 b Kshs(2003) 34.3 b (2002). Kenya - third largest producer of black tea after India and Sri Lanka. Production accounts for: 16% marketed black tea in the world. 60% of Africas tea 20% of worlds tea exports. Income generation. Improvement of infrastructure poverty alleviation MAIN PLAYERS IN THE TEA INDUSTRY KTDA - provision of services to small scale tea farmers (green leaf tea collection, processing and marketing. Tea Board of Kenya - established in 1950 - to regulate tea growing and manufacturing. Tea Act 1999 - licensing of tea processing factories. Registration of growers, buyers brokers, packers etc. East African tea Trade Association - co-ordinating tea producers brokers buyers and packers in E. Africa. Tea Brokers Association (TBA) - consist of eleven broking companies and act as a link between the producers and buyers. Kenya Tea Growers Association(KTGA) represents interests of commercial Tea estates at government or trade discussions. Tea Research Foundation of Kenya (TRF) research on tea.

3.1.5.

19

3.1.6.

PRODUCTION Tea growing in Kenya found in the Great Rift Valley and in East of Rift Valley. Aberdare highlands Slopes of Mt. Kenya Nyabene Hills

West of Rift Valley Mau escarpment Nandi hills Highlands around Kericho Mt. Elgon and Kisii Highlands Altitude 1500 - 2700 mm above sea level.

Rainfall 1200 mm - 2700 mm annually. Kenya produces about 300 m kg per year. Statistics: Year 1997 1998 1999 2000 2001 2002 2003
Source: Tea Board of Kenya

Production (Metric tonnes) 221,000 294,000 248,000 236,000 294,000 279,000 294,000

Small holders produce 60% of Tea in Kenya while privately owned plantations produce 40% PROCESSING

3.1.7.

There are several methods of processing tea. Most teas in Kenya are processed using cut, tear and curl (CTC). The process includes: Withering - hot air is blown through tea leaves - making leaf tissue flaccid and permeable to juices. Rolling - twisting leaf breaks it and expresses the juices (27 - 32 oC) (A batch gives 3 - 5 rollings). Fermentation - chemical changes effected by enzymes. Firing - subjecting leaf to hot air blast (82 - 95oC) - enzymes are inactivated. Grinding and sorting - grades sieves are used for this stage. Packaging and storage - the made tea is blended and packaged.

20

3.1.8.

MARKET Out of close to 300 m Kg tea produced in Kenya, 95% is exported to over 50 different countries. Kenya contributes 10% of total global tea. Commands 21% all global tea exports. Marketing is organised around an auction system based in Mombasa. Major importers of Kenyan Tea (2002). Country Pakistan United Kingdom Egypt Afghanistan
Source: Tea Board of Kenya

Market Share (%) 23 22 10 9

Potential for Kenyan tea exports lie in Eastern Europe, Middle East and S. Asia. Small quantities of tea are repackaged and marketed through factory door sales. VALUE ADDITION

3.1.9.

Most of Kenyan tea is exported in bulk. 95% of Kenyan tea exported in bulk as a generic product in contrast with Sri Lankan tea which is 50% value added and branded. In view of international decline in primary commodity prices, value addition is a viable option. Value addition would help in job creation. Contribute to the countrys GDP and to industrialization. Branded tea fetches six times higher process than bulk exports. Kenya produces one of the most high quality tea often sought for blending with cheaper teas of other countries. Kenya tea is natural and pure as no pesticides and other chemicals are used. It has been certified as meeting the highest standards set by international bodies. 3.1.10.

CHALLENGES AND CONSTRAINTS IN VALUE ADDITION Poor infrastructure. High cost of production. Competition from major players in the market. Lack of established policy on tea packaging or value addition. packaging machinery are expensive for most tea packers. (machine for packaging tea sachets cost KShs 22 m). Lack of specifications for materials required for packaging tea for retail market. Lack of incentives for value adding (taxes on imported packaging materials are high). Insufficient technology on value addition. Insufficient information on the export markets.

21

3.1.11. CONCLUSIONS AND RECOMMENDATIONS Measures and strategies should be put in place to promote tea industry in general and tea packaging in particular. New markets for Kenyan tea should be explored in Middle East, Europe and Americas. TBK should be strengthened to be aggressive in promoting Kenyan tea overseas. Tax incentives should be provided to local investors in tea packaging and branding materials and machinery). Greater effort are required by KTDA and Ministry of Agriculture in extension to farmers on production of high quality tea by small holders control. The Government and local authorities need to address the issue of infrastructure e.g. roads, electricity, communication etc. Standards for packaging material for local and export market should be established. Research into diversification and utilization of tea to take care of surplus tea and wastes should be carried out. Key stakeholders in tea industry should be consulted when important decisions are being made. Stringent mechanism of controlling tea imports to protect local tea packers from unfair competition from cheap and substandard teas should be put in place.

Thank you for listening to me.

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3.2.

OPPORTUNITY STUDY ON INVESTMENT IN PACKAGING OF KENYAN TEA - SURVEY REPORT, BY PHYLLIS W. NGUNJIRI, RESEARCH OFFICER, KIRDI 3.2.1. ABSTRACT

Tea exported from Kenya is mainly sold in bulk and used for blending teas from other countries. In the final packaged product, due mention of use of high quality tea from Kenya, may not be done. Selling tea in bulk without adding value through branding and packaging limits earnings from exports. Estimates indicate that earnings could be increased up to six times through value addition. The objectives of this study were therefore to identify the problems affecting the tea industry and to suggest appropriate solutions to these problems and to identify the viability of existing technologies, for packaging tea for both domestic and export market by MSEs in Kenya. Literature and field surveys were carried out. Various packaging materials in the local market were identified and their suitability for packaging tea assessed. Literature was collected from books, publications, reports on conferences and meetings, newspaper reports, personal communication and the Internet. Field survey involved visits and interviews to selected stakeholders dealing with tea. Relevant questionnaires were used to interview the stakeholder. Assessment of packaging material for tea packaging was done by subjecting tea in different materials to temperatures of 55oC in an incubator for 12, 24 and 36 days, to simulate storage of the products for 1, 2 and 3 years at 25oC, and determining moisture lost from the products during that time. A variety of problems that hinder value addition were identified and ranged from competition from major players in the market, high tariffs for packaged products in the importing countries, lack of clear policy on tea packaging or value addition, lack of specifications for packaging materials for local and export market to insufficient technology on value addition as well as insufficient information on the export market, among others. A wide range of packaging materials was identified from the local market. They included paper board carton boxes lined with aluminium foil or polyethylene sheet, Kraft paper packages lined with either aluminium, grease proof paper or polyethylene sheet and single polyethylene packages. All the packages assessed allowed some moisture to escape but the degree of moisture loss depended on the type of packaging material and the lining. The order of the suitability of the packaging material assessed was found to be aluminium>polyethylene>Kraft paper. The study established that there are opportunities for investment in packaging of Kenyan tea. Value addition is being done at some level, especially for the local market but certain constraints have hindered significant progress in this field. Competition in both the local and export markets makes it difficult for the new comers to enter the market. High capital outlay becomes a deterrent to the small and medium scale entrepreneurs desiring to venture into this area. Government intervention through incentives would greatly improve the situation. 3.2.2. INTRODUCTION Kenya is a relatively young tea producer with the first tea bushes having been planted in 1903 on experimental basis. Serious tea growing on commercial basis started in 1924. Initially, tea growing on
23

commercial basis started in 1924. Initially, tea growing was a preserve for the colonial farmers, while the indigenous people provided cheap labour for the European owned farms. Tea growing by Africans started in 1956 when the colonialists realized that independence was just around the corner and the African population needed to be prepared to take charge of the economy. In order to accelerate the African participation in the cultivation of cash crops, the colonial government established the special Crops Development Authority under the Agriculture Act in 1960. This body was replaced shortly afterwards in case of tea, by the Kenya Tea Development Authority, KTDA (now Kenya Tea Development Agency). By the time of establishment of KTDA, the smallholder African farmers had an area of 4,461 hectares with the plantations having 18,591 hectares land therefore giving a total of 23,052 hectares, under tea production. By 1999, the area under tea production had grown to 124, 201 hectares, a 6-fold increase over the area under tea, just around independence. The smallholder tea sub-sector under KTDA has grown tremendously from a mere 1.7% of total amount of tea and now accounts for about 72% of total planted area and about 60% total production. The remaining 40% comes from plantation sub-sector. Tea is currently the leading agricultural foreign exchange earner for Kenya, accounting for over 28% of total export earnings. Kenya is the third largest producer of black tea after India and Sri Lanka and produces about 16% of marketed black tea in the world. Kenya produces about 60% of Africas tea and ranks second after Sri Lanka in tea exports, meeting, about 20% of total world tea exports. It is estimated that over 3 million people (about a tenth of the population) derive their livelihood directly or indirectly from tea production. Since tea growing and manufacture take place in rural areas, this has greatly contributed to rural development through employment creation, income generation and improvement of infrastructure. This has contributed greatly to fighting poverty among small-scale rural farmers. Tea also contributes to increased investment opportunities in manufacturing, distribution and packaging industries. Tea exported from Kenya is mainly sold in bulk and used for blending teas from other countries In the final packaged product, due mention of use of high quality tea from Kenya, may not be done. Selling tea in bulk without adding value through branding and packaging limits earnings from exports. Estimates indicate that earnings could be increased up to six times through value addition. This study was therefore undertaken to investigate the potential for value addition and constraints that may have hindered this venture. 3.2.3. 3.2.3.1. OBJECTIVES General Objective

To establish the potential for improvement of tea packaging and so add value to tea products in Kenya. 3.2.3.2. Specific Objectives

1. To identify problems affecting the tea industry and to suggest appropriate solutions to these problems. 2. To identify the viability of existing technologies, for packaging tea for both domestic and export market by MSEs in Kenya.

24

3.2.4.

JUSTIFICATION

Value addition would increase export earnings from tea, which will translate to higher income for the tea producer. At the same time, Kenyan high quality tea will be able to fetch commensurate prices. Selling tea directly to the consumer will enable the Kenyan tea producers and processors to bring out a product that will suit their consumer preferences. 3.2.5. IMPACT/OUTPUT

The outputs from the study include the following: 1. Final report 2. Names of the products in the market. 3. Names of the packaging materials in the market and description of their packaging characteristics. 3.2.6. BENEFICIARIES

The beneficiaries are expected to be 1. Farmer and tea processors/packers who will earn more from sale of packaged tea than from tea sold in bulk. 2. The government that will gain more foreign exchange from packaged tea than from tea sold in bulk 3. The public, which will benefit from jobs created through value addition. 3.2.7.

KEY STAKEHOLDERS The Tea Board of Kenya (TBK) Kenya Tea Development Agency (KTDA) The Tea Research Foundation of Kenya (TRFK) East African Tea Trade Association (EATTA) Materials and Methods Materials

3.2.8. 3.2.8.1. 1) 2)

Questionnaires for processors, traders and public and private institutions dealing with tea. Tea samples from the local market.

25

3.2.8.2.

Methods

The study involved conducting literature and field surveys as well as assessing the suitability of various packaging materials used for packaging tea in the local market. Literature was collected from books, publications, reports on conferences and meetings, newspaper reports, personal communication and the Internet. Field survey involved visits to selected stakeholders dealing with tea, namely; Kenya Tea Development Agency (KTDA) Tea Board of Kenya (TBK) Tea Research Foundation of Kenya (TRFK) East African Tea Trade Association (EATTA) KTDA Tea Factories (Kangaita, Chinga, Ikumbi and Nduti Tea Factories) James Finlay Tea Estates. Kenya Tea Packers Limited (KETEPA) Global Tea and Commodities (K) Ltd (Gold Crown Beverages (K) Ltd) Combrok Limited Small Scale Tea Packer (Luanda Fine Teas.) All these stakeholders were interviewed using relevant questionnaires. Assessment of suitability of packaging materials in the local market was done by subjecting materials to temperatures of 55C in an incubator for 12, 24 and 36 days to simulate storage of the products for 1, 2 and 3 years at 25C. The assumption here was that storage for one day at 55C was equivalent to storage of the same product for one month at 25C. and 75% relative humidity. Therefore, storage for 12, 24 and 36 days at 55C was equated to storage for 1,2 and 3 years respectively, at 25C. The expiry dates on most of the products indicated that they would be expected to expire after three years. The moisture content of the products was determined after the various periods of storage. Moisture content for control samples (those not subjected to high temperatures) was also determined. 3.2.9. 3.2.9.1. RESULTS AND DISCUSSION Problems affecting the Tea Industry

One of the objectives of this study was to identify the problems affecting the tea sub-sector. The stakeholders interviewed identified the following problems: Poor infrastructure. Collection of green leaf especially for the smallholder tea growers is affected by poor infrastructure because most of the roads are poorly maintained. High cost of production, which leads to Kenyan tea being sold at high prices, which are not competitive in the international markets. Price therefore, becomes a disincentive for export. The cost of production for the multinationals that control the industry is lower because of higher efficiency in production. Ways of improving efficiency in production practices should be identified to lower the production cost. Cost of production is also raised by high-energy costs (which include the cost of furnace oil for boilers and electricity) and high labour cost.
26

Competition from major players in the market. Some stakeholders felt that the export of packaged tea would be difficult because major players such as Unilever which takes up to 75% of the beverage market, would try to prevent entry of new players into the market. However, it was pointed out that there is potential market in America that would require only 5% of tea produced in Kenya to saturate. Increase in tea consumption in America is expected due to health claims attributed to tea of late. This would probably create a wider market for Kenyan tea. Locally, the small-scale packers find it difficult to penetrate the market due to consumer royalty to products from more established packers. Lack of established policy on tea packaging or value addition; one only needs to be registered as a packer. Although packers are expected to make monthly reports to the Tea Board of Kenya, there are no clear guidelines on how to conduct their trade and it is not unlikely to see some traders scooping out tea to some consumers in an open market place. Lack of clear guidelines has also led to counterfeiting of some established packers products by some small-scale packers. Packaging machinery are expensive and out of reach for most tea packers, e.g. a machine for packaging small tea sachets was said to cost Kshs. 22m. Out of 125 registered packers, only 2 or 3 own packaging machines. The machines required are complex and difficult to fabricate locally. Lack of specifications for materials required for packaging tea for retail market. Tea is highly hygroscopic and easily picks smells, hence needs to be packaged in an airtight package to protect it from physical, chemical, artificial and microbiological contamination. Materials should not allow exposure of tea to temperatures of above 25C and they should not be porous. All these parameters are very important for the export market and standards need to be defined to clearly spell out what is required for each given parameter, both for local and export markets. Lack of incentives for value adding. The capital required to establish a tea packaging firm is high and without any monetary support by the government, the venture becomes impossible to those desiring to venture into this field. Packaging materials manufactured locally may not meet the requirements for the export market and yet taxes on imported packaging materials are prohibitively high. Insufficient technology on value-addition. Tea packers need to be equipped with the necessary technology for blending, assessment of quality, package design etc., to come up with a product that is acceptable in the international market. Poor marketing strategies some stakeholders felt that the Tea Board of Kenya is not aggressively and actively marketing Kenyan tea abroad. Insufficient information on the export markets. Information on consumer tastes and preferences and accessibility of potential markets is not available. It is impossible to penetrate these markets without this information. Thorough studies on the export market, therefore, should be carried out to make value addition for export market a reality. Failure by the government to involve key stakeholders when important decisions affecting the tea industry, are being made. This is evidenced by poor or lack of representation of the industry in important meetings, both locally and abroad, where important decisions are made.

27

3.2.9.2. Identification of the Products in the Market and their Packaging Materials: Table 1: Some Products from the local Market. NAME OF PRODUCT KETEPA tea bags Raha Tea Kericho Gold Kenyan Harvest Green Acres Tea Chai Mara Moja Ketepa Pride Melvins Ginger Tea

PACKAGE DESCRIPTION Tea bags made of porous material inside a heat sealed polyethylene pouch. Polyethylene primary package, inside a plastic secondary package. Plastic reusable jar. Polyethylene primary package in a wooden secondary package. Polyethylene package inside a metal container Hermetically sealed metal container Primary package consists of a tea bag made up of porous material. Tea bags packaged in a paperboard (0.32mm thick) carton box. Tea bags made of porous material inside a polyethylene package, which is put into a paperboard carton box. Thickness of paperboard is 0.51mm. Carton box is wrapped with a polyethylene cover. Primary package consists of a polyethylene bag while the secondary package is a paperboard (0.41mm thickness) carton box wrapped with a polyethylene cover. Primary package made of aluminium foil inside a paperboard (0.42mm thickness) carton box. Paper package coated with aluminium foil on the outside. Thickness of coated paper = 0.11 mm Paper primary package inside a paperboard (0.32mm thickness) carton box. 2ply paper package Package made of tough synthetic material laminated with polyethylene on the outside. Thickness of laminated material = 0.08mm

Safari Pure Tea Baraka Chai HomeCup Chai Fahari ya Kenya Tea special Fahari ya Kenya Chai Jaba
Source: survey, 2003

3.2.9.3. Examination and Documentation of Packaging Material characteristics It was not possible, within the capacity of the Institute, to carry out an elaborate assessment of packaging material characteristics. A simple assessment to determine moisture lost from tea packaged in different types of tea material found in the market when stored at 55C (see. Methodology, ch. 4.2.8.3), was carried out. It was aimed at evaluating the permeability of the packaging materials to moisture, and hence, their respective suitability for packaging of tea. The various products obtained from the market as described in table 3, were coded and grouped as described below. Solid packs, such as wooden box, metal can, plastic jar and plastic tubbler, appearing in the list above, were not included in the test.

28

A Tea bags inside a carton box A1 No primary package A2 Polyethylene primary package, which is not sealed. B - Tea packaged in a carton box. B1 Polyethylene primary package. B2 Aluminium foil primary package. B3 Kraft paper primary package C - Tea in a single package C1 Paper package with external aluminium coating C2 2 ply paper package C3 Package made of tough synthetic material laminated with polyethylene on the outside D - Tea bags in polyethylene package. D1 Heat-sealed polyethylene package. The following are the results for loss of moisture from tea in different packages. Table 2: Loss of moisture from tea samples Sample code A1 A2 B1 B2 B3 C1 C2 C3 D1 Initial MC (%) 7.43 8.68 6.51 6.29 8.82 6.12 7.84 7.26 7.78 MC(%) after 12 days 6.67 7.04 6.03 5.88 8.24 5.61 7.08 5.87 6.23 % Moisture loss after 12 days 10.0 7.4 7.4 6.5 6.6 8.3 9.7 19.1 19.9 MC(%) after 24 days 6.03 5.70 5.33 4.86 7.91 5.47 7.06 4.97 4.90 %Moisture loss after 24 days 18.8 34.3 18.1 10.3 10.6 9.9 37.0 MC(%) after 36 days 5.44 5.02 5.07 5.29 6.00 5.28 6.01 5.24 4.36 % Moisture loss after 36 days 26.8 42.2 22.1 15.9 32.0 13.7 23.3 27.8 43.9

Source: survey 2003

MC- Moisture Content From these results, it is evident that all the materials lost some moisture during storage at 55C. The percentage moisture loss varied depending on the type of material. Tea bags packaged in polyethylene pouch (D1) lost the highest amount of moisture (43.9%) after 36 days of incubation while the least loss (13.7%) was experienced in the paper package with external aluminium coating. It is also worthwhile to note that the second lowest value for moisture loss (15.9%) was also obtained with an aluminium foil primary package. A polyethylene primary package allowed lower loss of moisture (22.1%) than Kraft paper (32%). The order of suitability of packaging materials that emerges from these results is, aluminium foil>polyethylene > Kraft paper. An external aluminium coating appears to achieve better results that an internal, Aluminium primary package. At the same time, single polyethylene package is portrayed as a poor moisture barrier for tea packaging.

29

Some flavours in tea are more volatile than water vapour and it would be expected that such flavours escaped with the water vapour leaving a poorer quality product. The initial moisture content for all the products exceeded the upper limit (6%) for tea. It is possible that these products had the right moisture contents in the beginning but picked up moisture on the shelves. This possibility is supported by the fact that the least permeable materials, (the ones that lost the least amount of moisture C1, B2 and B3), also had the least initial moisture content, indicating that they prevented picking up of moisture by the products. Increase in moisture content leads to deterioration of tea quality. According to these results, therefore, the packaging materials assessed proved unsuitable for tea packaging for both the local and export markets. However, some may still be considered suitable for use in the local market, (especially those that were found to be least permeable to moisture, as given above), depending on how fast the product moves. Greater care should be taken when selecting materials for packaging tea for areas with extreme weather conditions, such as Coast and North Eastern Provinces and for export market. Stronger and less permeable materials would be required under these circumstances. 3.2.10. CONCLUSION

The study established that there are opportunities for investment in packaging of Kenyan tea. Value addition is being done at some level, especially for the local market but certain constraints have hindered significant progress in this field. Competition in both the local and export markets makes it difficult for the new comers to enter the market. High capital outlay becomes a deterrent to the small and medium scale entrepreneurs desiring to venture into this area. Government intervention through incentives would greatly improve the situation.

30

3.2.11.

RECOMMENDATIONS

Aggressive marketing of Kenya tea should be done. Tea Board of Kenya and Kenya Tea Development Agency should take a lead in this. To this end, the government should allocate a vote to the Tea Board of Kenya to enable them to effectively promote Kenyan Tea both locally and abroad. To formulate the right marketing strategy, a study of the potential export markets would have to be carried out. The Government should give incentives to the Packers by lowering the Value Added Tax (VAT) on tea, Taxes on imported packaging materials and machinery. At the same time lowering cost of energy (furnace oil and electricity) and farm inputs would lower cost of production and ensure competitive prices for the Kenyan tea in the international markets. Policies for the tea sub-sector should be synchronized to streamline the liberalized tea trade. Tea Board of Kenya should set rules and regulation to be followed by those in this trade, especially the Packers. Policies should be put in place to ensure that use of a given minimum amount of Kenyan tea by Tea Packers abroad is acknowledged on the label. Standards for local and export markets for the packaging materials should be established. Fortunately, the Tea Board of Kenya and the Kenya Bureau of Standard have already initiated the process. Research into diversification of utilization of tea to take care of surplus tea should be carried out. There is too much surplus tea; local consumption of tea is only 5% of total tea produced and although consumption may be increased by sensitizing people on health benefits of consuming tea, this may only extend consumption to a maximum of 10% of total tea produced, hence the need for diversification. Key stakeholders in the tea industry should be consulted when important decisions on the same are being made. They should also be properly represented in important fora concerning the industry. Local tea packers should be protected from unfair competition from cheap and sub-standard tea imports. A department should be created in the ministry of Agriculture to specifically deal with tea. REFERENCES

3.2.12.

Carr, J. G. Tea Coffee and Cocoa In Microbiology of Fermented Foods volume 2, 1985. Edited by Brian J. B. Wood. Daily Nation Newspaper, 28th Feb. 2003. Gold Crown and HACCP certification. Nyangito, H. O, (2001). Policy and Legal Framework for the Tea sub-sector and Impact of Liberalization in Kenya. Owuor P. O. and Obanda M. Report on FAO Intergovernmental Group on Tea Export Consultation on Tea market Issues meeting held on 20th Sept. 2002 in Washington DC, U.S.A. Interviews from selected stakeholders

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3.3.

TEA PACKAGING FOR THE LOCAL MARKET THE KETEPA EXPERIENCE, BY MR. LERIONKA S. TIAMPATI, MANAGING DIRECTOR, KETEPA.

3.3.1. KETEPAS BACKGROUND

In 1937, East Africa Tea Growers Association forms the central packing factory in Kericho managed by Brooke Bond. In 1976, attractive export prices lead to tea shortages in Kenya. In September 1977, Ketepa was registered as a private company under KTDA to sell tea to the local market. Ketepa started operating under KTDA in January 1978. Becomes autonomous in 1979. In 1992, tea sector liberalized and deregulated, subsidies and quotas removed. Today Ketepa operates in competition with over 130 registered and many unregistered packers in Kenya. KETEPAS OWNERSHIP

3.3.2.

KETEPA is owned by all the tea growers of Kenya. Majority shareholders are the small-scale tea farmers throughout Kenya through KTDA. Other major shareholders are the large-scale plantation owners through KTGA. KETEPA packs only Pure Kenya teas from its shareholders.

3.3.3.

KETEPA BRANDS

Safari Pure tea is the premium blend from the east of the Rift. Fahari ya Kenya is a blend of tea from all the tea growing regions of Kenya. Ketepa pride is our tea bags blend also from all the tea growing regions. Loose tea is packed in 1kg, 500g, 250g, 100g, 50g, 25g, 15g and 5g. Tea bags are packed in 100, 50, 25 sachets. Tea bags are untagged, tagged and enveloped.

3.3.4.

KETEPA MISSION STATEMENT

To be the consumers first choice for blended teas of high quality and great taste. KETEPAS VISION STATEMENT

3.3.5.

To be the tea blending and packing company of choice in Africa and the Middle East Region. 3.3.6. WHAT IS VALUE ADDING?

Sourcing, blending and packing of Tea. Trading in specialty teas such as CTC, Orthodox, green, flavored, herbal teas, etc. Manufacture of ready to drink and instant tea. Selling, distribution and marketing of Tea.

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3.3.7.

REQUIREMENTS FOR VALUE ADDING

Investment in modern plant and machinery. Recruitment of skilled workers. Use of suitable packing materials (expensive). Sourcing of teas suitable for your blends. Premises to comply with govt. legislation for food. Wide distribution network with strong distributors. Sufficient Advertising and Sales promotion budget. Well managed credit system. ISO certification for export. Sufficient funds for operations.

3.3.8.

CHALLENGES OF VALUE ADDING

Competition from producer factories. Competition from local branded and unbranded loose teas. Competition from cheap branded imports. Expensive Kenya teas. Counterfeiting of popular brands. Cheap loose tea imports through Mombasa auction duty and tax-free. Competition from other beverages. Small local markets and low purchasing power. Poor infrastructure and security for distribution. Export trade barriers.

3.3.9.

LOCAL MARKET OUTLOOK

Total market of tea will continue to stagnate. Market shares will continue shrinking. Auction prices may continue to outstrip competitors prices. (see chart below 1999-2003) Export markets will be highly competitive. New products introduced e.g. flavored, lemon tea. New strong competitors will enter the market. Consumers will be more sophisticated and demanding. There will be other new beverages in the market. Ready to drink culture will impact on traditional tea drinking culture.

3.3.10. FUTURE PROSPECTS FOR TEA

Product diversification e.g. favoured, green, orthodox, iced tea, instant teas, etc. Marketing of tea as a health drink in export markets. Take advantage of new initiatives, e.g. COMESA, EAC, SADC, AGOA, etc. Joint business ventures for export. Contract packing for export. EPZ, manufacturing under bond.

33

Average tea auction prices (KShs/Kg)

180.00

170.00

160.00

VALUE (KSH)

150.00 1999/00 2000/01 2001/02 2002/03

140.00

130.00

120.00

110.00

100.00 1999/00 2000/01 2001/02 2002/03

July 122.31 158.99 124.99 117.26

August 125.52 165.25 127.15 126.45

Sept. 160.19 170.00 119.69 127.35

October 129.40 162.04 113.05 127.61

Nov. 117.44 161.55 111.65 126.35

Dec. 122.00 165.75 114.06 126.54

Jan. 125.76 147.81 112.77 130.06

Feb. 144.57 145.53 117.22 124.37

March 149.93 128.38 122.16 124.23

April 155.22 122.13 119.36 121.37

May 148.72 117.29 110.69 111.65

June 151.89 114.55 120.55 122.94

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3.3.11.

WHAT DO WE NEED TO DO? Be more innovative and export oriented. Identify alternative sources of cost effective tea. Improve our packaging. Offer greater range of products. Maintain the high quality standards of Kenyan tea. Carry out regular market Intelligence & Research. Carry out targeted advertising and promotion. Reduce operational costs. Adopt new technology. Train, develop and motivate our staff. Aggressively pursue joint venture opportunities. Vigorously pursue export markets. Set high local standards for tea packaging in order to retain our competitive advantage as a quality exporter.

Thank you very much Ladies and gentlemen for listening to me today.

3.4.

EXPERIENCE OF A SMALL SCALE TEA PACKER - MARKETING OF KENYAN TEAS IN AUSTRALIA, BY RAJU SHAH, KENYA TEA BAGS (PTY) LTD.

3.4.1. INTRODUCTION I thank you for allowing me to speak at the above meeting on the topic "Experience of a small scale Tea Packer". We started importing Tea & Coffee into Australia in the year 2000. We sell most of our range on Internet. Please visit our website www.kenyateabags.com and you will see the full range we offer to the end user. At the moment we are also servicing clients from United States and UK. All our packaging is done in Kenya under contract with Ketepa with our own innovative packaging. We also offer products of Ketepa. As supermarkets charge for shelf space we are trying to target end users and than the end users will create demand when big chains will approach to us for our finest Kenyan teas. We participate at public shows and then request public to try our finest Kenyan Teas and then sell Promotion Bags with full range at subsidised prices. By the time a potential customer has finished the stock in Promotion bag he is already hooked on our product. Soon we are introducing Green teas in loose leaf form and Tea Bags which is the changing trend in first world countries. In April 2004 we are launching Kenyan ice teas. The range vill include Masala Ice Tea Green Kenyan Tea, Green Masala Teas. Our flavoured Masala Spice Teas is getting very popular as Health Teas. We have noticed that by value adding to the package the Kenyan Teas fetches over US$16.00 a kilo. Most of Kenyan Teas are sold in Bulk and are never marketed under Kenyan Teas and our request to other packers and exporters is create a packaging as demanded by the world to be environmentally friendly i.e. biodegradable and the product that will fetch much higher price. 3.4.2. THE COMPANY

Kenya Tea Bags (PTY) Ltd is a family owned business based in Sydney, Australia. We import Tea and Coffee from the finest Equatorial Gardens of Kenya. The Company was started by two young and aspiring men, Deep Shah and Kavit Shah. 3.4.3. OUR GOAL

To create an admiration and high opinion on Kenyan Tea and Coffee, and become a principal leader of direct tea sales in the country of we operate in. 3.4.4.

OUR MISSION

To ensure Kenyan Tea is a household name worldwide, recognised for its superior products that meets the needs of people around the world. To supply, and continue supplying better quality Tea and Coffee than those currently in the market.

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3.4.5. SOME FACTS ABOUT KENYA TEA For Kenya Tea Bags, only the most prestigious Kenyan teas are selected and each one is hermetically sealed at source to conserve maximum flavour and freshness to keep the delicate aroma alive. We pack our Tea Bags in individual sachets to maintain a long lasting aroma, and when you brew this tea, you will enjoy the best tea in the world, that is prominent for its quality. Kenya Teas are famous for their brightness, attractive colour, brisk flavour and textures of fragrant leaves. 3.4.6. DIRECT SELLING

The term "Direct Selling" refers to distribution process by which the seller brings the product to the customer's home, rather than the traditional method of waiting for the customer to come to the store. The term embraces only, those sales made for personal or household consumption and does not refer to wholesale purchases for resale. 3.4.7. METHODS OF DIRECT SELLING

The emphasis is on personal contact. Direct selling does not simply mean door-to-door selling, although some of the most successful direct sales companies worldwide use this method. Most direct sales companies today use the party plan method. The product is exhibited and demonstrated in the home in the presence of friends and a hostess. Sales orders are often placed at this demonstration and appointments for further parties made with those present. One of the golden rules of selling through the party plan method is that high pressure selling is self-defeating. The customer is under no obligation to buy and the promotions take place in a relaxed, informal atmosphere. 3.4.8. ADDITIONAL INCOME The housewife and mother often finds it impossible to run her home smoothly and cope with a full time or even a half day job at the same tune. Many men find it necessary to supplement their income on a part-time basis. For men and women working part-time as a distributor in a direct sales company provides them with an ideal solution. They can plan their working hours to suit their career and/or domestic obligations and can make that vital extra income to contribute to the family income. Distributors attend training and acquire knowledge in the use and demonstration of the product and the practical aspects of communicating with people and building an organisation. Their earnings will be directly proportional to the value of sales made, thus leaving them with the option of working longer or shorter hours as they wish. We will provide you with samples and leaflets for you to deliver to every house. Either insert it in the letterbox or deliver it personally by hand. The leaflets are provided so that you can say a few words on the quality of the product. i.e. we are giving out free samples of 100% Pure Kenyan Tea. grown in the equatorial highlands of Kenya in Africa. Kenya is the world's third largest Tea producing country and it exports 90 % of the production of 290,000,000 kgs a year to overseas blenders for them to blend with their tea. Here in our product sample they consume 100% pure Natural Kenyan Tea - the difference is quality.

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Leave the samples with the household and then visit the consumer again to see if he/she is satisfied with the quality and wishes to purchase the product again as the product is only available on mail order. 3.4.9. HOUSE TO HOUSE DELIVERY. The product will not be available in supermarkets. If you make a sale, than record the details in the form provided for your records so that you know when to contact him again for more orders. As an area distributor you will carry the following stocks: (Prices quoted are selling prices)

1 Carton: 15 x 70 Kenya Tea Bag Pouches 1 Carton: 1 0 x 1 00 Ketepa Envelope Tea Bag 1 Carton: 40 Pkts of 250 gm loose Tea Total Investment

@ $ 4.90 = $ 73.50 @ $ 6.90 = $ 69.00 @ $ 2.90 = $ 116.00 = $ 258.50

Your cost for above will be $ 232.00. Your profit will be $ 26.50 - looks very small but don't forget tea is a volume trade. Number of Houses in West Pennant Hills area = 4,500 approximately. 2 people drink tea 3 cups a day minimum. i.e. 4,500 houses x 2 people = 9,000 people drinking 3 cups a day is 27,000 cups a day. This is only in West Pennant Hills area. So, assuming you have a 50 % market share, (which can be possible in time to come), the profits you can generate are as follows:

4,500 homes x 2 people a day 9,000 people x 3 cups a day 27,000 cups x 365 days 9,855,000 cups x 50% market share

= 9,000 people = 27,000 cups = 9,855,000 cups a year = 4,927,500 cups a year

There are 70 tea bags in a pouch, therefore 4,927,500/70 = 70,392 pouches. You will earn $ 0.50 a pouch. Therefore your annual earnings are = 70,392x $ 0.50 = $ 35,196.00 or $ 2,933 per month. 3.4.10. INCENTIVES AND REWARDS

Once they have reached their specific financial goal, the distributor often strives for more sales leading to higher rewards and they become accomplished direct sales people with a substantial INCOME.

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3.4.11. WHO IS THE TYPICAL DIRECT SALES PERSON? It is, of course, extremely difficult to generalise or to find the 'typical' direct sales person, for such a cross section includes 20 years old secretaries and 65 year old grandmothers and grandfathers, retired doctors, active farmers, mothers, schoolteachers, or busy housewives who can only spare a few hours a day. The changing socio-economic scene has brought challenges and opportunities to men and women and it is no accident that the largest number of direct sellers are in the age group 25 to 45, who have up to three children and who need to earn extra money. Direct selling suits anyone who has the talent and initiative to want to run their lives in the way they prefer. Direct selling offers the ambitious man or woman the opportunity to start a business with little experience or capital. Before there were stores, mail order catalogues the Internet, or computerized telemarketing, people took their merchandise directly to their customers. Today, direct selling is re-emerging as a popular way to sell products because direct sales is just that - direct. Through this simple and personal sales method, people are offered the chance to take control of their future. Direct selling provides the means for you to create a viable business of your own. Direct sales eliminates the "middleman" and puts more profit directly in your hands as an independent Distributor. What's more, a network marketing system offers each person a chance to be their own boss, as well as security, tax advantages and the prospects of a sizeable, flexible income- with only a small investment of time and money to start. Let's face it, beginning a new business venture can be expensive and risky. Most new businesses don't begin to turn a profit for two to five years, if at all. Because of this, most people believe they could never afford to start a business of their own. Anyone can. 3.4.12. WHO'S GOING INTO DIRECT SALES?

In many parts of the world, the "traditional" single-income family has all but disappeared, as many women are financially compelled to enter the workforce, despite a reluctance to leave their homes and children in the care of others. A career in direct sales is an attractive solution to this modem dilemma. Others who are entering the direct sales workforce include: Retirees who want to supplement their fixed incomes. People who are tired of working for others and want the freedom and independence of a business of their own. Individuals who need extra income to finance a college education, a down payment on a home, remodelling, new furniture, travel or the purchase of a new car.

In remarks made recently to the Direct Selling Association, the President of the United States Bill Clinton praised the entrepreneurial spirit of men and women who are forsaking the traditional job market to become their own bosses. "You strengthen our country and our economy not just by striving for your own success,

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but by offering opportunity to others. You're also part of a global movement that promotes enterprise and rewards individual initiative." 3.4.13. A LOOK AT THE DIRECT SALES INDUSTRY:

Direct sales companies accounted for global retail sales in excess of $70 billion last year. 21 million people are engaged in direct sales globally, doing business in 125 countries.

As an independent Distributor, you can take charge of your life and carve out your road to success! With all the advantages and business offers, you'll never want to settle for just a job again. Everyone with whom you share the opportunity could also become the owner of his or her own business! There are as many reasons for owning an independent business, as there are Distributors. Here are just a few: 3.4.13.1. Education Most of today's jobs require specialised degrees or higher education. Whatever your level of education, you have an equal chance of success. If you are willing to listen and learn, and you have a desire to succeed, then there are no limits to what you can achieve with your business. 3.4.13.2. Age Are you considered too old to start on a given career path? Age isn't a concern - you're never too old to own your own business! 3.4.13.3. Pay When was the last time you got paid what you're worth or got the raise you wanted? Being your own boss gives you total control of your time and income. If you want to earn more, you work more. Your income matches your effort. 3.4.13.4. Promotions With your own business, you promote yourself' Every time you want a raise, all you have to do is look in the mirror and ask yourself It will happen 3.4.13.5. Recognition When was the last time your boss said, "Great Job"? Tired of having your best work go unnoticed?

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3.4.13.6. Time When time is so precious, do you resent the hours you spend away from home on your job? Are you locked into an eight-to-five grind? Do you spend hours a day in the traffic? The best thing about owning your own business is the freedom and control you have over your time. You have the flexibility to set your schedule to suit your family needs. You decide when you want to work and when you don't! 3.4.13.7. Holidays Can you take a holiday when and where you please? When was the last time you went on a 3-week holiday? You can take your holiday to suit your own schedule. Even better, you can cam travel incentives to luxurious destinations and experience a lifestyle others only dream of. 3.4.13.8. Security Will you still have your job next year? Will your job produce income if you take time off? What would happen if you got laid off? With us your future is in your hands, not in the hands of others. You can work as long as you want. Only you can make decision to stop working. Being your own boss is the best security we know. 3.4.13.9. Retirement Will you have enough money to enjoy the retirement lifestyle you've dreamed of? Will you be forced to retire before you are ready? With our business, you can work as long as you like and enjoy travel with your friends, while others only hope to stretch out their shrinking " nest eggs". 3.4.13.10. Assets

You can take charge of your life and carve a niche 3.4.14. WHAT ARE THE BENEFITS OF DIRECT SELLING TO THE CONSUMER?

3.4.14.1. Personal Attention Direct sales personnel are highly trained. They have complete product knowledge and can give the consumer the attention, which is lacking in the modern impersonal supermarket atmosphere. 3.4.14.2. Convenience and saving of buying in the home The consumer often saves the time and expense of hiring a baby sitter, driving to town, finding a place to park and coping with shopping frustrations. She can shop at home in an atmosphere of fun and enjoyment.

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3.4.14.3. Complete Demonstration and Explanation of Product A complete product demonstration under actual conditions of use provides the consumer with the full details and functions of the product. 3.4.14.4. Consultation of the Entire Family

Sales people are often able to demonstrate their products to the entire family. This is of particular importance when a joint decision is required and both husband and wife are involved in the buying process. 3.4.14.5. Convenient Shopping Time

Buying at a time suitable to both husband and wife. 3.4.14.6. Consideration Period Opportunity to consider the purchase without the pressure found in a crowded store. 3.4.14.7. Delivery

The problems or costs normally associated with the delivery of bulky items are eliminated. Hundreds of thousands of people will join this year in over 50 markets around the world where we offer people just like you the opportunity to build their own independent businesses. For many people, Distributorship is a way to earn a little extra income part-time in order to balance the family budget or to afford a new appliance or a family vacation. Others immediately recognise the tremendous potential of the network marketing opportunity and quickly develop large, growing independent business providing the financial freedom to change their lifestyles forever! You earn as the volume of your business grows from your own sales! The explanations and illustrations, which follow, are designed to help you understand how to achieve your goals through the business opportunity. 3.4.15. GETTING STARTED

Imagine a business where your customer base is your whole focus. You don't worry about product development, product supply, inventory, warehousing, distribution, business plans and financing. You don't have employees to supervise, or salaries, rent and other overheads to pay. The company provides this business support structure! Your entire focus is to develop a customer base and encourage others to join you and do the same. Your business is simple, fun and profitable! Furthermore we are going to offer this business support system all over the world in every country in which we are to operate - enabling you to extend your business globally.

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3.4.15.1. You Start as a Distributor Every Distributor starts by completing a Distributor application. Door to Door sampling continues to grow in an ever more competitive market with campaign becoming more and more extravagant Reports on how Door to Door sampling compares to other marketing strategies. You can't ignore it its right there on your doorstep, so why not try it? There lies the marketing ploy of door to door marketers in an industry worth over $ 500 billion. Consumers are exposed on average to 2000 brand messages per day so an innovative method to compete with other marketing mediums needed to create the difference. 'Samples are powerful, forceful and interesting," research undertaken shows that the average consumer recall for advertisements is 33 percent whilst 44 percent of consumers recall sampling trials. Advertising on its own has questionable effects but 'combined with sampling can really make a difference and be subliminal'. Advertising announces and communicates a message but door to door sampling gives the consumers the opportunity to try the experience for themselves. Nearly all other forms of marketing can be dismissed in one way or another be it switching channels, walking past or flicking through, this is not so with door to door sampling - the products is there in your home and it is your choice to either try or dispose of it but one way or another the consumer has to handle it. The method is intrusive and forceful as it targets the home environment, which has become increasingly precious as a retreat from the ever-stressful modern working environment. A survey on media coverage shows that door-to-door achieves 85 percent coverage, press achieves 69 percent, TV achieves 45 percent, radio achieves 33 percent and cinema only 15 percent. Sampling creates a relationship between the brand and the consumer even if it is just recognition. The ease in which consumers can by a product in the privacy of their own home is very attractive, therefore a home trial is necessary. Sample drops leave no real cause to complain as the consumer has the choice of putting the sample straight in the bin-along with the dirt. Everyday we are inundated by mail, which is usually glanced at and then put into the bin, but sampling is different. Sampling is seen as a free gift. You don't have to go out and get it, you don't have to give it back it is there delivered to your door and yours to do with it whatever you want. Door to Door sampling the consumer shares tastes and feels the experience - its not just someone telling you what they want you to believe about a product. Many forms of door to door sampling involve face to face as well as demographic profile systems, door to door will continue to give us a bigger bang for our buck as it achieves mass awareness to a target audience. Door to door also gives precise targeting, regional flexibility and message variation. The proof in the intrusive and powerful marketing methods is the high response received from consumer after targeted campaigns Seeing is believing especially as door to door sampling works brilliantly when you are trying to get people to switch brands.'

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Sampling proves to grow business as well as develop brand loyalty. Testing a product is a huge advantage and home sampling is the best way, in store trail is also a very good method, though it can sometimes be seen as slightly pressure. Sampling is a far better communication medium than any other acknowledged medium. Advertising creates awareness but it doesn't change behaviour in the way that sampling does. Sampling puts you in the starting frame. Sampling shows belief in the product - 'try it and we'll prove it whereas advertising can be slightly patronising to consumers who are more aware of marketing strategies that ever before. 3.4.15.2. Sample the future

Targeting the right consumers is vital and for this data is very important. Creating better customer profiles based on tighter selection is paramount to selective targeted campaigns making accurate data key to the industry. Our products should go to the right people in the right catchment areas where potentially high sales can be expected. Door to door is very direct, you can achieve mass market awareness cost effectively. It is especially good for launching. When you are given something for free - and like it, consumers will remember the product and often become brand loyal. If any member wishes to get more information you can contact me at numbers listed below. Regards, Raju Shah, POP IN GROUP

P. O. Box 47719, Postal Code 00100 Tel: +254-20-3745316, 3743751, Fax: +254-20-3743751, 224004, NAIROBI-KENYA Cell: +254-722-514999, Email: <badboys@kenyaweb.com> <info@kenyateabags.com> Web: www.kenyateabags.com

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3.5.

CHALLENGES OF VALUE ADDITION TO TEA FOR THE EXPORT MARKET, BY DR. FELIX MUHINDI, SRO1/HEAD, BUSINESS DEVELOPMENT SERVICES UNIT, KIRDI

3.5.1. INTRODUCTION Kenya is one of the key producers of black tea in the world. Out of the current production of 273,000 tonnes (2002) about 95 per cent is exported. 80% of the exported tea is sold through Mombasa auction while 20% is exported directly by the producers. Kenya ranks third in total world production of black tea after India and Sri Lanka. In the year 2001 for instance total production in India was 853,364 tonnes while it was 306,000 tonnes in Sri Lanka, Kenya produced 294,000 tonnes in the same year. In India, most of what is produced is consumed locally and this makes Kenya the No.2 exporter of tea after Sri Lanka. In the year 2001 for instance Sri Lanka exported 288,000 tonnes while Kenya exported 270,00 tonnes. Other important players in the export market are China and India in that order. Below are the market shares for major exporters by the year 2001.
Country Sri Lanka Kenya China India Indonesia Rest of Africa Vietnam Argentina Malawi Rest of Asia Rest of World Total
Source: EATTA

Value in 000 US Dollars 654,674 450,705 403,262 372,130 99,894 94,716 78,406 40,462 35,476 30,074 30,074 2,289,873

Market Share (%) 21 19 17 13 7 7 5 4 3 2 2 100

Kenyas major export markets are Pakistan, United Kingdom, Egypt, Afghanistan, Sudan, United Arab Emirates, Yemen, United States, Russia, and Ireland in that order. The first two import unblended tea.

There has been a general decline in tea prices in the world major markets but reasons differ from country to country. According to Commodity Market Review by the FAO however, this has been the case with many commodities in the world market. Despite poor performance of the Kenyan economy in the recent past, tea has done relatively well compared to other sectors. It has maintained contribution to GDP at 5% in the last five years and has remained the single largest earner of foreign exchange currently at 26.2% of total. This compares with 22% for horticulture and 27% for all manufactured goods. 3.5.2. IMPORTANCE OF VALUE ADDITION When Kenyan tea is exported, it is used to blend lower quality varieties from other parts of the world. This means Kenyan tea does not attract prices commensurate with its high quality. It is important to note,

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however, that to quality as Kenyan tea packaged tea should have 65% or more of Kenyan tea as per the WTO recommendations. Those who know the good quality of Kenyan tea are not able to identify it in the world market. This constrains expansion of market for Kenyan tea. Much of the export of Kenyan tea is in bulk with packaged products accounting only for 1 3%. This is one reason why incomes from tea have remained low. At the high level conference in Mombasa in February this year (2004) it was stated that value addition to tea could increase earnings from less than U.S.$ 2 per kilogramme to U.S.$ 16 per kilogramme. These are huge benefits from value addition if they were realized. Branding will compound these benefits. It will help to streamline marketing so as to reach more outlets more easily. In the year 2002, Sri Lankan tea earned U.S$2.27 per kilogramme as opposed to Kenyas U.S$1.76. The difference in value reflected the 35% difference in value addition. 3.5.3. CONSTRAINTS TO VALUE ADDITION Value addition requires specific market information. Different markets have different requirements in terms of standards, packaging material, consumer tastes among others. It is not easy to access this information especially by local producers. Acquisition of this information may also be expensive. It may also be necessary to monitor while analyzing the same so as to respond appropriately. Another constraint to value addition has been expensive and complex machinery. Not only are the machinery and tea packaging equipments expensive but they are also complex so that they require skills and expertise that may not be freely available locally. Thus purchase and installation of such equipment will often attract other costs including training expenses. Packaging materials are also expensive and this will also end up with mark-up pricing making the product more expensive. Kenyan industry generally is affected with huge externalities. These also make industries high cost compared to many other countries. Tea industry is not spared in this. The high cost of infrastructure especially bad and poorly maintained roads and high power tariffs unnecessarily take a prominent place in the factories cost structures. Kenya has only recently started to work on the national code of practice. National code of practice is important to importers because it indicates how a product has been made or should be made and is also a guide to those who want to make a recommended product. Thus, it also helps to enforce compliance. Without a national code of practice therefore, producers are rudderless and there is no reference for enforcers. This is a good environment for counterfeits and other unfair competition, which also discourage new investment. Another problem against value addition has been poor market environment abroad. Despite insistence in international forums for fair play and trading through comparative advantage, many countries especially in Europe practice discrimination against agricultural imports. This is usually market protection through agricultural subsidies as shown in the table below. The table was adopted from a workshop on Economic Recovery by African Technology Policy Studies Network (ATPS) held at Hilton Hotel on 12th February 2004.

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Producer Support as Percentage of Gross Farm Receipts Country Japan European Union United States Canada Australia New Zealand Khalil Timamy, ATPS, Nairobi. Producer Support (%) 59 35 21 17 4 1

Market protectionism is worsened by over valued currencies at times eroding positive price effects. Further, some rich countries engage in imports of bulk tea, value add and re-export. For instance, Britain has been exporting an average of 34,000 tonnes/year in the last five years. This would hardly be possible without protectionism but takes away that size of market from developing countries. 3.5.4. CHALLENGES FACING THE TEA INDUSTRY Attempts to remove or reduce the constraints to value addition and promote the same are the challenges facing the tea industry. This involves taking action on the following activities: Provision of reliable market information and effective analysis and dissemination including advise on appropriate response on the same. Reduction of costs of production especially in the small-scale sector. Increasing quality of tea both agronomically and in the processing. Product diversification to increase uses of tea and improve revenue generation. Removal or reduction of constraints that inhibit value addition. Exploration of new and market orientated approaches of tea trade especially in the foreign markets. 3.5.5. STRATEGIES TO MEET THE CHALLENGES 3.5.5.1. Short term strategies

These involve establishment of mechanisms to take advantage of recent market changes and requirements, which have taken place in the international market. Conditions for selling to various markets such as the European Union and United States are revised from time to time. A good marketer is one who quickly observes or finds a need and quickly moves to satisfy it. It is important to develop a mechanism that can quickly be adjusted for such changes. Currently, we should explore possibilities of selling more to European Union where Chinese teas are finding problems due to increased pesticide residual limits from 10 to 100 times. This would be part of the larger strategy to explore market outside Europe. (N.B. Green tea export to U.K. in the year 2001 was 1.09 tonnes). Another short-term strategy would be to address discrepancies in the yields particularly between small scale and large-scale producers. It has been reported that yields in the small-scale sector stood at 8,958kg of green leaf per hectare while it was 12,500kg from the estates in the year 2002. [It was 2,710 kg in the Nyayo

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tea zones despite its relatively high quality]. This increase in 39.5% would impact negatively on price but

would be beneficial if accompanied with aggressive marketing strategies as suggested above.

Thirdly, it would be important boost for the tea industry if the government reviewed taxes affecting value addition in tea. For this, it would do justice to the sector to strengthen and empower the relevant subcommittees of EATTA and Tea Board of Kenya so as to effectively lobby for removal of duties on tea packaging equipment and packaging materials. Also efforts should be made to persuade government to exempt taxes on tea used as raw material to packaging industry. Fourthly, the establishment of the tea code of practice as a reference for exporters of value added tea and particularly for the small scale operators should be hastened. The importance of this for both exporters and importers has already been highlighted. Fifthly, increased promotion of tea in the domestic consumer market should be done so as to increase market share among competitors in the beverages industry. Growing domestic market would be good insulation against loss of export market. This proved an important strategy for India in the recent past when a change in policy in Russia made it difficult to export value added tea to that country. 3.5.5.2. Long-term Strategies

These involve establishment of mechanisms that may require structural adjustments. At national level it is necessary to plan and budget for reduction of production costs. This will include substitution of inorganic with organic based energy, replacement of fossil oil with wood fuel, use of high yielding and drought resistant tea cultivars, training on better practice agronomy among others. There is significant difference in costs and, therefore, revenue generation between those factories using fossil oil and those using firewood. It is estimated that replacement of the former with the latter could earn a single factory Kshs.15 million in a year (US$192,300). This is based on comparison between those factories like Ragati in Nyeri and Chebut in Nandi, which have access to wood fuel. Attempts are being made by some factories like Chinga in Nyeri to encourage agro-forestry and commercial tree farming but this should be made a national policy. This strategy would be aimed at increasing competitiveness of Kenyan tea in the world market as well as provide cheaper raw material for value addition. In the short run, Nyayo Tea Zones should work in harmony with Kenya Tea Development Authority so that some of the latters 56 or so factories could access the formers wood fuel in the 1,284 hectares they own. At international level, one long-term strategy is to encourage and facilitate joint ventures and contract processing with foreign investors. This would require political intervention by way of bilateral trade agreements and arrangements. This, therefore, requires the government to work very closely with major players in the industry as well to probe new capable investors. It is obvious that adequate resources are necessary for exploration into new areas and possibilities. Exploration and research will include possibilities for establishment of packaging centres in foreign countries. Related to the above is encouraging and facilitating Kenyan investors to sponsor distribution of brands by foreigners in their countries. Most successful exporters in the world today are those who have managed to make contractual arrangements with owners of market chains abroad. Facilitation would be necessary because even getting registered by these markets can be expensive.

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The need for information for specific markets was expressed above. Another strategy, therefore, is to establish and maintain strong information centres within and outside the country whose work and purpose would be to guide producers and traders on all market requirements, undertake market intelligence and preempt threats to existing markets for Kenyan teas. This would help increase and maintain our export earnings as well as stabilize producers incomes. Finally, there is need to encourage and facilitate development of technologies aimed at increasing investment in diverse products utilising tea as a raw material. For a start, it would better use of resources to try products doing well in other parts of the world but taking into account our ways of living and modern culture generally. One of these products is the ready-to-drink teas in bottles and cans, which is likely to provide attractive alternative to soft drinks. It has been very successful in the U.S. cold beverage market where consumption was only second to tea bags in the late nineties. Cheap technologies to extract medicine from tea would be another direction but this as with tannins for production of textile dyes require research to establish their efficacy. Finally, Green tea production is proven and only markets should be found for its uptake. 3.5.6. REFERENCES

Alex Van Der Chijs, The World Tea Trends from a Traders Point of View, World Tea Convention held on 17th 22nd October 2001, Nairobi and Mombasa (Mimeo). Barriers and Opportunities in Global Trade speech by the Minister for Trade and Industry (Kenya) on the occasion of World Tea Convention at Safari Park Hotel, Nairobi, 19th October, 2001. Chang, Kaison The global Tea Situation Production and Consumption Trends, world Tea Convention held on 17th 22nd October, 2001, Nairobi and Mombasa (Mimeo). East African Standard, Feb. 16-22, p.17; Feb. 17 23 pg.9 East African Tea Trade Association, Document presented to the Minister for Finance, 17th April 2003. East African Tea Trade Association, Rules and Regulations, September, 1997. FAO, Commodity Market Review, March 2003. F.O. Lichts, World Tea Markets monthly, Kent, England, January 2002 Gorman, The Challenges Facing Tea in Mature markets, world Tea Convention, Nairobi, Op. cit. Muhindi F., Ngunjiri P. And Wako A. Opportunity Study on Investment in Packaging of Kenyan Tea Draft Report, KIRDI, September 2003. Nyangito, H.O., Policy and legal Framework for the Tea Sub Sector and Impact of Liberalization in Kenya. Kenya Institute for Public Policy Research and Analysis (KIPPRIA), Nairobi, Bishops road, 2000. Republic of Kenya, Economic Survey 2002, 2003, Nairobi, CBS.

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Republic of Kenya, Kenya Development Plan 2004 2008, Nairobi, Government Printer. Republic of Kenya, Statistical Abstract 2002, 2003, Nairobi, CBS. Tea Brokers East Africa, Buyers Purchases from Mombasa Auction, January to December 2002 (Mimeo). The Importance of Tea to the Kenyan Economy Address by the Minister of Agriculture to the World Tea Convention op. cit. World Coffee and Tea Magazine March 1997, Rockville, USA.

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3.6.

EXPERIENCES AND CHALLENGES IN VALUE ADDITION TO TEA FOR LOCAL AND EXPORT MARKETS, BY PETER KIMANGA, TEA MANAGER, GLOBAL TEA & COMMODITIES (K) LTD

I have spent half of my life span in tea, having joined the industry in 1984. Today, my company, Global Tea and Commodities has trading offices in Kenya, Malawi, India and the UK. Besides trading, we have two packing factories, one in Liverpool, UK and lately, in Mombasa. We are also tea producers, with farms in Tanzania and Malawi. Our main export markets are the United Kingdom, Pakistan, Russia, Ukraine, Poland, Singapore, Yemen, Egypt, Eritrea, Djibouti, Somalia and Sudan. I will try, in my presentation, to refrain from mentioning names, but would also beg for forgiveness if I will use references of companies and individuals in the tea Industry, some of whom are here with us today. I have had to travel on many occasions outside this country, at the expense of the Tea Board of Kenya or representing my company. I do hope that through my presentation I will not contradict other speakers. What I sincerely believe is that Kenyas tea industry is not at its infancy stage, however, we have been made to look like complete tea amateurs by likes of Sri-Lanka and India, both exporting lesser quantities of tea than Kenya. I hope that this long overdue research will come up with concrete foundations, not only for the benefit of the tea industry, but also a show case study, to be emulated by other institutions like in the Livestock and agricultural sectors, whose farmers are getting a fraction of the cost of the finished product. Let me pay glowing tribute to the researchers of this study for the interest they have shown in the industry and hope that the foundation we lay today will mark the beginning of the reversal of the declining Kenyan tea prices. Though my presentation is supposed to be divided into local and international markets, Ill try and intertwine the two for simplicity purposes. 3.6.1. REQUIREMENT FOR VALUE ADDITION TO TEA 3.6.1.1. Registration

For you to become a tea packer, you must register with the Tea Board of Kenya, the tea regulatory body in the country. You are supposed to furnish the board with details of company name, packet logo, and location of the packing facility e.t.c. Once the Board is satisfied, a further registration has to be obtained from the East African Tea Trade Association (EATTA) whose secretariat is in Mombasa. This registration, or admission, will have to be proposed and seconded by two active tea buyers in the tea auction. Afte r this, according to the EATTA rules, a local packer can now freely buy tea for packing purposes. Monthly returns are supposed to be made to the Tea Board for statistical purposes. Youll notice I have used the word supposed in two lines, because in most cases, this is not happening. 3.6.1.2. Machinery

In order to effectively pack tea for local and export markets, one has to compete with established institutions, which are already in the market. Tea is mainly offered in two forms, loose, or what we call soft pack, or in Teabags. While eastern markets will prefer loose teas, the West is predominantly tea bags. It therefore means that one will have to invest in both packaging machines and the respective consumables like paper. Whilst loose teas can easily be packed with relatively cheaper machinery, tea bag packing machinery is expensive and there are only a few companies that make them. Import duty and VAT have also to be paid. We have not sold a kilogramme of tea yet.

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3.6.1.3.

Health Standards

Once the machinery and paper have been secured, now comes the time to start checking export requirement for individual countries with emphasis to the health certificates. A packer from a country like Kenya, and other third world countries like her, goes trough a test of fire. Although universally accepted ISO standards are safe enough, one will have to meet the KEBS standards for tea consumed in Kenya, BRC for UK, HACCP and so on. To qualify for these certifications, one needs time and money. Certification like HACCP will require checks, factory layout, sanitations etc., we have not sold a kilogramme of tea yet! 3.6.1.4. Sourcing Tea

According to the EATTA regulations, a packer can only buy from a registered buyer or producer, with payment of 16% VAT and of course, the seller mark-up. In order to pack a quality and consistent blends, one will require the services of a qualified tea taster or blender. Professionals that are very few, indeed, some companies are being forced to import them from either Sri-Lanka or India. We have not sold a kilogramme of tea yet! 3.6.1.5. Infrastructure

Once the packing is underway, headaches of infrastructure begins, power cuts/interruptions, high power bills, harassment by local authorities when distributing teas, poor state of roads, highway robberies of tea or cash in transit etc. Assuming that one has passed all these stages, it is time to go out with the packet of tea and start. 3.6.2. 3.6.2.1. DEALING WITH COMPETITION, LOCALLY AND INTERNATIONALLY Historic Background

Back home, from 1978 to 1991, only one player had the monopoly to pack tea for the domestic market, thereafter, the packing industry was liberalized. One of the biggest challenges for upcoming packers has been to remove this historic advantage the player has. This history has an implanted mindset in a lot of consumers who have associated good tea with this player. 3.6.2.2. VAT & Level Playing Field

The other challenge that upcoming packers are having is the un-even playing field. Unlike the major packer who buys directly from the producing factories at lower cost and collects VAT on behalf of the Government, new packers pay VAT right at the purchasing point, making their tea 16% more expensive plus of course the mark up of the seller. 3.6.2.3. Availability of Cheap and/or Stolen Teas

Due to the dismal policing of Tea Act regulations of tea packaging, there has been several cases of tea thefts in warehouse or along the highways. This tea ends in packets or in open markets places, naturally,

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overheads of such tea packers are very low and there is no way a genuine packer can compete. Surprisingly, of all the cases of theft reported, where numerous tones of tea have been stolen, no tea has ever been recovered nor has anybody been punished for theft in the last 5 years. 3.6.2.4. Supermarkets

Supermarkets have not helped the industry either; a case of once bitten twice shy, theyre very rigid, and one cannot blame them as theyve destroyed huge stocks of poor teas which were either never promoted by their packers or whose quality was poor. It will take a lot of effort to convince them to stock, and once they do, theyll ask for long credit terms to cover the shelf life, this ends up tying a lot of the packers finances. Once accepted, then you have to fight for the shelf space. Usually, the preferred eye-level space is allocated to fast moving items. Most of these supermarkets like in the Western World have started their own labels/brands and will obviously resist stocking competitors brands. 3.6.2.5. Innovative Packaging

Unlike other countries where packers keep researching on new packaging standards, our packers have been conditioned to the easy to counterfeit soft packet. This has led to a lot of counterfeiting, and Mr. Tiampati here can bear me witness, as his packet must be the most counterfeited in the country. Cheap, yet harder to counterfeit paper or quality printing can easily arrest this. Consumers have therefore developed a mindset that any innovative modern packing is expensive, or is bad news in good package arguing that the packer is actually selling the package. Western supermarkets will require what they call virgin paper only, as opposed to recycled, printing in different languages, bar coding etc. 3.6.3. 3.6.3.1. MARKETING Identity

Although Kenya is a leading producer of quality tea, it looses its identity once it leaves Kenyas boundaries purely because it goes out in raw or loose form. Either by design or default, the actual promotion of Kenya tea to the world has never been effectively carried out. This is a responsibility of the stakeholders in the Tea Industry and the Government. Countries like Sri-Lanka and India are frontrunners in this field. When such awareness campaigns are carried out, consumers can look out for packets stating that they contain Kenya Tea. Pakistan is one country that has carried the Kenyan name in her packets and is today the major importer of our tea at close to 30%, still, we need to make sure that what the packet says is what is in it, this can be done through the introduction of a Kenyan logo whose usage is restricted only to those packing Kenyan tea. Ceylon teas are known world over; yet, the country produces almost the same quantity of tea as Kenya. The most dangerous trend in the world today is the Supermarket brands, it is happening locally and is very popular now in the western countries, Kenya teas are now called Marks & Spencer, Morrisons, Tescos, etc, and why not, we have refused to give our teas identity. These supermarket names will never promote Kenyan tea but their name, they will give you a price to supply tea at, quality notwithstanding.

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3.6.3.2.

Quality Tea and Extras

In the export front, one of the biggest challenges is the quality both of the tea and the packaging materials. While safeguarding the local paper manufacturers, duty on imported paper is prohibitive, this makes the packer import at those high prices, plus VAT if you are to compete with those packets out there. This VAT can of course be claimed back, and might be refunded, but after a long time. Kenya teas, unlike teas from China, South India etc., are pest free and contain no harmful pesticide or herbicide residues; Doctor Obanda here can support me, yet, accredited standards custodians like ISO do not document this information. Packers end up being extra scrutinized by any prospective importer, as they cannot couch for the quality of the tea, a marketing advantage edge our packers would use to increase sales. Western Supermarkets are also too expensive in space allocations. 3.6.4. 3.6.4.1. GOVERNMENT POLICY CONCERNS Surveillance

The Tea Act Chapter 343 spells out all that is needed to value add. Yet, this continues to be flouted every day. From unhygienic packing condition to unregistered tea packers, un-packed teas offered in market places, poor quality or stolen teas have all contributed to the consumers lack of support for tea in the domestic front. There is a rule that can be used to bring these offenders to book. The number of visitors who come to my office to request for a packet of tea is a clear manifestation that demand for good tea is there, but consumers have lost faith in what is in the shops. The overheads of such unscrupulous traders are few and can manage to sell their teas at much lower prices than the registered tea packers. This disorients any investor who would like to invest on local packing. The consolation of most of the genuine packers is that some sanity will prevail in the sector and everyone will have a level playing field. Proper legal machinery should be employed and empowered to vet all tea packers, through their labeled packets, to ascertain their sources of tea and the packing conditions both for the sake of health of the consumer, the survival of genuine packers and collection of taxes by the Government. 3.6.5. VAT

3.6.5.1. VAT on Exports Tea for auction is covered under the fifth schedule section 8 of zero rated goods and supplies and states the supply of coffee and tea for export to coffee and tea auction centers will be zero-rated. This section cuts a clear distinction that packers for local market have to pay VAT at source. In the export front, both the duty and VAT on tea and paper can be reclaimed once exported, however, like in packaging, it must be one to one. Meaning, reclaiming cannot be done on a portion of the materials. One container of packaging materials can pack upto 40 containers of teas, which could take upto a year to finish. If some of the tea enters the local market, then the whole claim becomes invalid! The other option is to operate from EPZ where duty is exempted, however, the obstacle here is that nothing should be offloaded into the local market, if it does, duty and VAT has to be raised for that portion. On VAT for packed tea once exported, claims take at least six months. The value of just one container, the minimum commercially exportable unit, is 1.2 m, calculated at 4000 kgs at $4 per kg (tea cost, paper and labor). Kshs 192,000 is what you will pay as VAT. If you export a container a week, by the time you get refunds, 6 months, youll have blocked 4.6 million shilling on VAT alone.

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3.6.6.

RECOMMENDATIONS

One would expect a country growing tea to give all possible incentives to encourage increased growth and returns to the growers. This can only be guaranteed by way of maximizing profits of such commodities by promoting the drink and protecting it from competition from other substitutes, least of all imported ones. Whilst acknowledging taxations role in enabling the government to fulfill its budgetary and development obligations, VATing tea has stunted the commercial growth of the value added tea sector, resulting in real declines in future tax revenue. Accepted as a drink for masses due to its availability and cheapness, statistics show that demand for tea has declined by about 40% in the last one decade. While mismanagement and economy played a role in the decline, the imposition of compounded VAT has helped tea shift from the realm of affordability for a large cross section of local consumers. One wonders why the same has not been imposed on other basic consumer products like maize, sugar and milk. In the Government taxation schedule, local or imported agricultural machinery and spares are duty ad VAT free, however, tea processing machinery attract 5% import duty and 16% VAT, one is forced to ask, is tea not an agricultural commodity. By removal of VAT, demand would be stimulated, a thriving environment for packers and indeed value addition would be created and expanded, level competitive practices would be created, and consequently, reduction of raw tea for auction would in turn generate higher demand leading to better prices. My suggestion is to have the Government hold the VAT on tea sales for a period of time, say ten years, allow some sanity and growth in the sector, then re-introduce it to a wider and more robust tax base, resulting in higher annual revenues. This has worked very well in Sri-Lanka for instance. Like in the tea bush itself, we have to allow it to grow, the only then start pruning, anything to the contrary will results in a stunted or a moribund bush. 3.6.6.1. Imported Teas and Substitutes

For a serious tea grower like Kenya, all measures should be taken to avoid undue competition from imported teas. This can be done by way of increasing duty for such imports, however, in our case, the duty on imported packet tea has been coming down, a reason that has led to flooding of our supermarkets with imported brands. Kenya tea is expensive because of its superior quality and most teas from other parts of the world will always sell at a slightly lower price locally. A good example is India, which has put duty on imported teas at 100%, or Sri-Lanka, who have put a lower price barrier of imported teas. Ours is 15% now. To safeguard the locally packed teas, the Government has to put a safety net; expensive teas can be imported, but not the cheap ones, period. If the duties are brought down, can the sector improve? 3.6.6.2. Task Force

For an effective growth of the Value added sector, and the industry at large, the Government should establish an independent task force with an integrated approach to the value added tea sector. This task force will look at all the issues related to value addition not only in the domestic front but also internationally. They should be able to draw up a five or ten year policy paper on tea which deal with issues such as bilateral

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trade alliances, barter trading possibilities for cash strapped nations, concessions to value addition investors, rebates for promotional travel by the stakeholders, etc. The task force will study market behaviours, underlining developing trends, which would hurt the industry like the Supermarket brands etc. This task force should liaise with organizations such as the WHO, WFP and FAO to map out the future for the tea industry. Interviews should be held with established international tea packers to establish why they have avoided packing tea in this country, with the view of offering harmonious incentives to those willing to relocate. Micro financing at low interest rates should be considered to local packers to cushion the effect of long credit terms that retail outlets ask for. Globally, tea growing countries like India and Sri-Lanka are running to the world signing bilateral alliances, a recent case was that of Sri-Lanka, who are now selling teas duty free to Egypt, a market we thought we had fortified after being admitted into COMESA. Indonesia and Sri-Lanka again have signed with Pakistan, our biggest importer, and the list goes on. Kenya is the only major producing country with a narrow product mix having stopped the production of Green and Orthodox tea, in favour of CTC. Ladies and gentlemen, my presentation is based on my experience and challenges I have faced as a tea packer, I have been to countries where value addition is vibrant. Kenya is centrally located, has excellent Port facilities, ample labour and land, I feel, with conducive policies, and extra vigilant law enforcements, Kenya can undoubtedly become number one in value addition. Thank you.

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3.7.

THE TEA INDUSTRY POLICY IN KENYA; BY MR. E. K. NKANATA, MANAGING DIRECTOR, TEA BOARD OF KENYA

Director of Industry, The Chairman, Kenya Industrial Research and Development Institute, Distinguished Guests, Ladies and Gentlemen, It gives me pleasure to contribute in this stakeholders meeting on the Opportunity Study On investment In Tea Packing being carried out by the Kenya Industrial Research and Development Institute (KIRDI). It is my hope that today's discussions will give a new impetus to this topical issue which is variously referred to as Value Adding and packing. 1 must mention that this could not have come at a better time as it Is in line with the Government's Economic Recovery Plan 2003 - 2007, the National Export Strategy 2003 - 2007 and the Board's own initiative to grow the tea value adding sub-sector. Ladies and Gentlemen, I have been asked to address the Tea Industry Policy in regard to this Opportunity Study On Investment In Tea Packaging, highlighting the past and the present tea industry policies and their impacts while making recommendations on the necessary policy changes. I would also like to take the liberty of giving the underlying developments in this sub-sector which include ongoing efforts to revamp a tea ValueAdding Sub-sector. As such my contributions will focus more on value adding than just packaging. Though the first tea bush is recorded to have been planted in Kenya 100 years ago, it was not until about 20 years later that commercial tea cultivation started in Kenya mainly by the white settlers. At the onset the Tea Industry Policy was basically to grow tea, process it and consign it to London to meet a growing local demand and possibly re-export. When Kenya Tea Development Authority (KTDA), the precursor of today's Kenya Tea Development Agency (KTDA) limited, was established in 1964 by a legal notice made under the Agriculture Act, the Policy was to promote and foster development of tea in all small-scale tea growing areas of the country, making African - Kenyans join the big league in the lucrative tea export business (read production). This Policy of crop expansion bore fruit as the rapid expansion saw the small-scale sector overtake the estates in production to the controlling point of about 62% today. This also saw Kenya not only join the giant global producers but has also seen Kenya become the second largest tea exporter in the world. Locally tea production grew to become the leading foreign exchange earner for Kenya -to date, contributing up to 28% of total earnings. The crop expansion policy worked very well given Kenya's natural endowments, conducive for tea growing which include an ideal climate, the right soils, well distributed rainfall and high altitudes. This Policy to grow productivity was also hinged on quality, a factor that inspired the establishment of the Tea Research Foundation of Kenya (TRFK) in 1980. TRFK's role has mainly remained that of investigating and researching into matters relating to Agronomical practices in the tea industry. Admittedly the crop expansion policy did not have any emphasis for value adding. Until 1992, Kenya Tea Packers Ltd. had a total monopoly of tea packing in Kenya. All the other forms of value addition, whether in terms of alternative tea products, packing or "packaging" Kenya tea in any distinctive way were restricted. As such KETEPA being the only packer then focused on packing tea for the local market. The marketing system where all teas were consigned to the London Auctions direct being offered fortnightly did not help

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matters either. Even with the Mombasa Auction Centre starting in 1969 after shifting from Nairobi where it had been since November 1956, and subsequent collapse of the London Auction in 1998, the Tea Value Adding Sub sector has not fully taken off. One would have expected some reasonable value adding after the auctions in Mombasa before exporting which has not been the case. Ladies and Gentlemen, value adding is a marketing aspect. For purposes of today's topic value adding can be defined as the increased value difference from the time the tea is ready for use at the factory to the time it reaches the final consumer. Packaging is therefore one primary form of value adding. More is achieved through promotion and product presentation. It is actually the tea product diversification and differentiation that is going to achieve real value addition. The different tea products and by-products whether in loose form or tea bags should be the focus. What about hot water soluble or cold water soluble instant tea? What about liquid teas in cans and tetra packs? What about different tea flavours such as mango, pineapple, banana, orange, apple, cardamon, cinnamon, clove, ginger etc. As you may all be aware, Kenya today produces about 290 million kilograms of tea every year which is forecast to grow to about 300 million Kilograms in the coming five years or so. Only 5% of this production is consumed locally while the rest is exported. Available provisional statistics reveal that of the 269,268,141 Kgs exported in year 2003 only 2% was in value added form. Whereas the current packing capacity is able to meet the local needs, the same cannot be said of the export needs. The technological capacity of the available packers needs to be developed, as only a handful of them have what one would call reasonable. However, this issue goes beyond this. The above scenario paints a picture of a country that is a net exporter with 98% being in bulk form. Globally commodity prices have been tumbling and tea has not been spared as reflected in prices in all tea Auction Centres worldwide. The three Auction average comprising of Mombasa, Colombo and Calcutta seem to have lost over 30% of its value since 1998. Even with the three countries currencies losing against the dollar, such fails in prices are breathtaking. What is also disturbing are the trends unfolding in the global tea market which is currently suffering a glut as supply has outstripped demand. According to the International Tea Committee Annual Bulletin of Statistics 2003, in the year 2002 global supply stood at 3,063 million Kilos while absorption stood at 2,991 million Kilos. This oversupply is occasioned by consumption stagnation in the traditional markets in the industrialized countries. This gap between production and apparent absorption is forecast to widen further in the near future. As this is happening global production is growing. Global trade experts and the Food and Agriculture Organisation, FAO, predict that there is significant scope for sales growth in value terms. Continuous product innovation following the increasing sophistication of consumer demands will lead to fostering of strong brands to define contemporary tea value adding. This way promotions and launching new tea products will eventually pay off. Ladies and gentlemen, I know the question that could be bubbling in the minds of many of you is, what are Kenyas chances in this. Or better still are there investment opportunities in tea value adding in Kenya? To answer this question I would like to make some points. We need a domestic market but would also serve as a springboard to the international market. Two, looking at the case of value adding levels in other major tea producing and exporting countries, there is much more wealth to earn. Allow me to give an example, the average auction price per Kg fetched between 1996 and 2000 for both Kenya and Sri Lanka was US $ 1.87 while India's was US $1.48. With India and Sri Lanka having achieved a value addition level of 50%, their FOB prices grew dramatically where Sri Lanka fetched US $ 2.52 per Kg while India fetched US $ 2.30. At the same time Kenya only managed US $ 1.98 per Kg. Had Kenya achieved a similar value adding level of

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50% the 270 million Kgs exported in 2001 would have fetched US $ 681 million, which is US $ 224 million more than it fetched. At the current exchange rate of KSh. 78, this works to KSh. 28.7billion more to the Ksh.35 billion earned during the year. At this juncture I think it would only be fair to outline the other benefits that the country would enjoy by growing this sub sector: (i) Creating an identity for Kenya teas in the International markets:- A brand is a promise. Kenya tea would no longer sell as a commodity and the abuse of Kenya teas where other poorer quality teas from other sources are sold, as Kenya tea would be eradicated. This would help ameliorate Kenya tea position in the global market.

(ii) Create more jobs and incomes This would be in line with the Government's National Poverty Eradication Plan which would help uplift the standards of living. investors have not grabbed the opportunity. Participants there are certain challenges that need to be overcome to make the tea value adding sub-sector attractive. Most of them border on Government policy and may be summed up as follows: (i) Creating the necessary investment incentives to attract both the local and the foreign investors. These include fiscal and monetary incentives, tax concessions, duty waivers, export compensation, creating free zones, concessionary financing and improving of other general environmental issues like infrastructure, security etc, Give policy drivers for value adding levels such as a requirement that all exporters should meet 5 10% value added levels. Encourage value adding at the factory level by encouraging all tea factories to convert into EPZs. Strengthening institutions charged with the responsibility of tea promotions mostly in the export market to enable them not only carry out promotions but also undertake the necessary market exploratory surveys and researches by providing appropriate financing.

(ii) (iii) (iv)

May I add that in the past two years, the Board has been involved in a very unique project slated to last five years which came out of the realization that only a strong local capacity can be used as a springboard to catapult Kenya to the international market of value added tea products. This Local Generic Tea Promotion Campaign has invigorated the local tea-packing scene sparking a myriad of sales promotion activities. Provisional results show that in the last one year, the local market has grown by about 14.2%. Such efforts, we believe, are going to motivate growth of tea packing thereby supplementing efforts like the ones being undertaken by KIRDI. Ladies and Gentlemen, I may not have said it so loudly but tea value adding in Kenya is still in its nascent stage. We should be aiming at achieving 50% value adding level if the tea industry is going to remain relevant in the coming years. Global tea market trends and our own economic sense demand this. However, this will only be achievable if the necessary policy drivers are in place so as to overcome the

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many challenges standing on the way. As it were the Tea Industry Policy requires support and commitment from other sectors of the economy if tea value adding shall ever be fully realized in Kenya. Thank you.

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3.8.

REQUISITE TECHNOLOGICAL CAPABILITY FOR MSES IN VALUE ADDITION TO KENYAN TEA,. BY MR. ADAM WAKO, BUSINESS DEVELOPMENT OFFICER, KIRDI

3.8.1. INTRODUCTION Industry is the main driving force of development processes. Rich countries are more industrialized than poor ones, and all major economies have followed the industrial route to prosperity. Industrialization is more than the engine of economic growth, it is also the catalyst for the technological, financial and socio economic transformation of the developed market economy. At the same time, industries catalytic role in the development process is changing in response to the new global technological patterns of rapid and accelerating technological change, sweeping trade liberalization, far reaching deregulation of markets and the globalization of international business. One of the outcomes of globalization of business is the exposure of local markets to foreign products, services and investment, forcing firms to compete against foreign firms in the domestic market. Thus a tea packer in Kayole and Dandora is competing with a blending firm in Europe who has bought Kenya tea, blended and packaged it and then placed the value added product on the self of a Kenyan super markets. The same blender packer from Europe will be able to afford a holiday in Kenya from the proceeds of his business. The packer from Kayole will hardly be able to meet the basic needs of his family. His product will probably expire before it leaves the shelf of the super market. The blender from Europe is able to get higher returns on the same raw material available to the Kayole packer because he has the ability to add value to the raw material that attracts a premium return. The differences between the two entrepreneurs is that the European firm has the technological capability to add value to Kenyan tea that attracts premium prices. Technological capabilities are at the center of the new theories of economic growth, which focus on technology and human capital as engines of growth. Recent developments in this literature suggest that long run economic growth as seen in East Asia most recently, reflects sustained increases in firm productivity stemming from continuous accumulation of technological capabilities. Technological capability refers to the ability to make effective use of technological knowledge in production, engineering and innovation in order to sustain competitiveness in price and quality. It enables one to create new technologies and to develop new products and processes in response to the changing economic environment The tea industry has the potential of transforming Kenyan society from donor dependence to NIIC status. However to achieve this it must aim toward developing the technological capability of Kenyan enterprises and in particular those in value addition to Kenyan tea a majority of whom are MSE.

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3.8.2. POTENTIAL OF THE TEA INDUSTRY The basic requirements for establishing a manufacturing / processing enterprise is availability of a dependable supply of raw materials (inputs) and a ready market to dispose of the finished product. In this respect the tea industry has various attributes which are key to the establishment of value addition enterprise and that give it great potential to drive the industrialization processes in Kenya. . These include a developed market base and a steady supply of raw materials for value addition. 3.8.3. MARKETS Kenya is known for production of high quality black tea and is the second biggest tea exporter in the world after Sri Lanka with 20% of total share of world black tea export. Approximately 95% of the tea produced in Kenya is exported only about 5% produced is consumed locally. 3.8.4. EXPORT MARKETS

In the year 2002 out of the 287 million kgs of made tea produced only 12 million was consumed locally and the rest was exported. There are forty-three export destinations for Kenyan tea but the main ones and their respective market share are detailed in table 2 below. Table 2 Market Share For Kenyan Tea In Selected Export Markets YR 2002 No. 1 2 3 4 Country Pakistan United Kingdom Egypt Afghanistan Market share 23 % 22 % 10 % 9 %

Source: Tea Board of Kenya

In the year 2003 Exports to Afghanistan increased from 24.6 million to 35 million kgs , those to Russia increased by 36 % and to Nigeria by 24% and Germany up to 54 %.At the regional level the boards promotion activities over the last three years have targeted West Africa, Eastern Europe and the Middle East and there are indications that the promotion is beginning to pay off. Tea sales in the local market have also grown by 14 % reaching 14.4 million Kgs in 2003 from a low of 12.6 million Kgs in 2002. In value terms, tea exports in 2003 earned KSh 34.2 billion. If for example only 20% of that production was value added an additional KSh 34. Billion would be realized. 3.8.5. VALUE ADDED EXPORTS

There are a few firms that add value to Kenya tea by way of processing instant tea; the main one however is the African Highlands Ltd. Most of the instant tea produced is exported (less the 1 % is consumed locally). The export figures in kg for the period 1998 to 2002 are detailed below in table 3.

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Table 3: Export Of Value Added Tea (Instant Tea ) Destinations USA Netherlands UK Germany Italy Other countries Total 1998 721,668 56,300 293,500 141,362 140,500 27,450 1,380,780 1999 529,550 103,600 389,365 191,503 88,500 45,609 1,348,127 2000 361,752 139,350 329,138 119,730 Nil 132,513 1,082,483 2001 1,041,604 233,850 139,629 135,030 Nil 233,340 1,783,483 2002 522,771 49,500 444,194 Nil 48,500 17,132 1,082,097

Source: Tea Board of Kenya

This sizable and expanding market base can form the base upon which development of value added products for the export market by Kenyan enterprises could be based. 3.8.6. RAW MATERIALS The supply of adequate raw material at the right time and of the right quality is key to development of any industry. The tea industry has a well-established organizational structure that can assure a steady supply of tealeaf and made tea to enterprise engaged in value addition to Kenya tea to the demanding export. These include the tea growers association that, bring the plantation together and the Kenya Tea Development Agency that services the smallholder growers. 3.8.7. 3.8.7.1. THE MSE SECTOR. The Role Of The MSE Sector In Industrialization

Whereas the potential exists for the tea industry to transform the Kenyan economy, this will only be achieved through enterprises with the technological capability to add value to tea for export. This will be the MSE sector. Empirical evidence shows that at all levels of development MSE constitute the driving force in economic development in general and industrial development in particular. They comprise more than 90% of all enterprises in the world and account for 50 to 60 % of total employment. MSEs are increasingly providing the backbone of the private sector not only in developed countries but also in developing countries and countries with economies in transition. 3.8.7.2. The Role Of The MSE Sector In Industrialization in Kenya.

In Kenya its is now widely recognized that the promotion of the MSE sector is a viable and dynamic strategy for achieving national goals, including employment creation, poverty alleviation and balanced development between sectors and sub-sectors. Together all these form the foundation of a strong national industrial base and domestic production structure that are central to governments vision of achieving newly industrialized country status by the year 2020. This sector constitutes 98% of all business in the country, absorbs annually up to 50% of new non-farm employment seekers, has an employment growth rate of 12% to 14 % and contributes 30% of total employment and 3% of GDP.

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3.8.7.3.

MSE in Value Addition To Kenyan Tea.

With the advent of liberalization of the tea industry in 1993 that gave farmers more say in tea collecting, processing and marketing, over 200 MSE have sprung up to add value to Kenya tea. Before liberalization packaging for domestic and the Eastern and Central Africa Regional markets was restricted to the Kenya Tea Packers Association (KETEPA). With liberalized tea marketing, many other players have entered the market, a majority whom are micro enterprises suited to serving the local and rural markets. A few however mostly small enterprises are beginning to venture into regional export. The few that have entered into international export are mostly subsidiaries of Trans National Corporations based in the United Kingdom. For MSE s to penetrate the regional and international markets with value added products from Kenya entrepreneurs and workers must have the requisite technological capabilities the kills and information required to establish and operate modern machinery, and the learning ability to up grade these skills when needed. 3.8.8. 3.8.8.1. REQUISITE TECHNOLOGICAL CAPABILITIES FOR MSE IN VALUE ADDITION TO TEA. Investment Capabilities

Every application of technology begins with an investment. Investment capabilities are the skills and information needed to identify feasible investment projects, locate and purchase suitable (embodied and disembodied) technologies, design and engineer the plant and manage the construction and commissioning the start up. These functions are not always easy to start. Many enterprises find it difficult to decide on the best technology ( or complex combinations of technologies ) for these purposes. 3.8.8.2. Production Capabilities.

Production capabilities are the skills and knowledge needed for the operation and improvement of a plant. These capabilities range from routine functions to intensive efforts to adapt and improve the technology.. Acquisition of even basic capabilities such as quality control, maintenance scheduling, or reaching prescribed levels of machine efficiency , generally require considerable expenditure of time and effort. The more advanced capabilities for adaptive and innovation generally require higher skills, more time and greater investment. Production capabilities include both process technological capabilities as well product capabilities such as product redesign, product quality improvement and introduction of new products. In addition, production capabilities also cover monitoring and control functions included under industrial engineering. Industrial engineering skills are required to improve production by changing the time and spatial Sequencing of manufacturing and auxiliary operations. Absence of industrial engineering skills can be an important gap in the technological capability spectrum.

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3.8.8.3.

Learning Mechanisms

Learning mechanisms constitute the dynamic element of the three types of technological capabilities, enabling firms to change over time the levels of investment and production capabilities, acquiring new investment and production capabilities or improving those already at the firms disposal. They are crucial to the firms future competitive success and survival. The learning mechanisms by which individual firms build up their endowments of capabilities can ultimately determine the parameters of aggregate productivity and development. These include. 1 Private Learning Mechanisms Internal In housing training R&D Hiring Expatriates External Foreign buyers and suppliers Interaction with other firms Courses Hiring local or foreign consultants 2 Collective Learning Mechanisms: Technical support services NGO s, Government , Business Association , Donors Broad Based Learning Mechanisms Cost sharing technical assistance Build up local technical assistance Training course Information services High Intensity Direct technical assistance support to specific firms Technical license agreements 3.8.9. 3.8.9.1. OVERVIEW OF INDUSTRIAL TECHNOLOGICAL CAPABILITY IN KENYA Overview of Investment Capabilities

In Kenya very few firms carry out a feasibility study before inception of the enterprise, this has been traced to the absence of deep markets providing information based services to potential entrepreneurs. The result is that most firms rely on themselves for decisions related to technological choice.

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The decision about which technology or equipment to acquire at start up is often made in most cases by the entrepreneur on the basis of personnel experience or a trip aboard to observe the equipment. Other firms again make their choice based upon information supplied by a licenser or by foreign embassies. Local engineers personnel are seldom used in making technical decisions about operational equipment. 3.8.9.2. Overview of Production Capabilities.

If MSEs in value addition to Kenya tea are to exploit the international market they must meet the stringent standards set up by the markets. Standards, whether related to process or product or both are becoming an increasing important qualification requirement for participation in potential export markets. The capacity to meet this changing agenda of standards is emerging as an increasingly important category of process up grading. 3.8.10. QUALITY CONTROL

In Kenya about 30% of firms have a comprehensive quality control system encompassing the inputs used, materials in process, the process and the final product, while only 20% of the firms have no systems for quality control. The nature of the quality control systems in most of these firms is not very sophisticated. A few firms acknowledge the use of national or international product standards while the majority of them apply visual inspection methods. 3.8.11. INDUSTRIAL ENGINEERING.

The capacity to utilize Industrial engineering capability can be usefully applied to improving the productivity of plants in any industry. Many Kenyan firms however are not familiar with the concept. While they organize their thinking around production or output targets, they are not, for the most part, measuring the amount of output obtained in relation to the quantity of inputs utilized. In most cases, the firms are also not aware of how productivity compares with that of other firms in the same Industry; larger successful exporters are an exception. Although most firms carry out some form of advanced scheduling of production and inventory control of raw materials, these tasks are performed at a fairly low level of technological sophistication. 3.8.12. OVERVIEW OF LEARNING MECHANISMS

The technological learning channels in Kenya have declined over time. The polytechnic system has become non functional, the universities have been accused of producing non-functional graduates in their areas of expertise. Expatriate consultants with dubious background have infiltrated the market. This has diluted the knowledge base that would form the basis for building technological capability in MSE s. The result has been MSE s who have to rely on their own resources and experiences to establish enterprises..

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3.8.13.

CONCLUSION AND WAY FORWARDED.

Industry is what contributes directly to a countrys productivity. Productivity is what contributes directly to peoples standards of living measured in per capita income. The productivity of a firm is measured by its ability to produce goods and services that defend or expand market position with its long run profit margin relative to its rivals. This ultimately rests on the technological capability of the firm. There is need to improve technological capabilities of Kenya enterprises if our value added products in the tea industry are to find self space in international markets. This will include putting in place policies that influence the improvement of technological capabilities at firm level. This will include Improve government polices toward education particularly education in science and engineering which effect the available supply of technical personnel. Promoting Polices that encourage firms to promote learning within the firm, such as on the job training and R & D activity. Creating and maintaining foreign markets linkages to foster more learning through promotion of trips to foreign markets. Promotion of quality control testing and inspection services

The establishment of the Productivity Center of Kenya is a major step forward in this direction. The tea industry has great potential in transforming the Kenya economy. However, this can only be achieved through firms in value addition in the sector acquiring the relevant technological capability.

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3.9.

DIVERSIFICATION OF THE UTILIZATION OF TEA IN KENYA SO AS TO PROMOTE LOCAL CONSUMPTION, BY GEOFFREY C. KOECH, SENIOR RESEARCH OFFICER, KIRDI

3.9.1. INTRODUCTION It is an established fact that Kenya is the third largest producer of black tea in the world after India and Sri Lanka with annual production now approaching 300,000 tonnes and rising (see Figure 1). The Large estates sector produces an average of 3,300 kg made tea/ha on a total land area of about 50,000 ha. The smallholder sector manages only 1,800 kg made tea/ha but on 92,800 ha. The Kenya Government policy is to bridge the gap in productivity between the twin sectors of tea industry. Research strategy within the industry is on means to reduce this gap in performance. It is projected that when this is achieved, the country would be able to produce over 470,000 metric tonnes black tea compared to the 293,670 tonnes produced in 2003. The balance of over 175,000 tonnes would either have to be offered to the export market or consumed locally. Statistics indicate that world tea consumption is currently unable to keep pace with production, and that in 2001 alone, there was an excess production of 120,000 tonnes over an estimated consumption of 2.92 million tonnes, which had to be carried forward to 2002. This had a net effect of depressing international auction prices. With the current trend in consumption of back tea locally it is unlikely the demand will expand rapidly to utilize the surplus black tea produced. Hence, other means and methods have to be devised for using tea as a raw material for different products. This opens up opportunities for market differentiation.
Figure 1: Comparison of Annual Production Volumes against Local Consumption

300,000

250,000

200,000

Tonnes

150,000

Production Local consumption

100,000

50,000

0 1998 1999 2000 2001 2002 2003

Source: Economic Survey, 2003 and own analysis

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3.9.2. WORK DONE ELSEWHERE IN THE AREA OF DIVERSIFICATION 3.9.2.1. Green Tea Powder

The natural green tea powder, in extra-micro particle size under 200 mesh with nice color of green, is made from fresh green tea leaves. The fresh leaves are dehydrated and dried, and then are crushed to 200 mesh at low temperature. It is then that the fresh color and the nutritional compounds are retained as maximum as possible. Specifications: Appearance: Particle size: Tea polyphenol: Water soluble content: Caffeine: Moisture: Heavy metal:
Source: TeaBio-ZICOF, 2003

Fresh green powder 200 mesh 15% (min) 98% (min, by HPLC) 5% (max) 6% (max) 10 ppm (max)

Green tea powder can be used directly in beverages and as ingredients in foods such as ice-cream, chewing gum, jam, biscuit, toothpaste and so on. The green tea powder confers a nice green color to foods. Apart from the color, it also improves the flavor of foods, prevents their oxidation and enhances their stability. 3.9.2.2. Packaged pure and flavored tea beverages and juices Possible concentrated tea juice application products and utilisation guidelines:

3.9.2.2.1.

(i) to confect pure tea beverage including Oolong tea, green tea, black tea and Jasmine tea, the dosage of concentrated tea juice is 1:100~150, 10 kg of concentrated juice add 990~1490 kg of purified water. The density can be adjusted according to customer preference. (dosage of instant tea powder is 0.2~0.4%) (ii) to confect flavoring fruit juice tea beverage, the dosage of concentrated tea juice is 1:150~200, 10 kg of concentrated juice add 1490~1990 kg of purified water, and add appropriate volume of flavoring material, like fruit juice, acid, sugar, etc. (dosage of instant tea powder is 0.1~0.25%) (iii) to confect solid instant fruit tea beverage like milk tea or lemon tea, blend instant tea powder with flavor, fruit juice, acid and milk powder, and then dry them. The dosage is 5~10% of the final product.

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(iv) to confect fruit-tasting bottled concentrated juice, blend concentrated juice with appropriate volume of flavor, fruit juice, acid, sugar, sweetener, and then sterilize and bottle. (v) suitable as material for tea foods, such as tea moon-cake, tea candy, tea ice-cream, tea chewinggum. The dosage is 5~10%. 3.9.2.3. Green tea catechin extracts

Some of the many uses and applications of purified catechins are: Catechins are best suited for health food use. Supplied in powder, Catechins are also available, on request, in tablets, granules and capsules as well as beverages.

Catechins are also suitable for cosmetic use. Catechins comply completely with many national country standards of cosmetic ingredients. Catechins are available for developing innovative commercial products. For those developing new commercial products such as textile auxiliaries with antibacterial and deodorant properties, catechins can also be used for industrial production. Super Green Tea Extract Supplements

3.9.2.4.

Bottled Green Tea Polyphenol Tablets 300 mg (polyphenols>98%, total catechin>80%, EGCg>45% decaffeinated) Green tea contains catechins, a class of flavonoids. These substances have been shown to provide a number of health-promoting benefits. The green tea extract used in the supplement contains the highest percentage of catechins 3.9.3. 3.9.3.1. ALTERNATIVE TEA PRODUCTS DEVELOPED LOCALLY Research and Breeding studies

Currently Kenya produces only black tea although plans are at an advanced stage by a few firms in Kenya to manufacture green tea for the export markets on trial basis. Studies by the Tea Research Foundation of Kenya (TRFK) in Kericho, have shown that Kenyan black teas have significant levels of the unoxidised chemical constituents associated with human health. Some of the oxidised chemical constituents in black tea, responsible for black tea quality, are also beneficial to human health. The country could take advantage of these beneficial properties in developing a parallel strategy for the utilization and consumption of tea that will lead to increased demand for tea and counter the decline in income per unit amount of black tea produced due to the anticipated increase in supply. Most tea plant materials grown in Kenya have been selected for the production of high yielding black teas. Studies conducted in Kenya show that such high yielding plants have high levels of tannin and/or catechin content which is unsuited for the production of typical green teas. However breeding studies are at an advanced stage at TRFK on developing cultivars that have low catechin contents and one such case made national news in December 2003 in connection with its potential for HIV treatment. It is hoped that when

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such developments reach commercialization stage, capacity to manufacture green tea products in Kenya shall be enhanced. 3.9.3.2. Instant black tea

The only commercialized diversification product that has achieved a measure of success in Kenya is the manufacture of instant black tea by James Finlay Tea Estates. 3.9.3.3. Green tea

Various organisations including the Tea Research Foundation of Kenya, and some estates sector companies in the Kenyan tea industry have invested substantially in tea breeding programmes and have developed many cultivars which remain untested for their potential to produce green tea. It is likely that within each of these companies are tea cultivars established as unsuitable for black tea, but which could be ideal for green tea production. 3.9.3.4. Standardization of Green Tea

Kenya has continued to play a key role in international standardization effort in the tea sector, and regularly hosts the international ISO secretariat meetings on tea standardization, the last such meeting having been held in Mombasa in 2000. This ISO Technical Committee met in 2003 in China to deliberate on further review of tea standards and recommended among other things the need to develop a product standard to regulate the trade and consumption of green tea. Hitherto no green tea international standard existed. A parallel effort is also under way to develop a Kenya Standard on green tea by the Kenya Bureau of Standards. Already imported green tea is on sale in Kenya in major supermarket stores alongside Kenyan black tea and imported herbal teas. Although imported herbal teas have been in the local market for a longer period than green teas, they have not made as much impact and have not gained wide acceptance. Green tea, however, has the potential to surpass black herbal tea in consumer acceptance because of its purported superior health benefits. 3.9.4. 3.9.4.1. CONSTRAINTS Declining local consumption

Local consumption of Kenyan black tea, in value terms, is a mere 5%. The rest is channeled to the export market where it earns an average of US$ 440 million a year or 150 US cents per Kg. The period 1992-2002 had been experiencing a declining trend in sales of tea in the local market. This has been attributed to declining local demand. However 2003 witnessed an increase in local sales by 14% to 14,396 tonnes up from 12,628 in 2002. 3.9.4.2. Overproduction

Although Kenyas tea has found a ready market internationally due to its unique consistent quality, constant availability and short delivery times, the last two years have witnessed markets in producing countries drop because of oversupply. As already seen, world tea consumption is currently unable to keep pace with production.

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As prices have tumbled leading to diminishing returns, producers have been forced to reach a compromise between yield and quality in an attempt to achieve higher efficiency. This has inevitably resulted in a decline in quality. 3.9.4.3. Low diversity of plant genetic resources

Studies have shown that most tea plants grown in Kenya have high tannin and/or catechin content which is unsuited for the production of green teas. To make good quality green tea, the leaf material has to have relatively lower polyphenol content compared to that needed for black tea. The other chemical characteristics for making quality green tea include the presence of high caffeine, lipid and free amino acid contents in the shoots. Good quality green teas contain high amounts of ascorbic acid, which is an antioxidant and acts as vitamin C. Research at TRFK is focussed on overcoming this constraint. 3.9.4.4. New technologies

Emerging international research experience suggests that food and nutrition policies should address risks and benefits of new technologies which are pro-poor yet are revolutionizing global products. The TRFK is pioneering molecular biology technologies in tissue culture and marker-assisted breeding to develop cultivars such as that reported elsewhere in this paper. Globalization benefits have in many cases by-passed lowincome regions especially sub-Saharan Africa, and Kenya is no exception. The benefits of GM foods are not trickling down as fast because of poor acceptance due largely to lack of freer flow of information on benefits and/or risks and slow implementation of biosafety and related regulations. 3.9.5. FUTURE PROSPECTS IN THIS AREA

Increase in utilization and development of diversified products using tea, a sustainable locally available raw material, would create job opportunities in the rural areas, promote more agro-industrialization through SMEs and improve the socio-economic status of Kenyans The diversification of tea products will result in increased consumption of tea by Kenyans. Studies are going on worldwide that demonstrate the benefits of tea consumption to human health. It is expected that increased tea consumption will boost the Kenya government disease prevention strategies. Micronutrient malnutrition often called hidden hunger afflicts 2 billion people with devastating impact on health and productivity. Currently Kenya produces only black tea. Kenya needs to maximize the utilization of its resources in order to deliver on its commitment to provide health, create employment and alleviate poverty thereby enhancing economic growth for the benefit of all Kenyans. To add value to the tea, Kenya needs to produce other products besides black tea. Some of these products are green teas, tea colas, food preservatives, ink, leather tanning agents and textile dyes among other possibilities. Kenyas per capita tea consumption is currently a mere 0.44 kg. If this could be doubled, Kenya would be removing an additional 5% of good quality tea from the world market. The net effect would be a small but significant appreciation in price of exported tea. This extra income could be ploughed back to fund diversification of utilisation schemes for tea hopefully leading to increased local consumption.

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3.9.6.

BIBLIOGRAPHY

IFPRI, 2003, IFPRIs Strategy towards Food and Nutrition Security: food policy research, capacity strengthening and policy communication, IFPRI, Washington D. C., April 2003. Koech, G. C., et al. Studies on the Extraction of Tea Flavonoids and their Adaptation to Textile Coloration, proceedings of the Kirdi Symposium and Open Day held at Kirdi South C Campus on December 4-5, 2003. Obanda, M; et al. 2002, Diversification of Utilization and Consumption of Tea in Kenya; A project Proposal submitted to ARF, KARI. Republic of Kenya, 2003; Economic Review, pp. 111-155, Government Printer. Tea Board of Kenya, 2003, 100 years of Tea in Kenya, Advertisers Announcement, East African Standard, Thursday October 8, 2003 TeaBio-ZICOF, 2003, Green Tea Extracts and Formulations marketed by ZICOF, www.TeaBio.com, accessed on February 12, 2004. Wahome, W. New tea is good for people with Aids, East African Standard, December 8, 2003.

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4.0 APPENDIX 1

ACTION PLAN MATRIX

ACTION PLAN MATRIX

1 EMERGING ISSUE Market Access CONSTRAINT counterfeiting & smuggling protectionism by big market players locally & abroad heavy marketing costs (investment , promotional)

2 3

Need for product standards and tea industry code of practice Need for institutions promoting value addition

4 5

Environment & health related malpractices Protectionism in the export market

no standards for green tea and other products. no code of practice. lack of specific market information lack of large-scale processors to absorb market shocks. No aggressive marketing strategies poor enforcement of regulations (low capacity). subsidies in importing countries punitive regulations. high compliance costs. high power tariffs. poor infrastructure - roads high fuel costs (furnace oil)

High production costs

WAY FORWARD removal of unbranded products more product R&D focussing on diversification increase domestic consumption of value-added products. enter into contractual agreements. develop product standards for green tea and other products. develop code of practice. Conversion of tea factories into export processing zones (EPZs). set export targets for exporters of value added tea. create/strengthen institutions. Set up value addition task force Strengthen institutional structures. Create an inspectorate dept in TBK negotiate joint ventures with EU, ASEAN, AGOA, COMESA, SADC, ECOWAS under WTO market access mechanisms. reduction of power tariffs. tea producers should be co-opted into the District Roads Boards. alliances & partnerships for sustainable use of forest resources.

INSTITUTIONAL RESPONSIBILITY KEBS, TBK TRFK, KIRDI, KARI, KEMRI.

TBK, KTDA KEBS, ISO, TBK, KTDA, EATTA. TBK, KTDA MTI, TBK SME, LSE, TBK, EATTA. TBK, KTDA, EATTA WHO, WFP, FAO NEMA, TBK, KTDA, EATTA. KTDA, KTZCC, SMEs, TBK

KPLC, TBK DRBs, KTDA, KTGA KTZCC & KTDA

EMERGING ISSUE Lack of government incentives

CONSTRAINT discriminatory tariff structure

slow refund of VAT claims insecurities in transit loss of tea consignments. claims by importers of underweighing and undervaluing. lack of skills

Need to enhance technological capability (investments, production).

WAY FORWARD protection of local tea packers from unfair competition. harmonization of taxes with those of other agro-industrial sectors. Institute appropriate policy drivers. Random PSI to confirm values and quantities develop training programmes. enter into technology transfer agreements (Joint ventures, etc.)

INSTITUTIONAL RESPONSIBILITY KRA

KRA, TBK KRA, TBK, KTGA. KEBS, TBK, KTDA. TBK TBK

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5.0 APPENDIX 2 TIME 8.30 9.00

MEETING PROGRAMME EVENT Registration

Session 1 (Chairperson: Director, KIRDI)

9.00 9.15 9.15 9.30 9.30 9.50 9.50 10.10 Session 2 Shakombo) 10.30 10.50 10.50 11.10 Word of Welcome from the Director, KIRDI. Remarks from Chairman, KIRDI Board of Directors. Keynote Address (Director of Industry) TEA BREAK (Chairperson: Ms. Hadija Overview of Tea Industry (Director, KIRDI) Opportunity Study on Investment on Tea packaging KIRDI survey report, Mrs. Phyllis W. Ngunjiri) Tea packaging for the Local market- the KETEPA Experience ( Mr. Lerionka Tiampati, ) DISCUSSION

11.10 11.30 11.30 12.00

12.00 12.20 12.20 12.40 12.40 12.50 12.50 1.20

Challenges of value addition to tea for the Export Market (Dr. Felix Muhindi, KIRDI) Experience on Value Addition to Tea for Local and Export Market (Mr. Peter Kimanga) Experience of a small-scale tea Packer (Mr. Raju Shah) DISCUSSION LUNCH BREAK

1.20 2.00

SESSION 3 (Chairperson: Mr. S. Wambugu) 2.00 2.20 2.20 2.40

Tea Industry Policy (Managing Director, Tea Board of Kenya)

Requisite technological capability for SMEs in Value Addition to Kenyan Tea (Mr. Adam Wako, KIRDI)
Diversification of Utilization of Tea (Mr. G. Koech, KIRDI) DISCUSSION

2.40 3.00 3.00 3.30

SESSION 4 (Chairperson: Director, KIRDI) 3.30 4.15 4.15 4.30 4.30 5.00 5.00 5.15 Discussion on the way forward Closing Remarks (Director, KIRDI) TEA BREAK Guests Leave at their own pleasure/ Transportation of some guests to accommodation venue.

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6.0 APPENDIX 3
NO 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 NAME DAVID CHOMBA GACHOKI HADIJA SHAKOMBO PETER KIMANGA BIEGON FRANCIS MUTHAMIA PETER N.KIBIKU OLIVER MWANDA RAJU SHAH OJWANG AUINDI CHRISTOPHER HASSAN ABUBAKAR DR. PATRICK M. MUTURI FELIX MUHINDI MR. SAMUEL WAMBUGU MR. ADAM WAKO MR. GEOFFREY KOECH MRS BEATRICE AMOLLO MRS PHYLLIS W. NGUNJIRI

LIST OF PARTICIPANTS
INSTITUTION Tea Board of Kenya East African Tea Trade Association Global Tea & Commodities Ltd. Kenya Tea Packers Ltd. Kangaita Tea Factory Tea Board of Kenya Kenya Bureau of Standards Kenya Tea Bags Australia KTDA Nduti Tea Factory East African Packaging Industries Ltd. KIRDI KIRDI KIRDI KIRDI KIRDI KIRDI KIRDI CONTACT ADDRESS P O Box 20064 00200 NAIROBI P O Box 85174 MOMBASA P O Box 98459 MOMBASA P O Box 413 KERICHO P O Box 88 KERUGOYA P O Box 20064 00200 NAIROBI P O Box 54974 NAIROBI P O Box 47719 NAIROBI P O Box 2626 P O Box 30146 P O BOX 30650 P O BOX 30650 P O BOX 30650 P O BOX 30650 P O BOX 30650 P O BOX 30650 P O BOX 30650 609440 NRB 0733514389 535966/84/90 535966/84/90 0722824941 020-609440 609440 NRB 535966/84/90 0733716088 TEL. No. 57444516 041-315245/687 041-316399/313613 20530/1/2 060-20247 0722892054 574445/6 502211 0722-514999 020-352593 0733808779 530176 Francismuteamia@yahoo.com teaboardk@kenyaweb.com Info@kebs.org badboys@kenya.web.com E - mail Teaboardk@Kenyaweb.com Info@eatta.co.ke Peter.Kimanga@globaltea.co.ke Fax 562120, 576337 041-225823 314587 20536 060-21662 576337 503293 3743751 020- 352593 ha@eapi.co.ke dirkirdi@onlinekenya.com fmuhindi028@yahoo.com kirdi@onlinekenya.com wambugu@kenyaweb.com 652308 555738 555738 555738/607023/554 710 DESIGNATION MARKETING AND PROMOTION MANAGER ADMINISTRATIVE SECRETARY TEA MANAGER KEY ACCOUNTS MANAGER PRODUCTION MANAGER ECONOMIST CHIEF PRINCIPAL QUALITY ASSURANCE OFFICER DIRECTOR PRODUCTION MANAGER GROUP EXPORT MANAGER DIRECTOR SENIOR RESEARCH OFFICER 1/HEAD, BDS. PROJECT CO-ORDINATOR

Kirdi@onlinekenya.com, gc-koech@yahoo.com ngunnjiriwp@yahoo.com

020555738/60716023 555738

SENIOR RESEARCH OFFICER

RESEARCH OFFICER