Cash Crops and Cartels
Nov 08, 2012
This morning we visited the Githonga Tea Factory in Githongo, Kenya, and after that one of their tea growers. Kenya's top export crop is tea, and mostly it is known for its fine black tea, which it sells to Egypt, Pakistan and the UK.
The leaf processing facility was fascinating, with quality a major concern and the drying process vary thorough and logical.
Tea farmers pick their crops in the morning and deliver them daily to the local factory. Farmers get paid once a month and receive an initial payment of about $15 per kg. After six months they receive and interim paymet and at the end of the year all members of the factory receive a bonus, depending on world price for tea. Right now, world prices are strong and tea is a leading cash crop for Kenyan farmers. Tea contributes about 2.4% to the Kenyan GDP. Pickers are paid about $3.50 for a days work picking.
Next we visited the Mukune Farmers Co-operative Society Limited , which is a factory and drying facility. Coffee prices are surprising low, as the "coffee cartel" controls the market price by monopolizing buying. Farmers in Kenya cannot store their crops, and the need for money is so great they sell to the first, and not always, highest bidders.
A bank will loan a farmer money for inputs at 24%; a farmer co-op will loan a farmer money at around 6%.
in the afternoon, we visited a tobacco farmer and the Leaf Centre of British American Tobacco (BAT) in Mitunguu, Kenya. BAT is the world's second largest tobacco company in market share, and has a strong presence in Kenya. Tobacco has seen a 12% growth in domestic volume so far over 2010, driven largely by distribution, price repositioning and the end of anti-illicit trade initiatives.
Kenya farmers who sell to BAT collectively earn over $700 million in 2011. Tobacco is a productive crop, and works well for small shareholders in a rotation of maize, sorghum and peas. Tobacco farmers can also buy crop insurance through BAT to protect their crop. Farmers are paid $150 per KG produced, and pocket 70% of profit. The remaining goes to BAT to pay for inputs, insurance, etc.
Keep reading this blog for more on Kenya. Tomorrow we visit with local banks and then heads of state at the Kenya Embassy.
By the way.....Kenyans are very excited about President Barack Obama's win! They continue to consider him a "hometown boy".