Uganda’s Tea Prices Reach $1.02 at Mombasa Auction

Uganda’s tea prices at the Mombasa Tea Auction have been holding steady for the past seven weeks, with the latest sale, Number 45, ending on November 5, 2024, at an average price of $1.02 per kilogram (around sh3,760). This price mirrors that of the past two weeks, indicating stability in the market. Experts view this consistency as a sign of potential growth for the tea industry, especially as the nation seeks to expand its tea production and sales.
The current price performance reflects a positive trend compared to last year, when Uganda’s tea fetched only $0.74 per kilogram (approximately sh2,725) in Sale Number 43. The increase of $0.28 (sh1,035) per kilogram over the past year is seen as encouraging, though experts note that there is still room for improvement in the market.
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Regional comparisons also offer valuable insights. Kenya, a key competitor in the tea market, saw its tea price average $2.30 per kilogram (sh8,480) in Sale Number 45, up slightly from $2.25 (sh8,300) a year ago. However, Kenya faced a significant challenge, with 38.4% of its tea remaining unsold during the auction. In contrast, Uganda’s tea showed better absorption, with only 12.5% unsold. Tea sector expert Onesimus Matsiko noted that Uganda’s higher absorption rate suggests potential for growth, provided the country improves its tea quality and maintains competitive pricing.
Rwanda’s performance at the auction is also noteworthy, with its tea averaging $3.31 per kilogram (sh12,195), up from $2.97 (sh10,950) a year ago. Rwanda’s ability to secure higher prices consistently serves as a valuable model for Uganda, particularly in exploring alternative markets that may offer better returns for Ugandan tea farmers.
Despite the positive trends in auction prices, farm-gate prices for green leaf tea in Uganda remain stagnant. Unlike Kenya and Rwanda, where government regulation helps ensure fair prices for farmers, Uganda’s free-market system leaves farmers with less bargaining power. In Kenya, the Kenya Tea Development Agency (KTDA) ensures farmers receive 75% of the market price, while in Rwanda, farmers are entitled to 50% of the sale price as set by government policy. In Uganda, factory owners set the price split, typically ranging from 30% to 50%, often leaving farmers with lower returns.
This lack of regulation means that Ugandan tea farmers have limited control over the prices of their green leaf, unlike in Malawi, where farmers can negotiate prices through a tea outgrowers’ union. Matsiko explained that under the current price structure, top-end producers in Uganda receive about sh340 per kilogram of green leaf, while lower-end producers may receive only about sh220. In regions like Tooro, prices are typically as low as sh150, with occasional spikes reaching up to sh200.
In the Ankole region, prices are around sh200, though some factories have recently offered higher prices, ranging from sh250 to sh300, often in response to delayed payments. Tea farmers in Ankole, like Naboth Nuwagaba, have called for more stable prices, urging factories to pay farmers at least 33% of the market price, a percentage commonly followed by most factories in the region.
However, Nuwagaba pointed out that even though farmers receive their share, the remaining 66% allocated to the factories is often insufficient to cover operational costs without additional borrowing or government support. Factors such as rising energy, water, fuel, and labor costs continue to strain factory finances, making it challenging for factories to maintain sustainable operations.
Other farmers, like William Mbonigaba, voiced concerns about the government’s lack of support for the struggling sector. Despite multiple meetings with government officials, they feel their concerns remain unheard. “If some factories close, it could serve as a wake-up call for the government,” said Mbonigaba. However, he emphasized that waiting for a factory closure to trigger action is not an option.
The stagnation of green leaf prices, despite increases in auction prices, is largely attributed to the financial struggles of tea factories. Many factories have faced significant losses in recent years, limiting their liquidity and hindering their ability to pass on auction price gains to farmers. Without improvements in factory finances, it is expected that farmers will see limited income growth despite the positive auction performance.
To achieve long-term success, experts suggest that improvements in both yield and quality are necessary. Matsiko highlighted the importance of higher-quality tea, which commands better prices in the market. Additionally, increased yields would help farmers produce larger volumes, potentially boosting their earnings. Fertilizer application and stricter quality control measures are seen as crucial to achieving these goals.
Matsiko also emphasized the need for fair profit-sharing practices between factories and farmers, suggesting that factories should work towards improving efficiency and liquidity to enable timely payments to farmers. Sustainable solutions also require improvements in regulatory practices, such as government or industry-led measures to support both quality control and fair profit distribution.
In other tea producing nations, government and industry associations have created systems that allow farmers to access their earnings without relying on factory liquidity. This system could provide useful lessons for Uganda’s tea sector, helping to address the issue of delayed payments. The cash cycle for tea production in Uganda is longer than in many other sectors, taking about 45 days from the arrival of green leaf at factories to the final payment from brokers in the East Africa Tea Trade Association system.
Matsiko suggested that factories implement a reliable payment system that would allow farmers to receive timely payments as soon as sales revenue is available. This approach could prevent payment delays and improve financial stability for both farmers and factories by creating separate financing options for factory obligations.