KTDA reserve price misses mark in buyers snub
More than half the consignment of green leaf supplied at the Mombasa tea auction remained unsold last week following the setting of a reserve price by KTDA.
Termed as a bold step to assure a consistent and better returns to farmers by the new management at the Kenya Tea Development Agency (KTDA), the move has taken off to a false start with buyers shunning the high reservation price.
The reserve price is termed as the minimum amount a seller is willing to accept as a winning bid.
With nine other countries trading at the Mombasa auction alongside other local independent producers, buyers have opted for deals that leave out the reservation.
“In any markets, you would only pray that a buyer takes your commodity. As far as we are concerned, if a seller sets prices for themselves, it’s not a guarantee that buyers would follow the lead,” Managing Director to the East African Tea Traders Association (EATTA), which runs the Mombasa auction Edward Mudibo told Citizen Digital.
At the same time, KTDA set the reservation price of Ksh.262.44 ($2.43) per kilo barely hours to the opening of the auction last week.
In the bigger picture, the meeting of the reserve price by buyers has been complicated by an ongoing supply glut as the quantity of green leaf presented at auction continues to outstrip demand.
For instance, tea prices touches a decade low Ksh.167.40/kilo ($1.55) from the demand supply mismatch.
“Production still outstrips demand and as such, prices have taken a hit. This is not an auction problem,” added Mudibo.
KTDA has been forced to withdraw their tea supplies and put the consignment in storage in the wait for ‘better prices’.
On Monday, Agriculture Cabinet Secretary Peter Munya stuck to his guns insisting the government is willing to wait out the storm by pushing for the minimum price.
“We are determined to make sure that prices in Mombasa improve irrespective of whatever pressure is being put from whatever quarters, we are determined to keep following the threshold we have put,” he said.
“We are putting in resources to continue compensating the farmers as we wait for the prices to improve. We believe we can sustain the situation as we have enough reserves.”
Last week, only 5.8 million kilograms of green leaf supplied was taken at auction out of 13.4 million kilograms on offer.