Bloomberg News

World’s Biggest Tea Auction Halted Over Kenya Tax Dispute

February 28, 2012

The world’s biggest tea auction, held weekly in Kenya, will resume tomorrow after the government held talks with the industry over a tax dispute that had halted sales of the leaves for two days.

“The matter has not been resolved,” said Tom Muchura, managing director of Africa Tea Brokers Ltd., which buys leaves at the weekly sale in the port city of Mombasa, in an interview today. The auctions will resume while talks continue after the government agreed to levy a new tax on the so-called hammer price, a lower price than the customs prices that it had planned to use, he said.

Kenya’s Agriculture Ministry last month introduced the tax on tea exports and imports equivalent to 1 percent of the customs value, according to the East African Tea Trade Association. The duty may make Kenya’s tea less competitive, the Mombasa-based industry body, known as the EATTA, said in an e- mailed statement today. EATTA confirmed that auctions will take place today and tomorrow.

While selling tea from Kenya, the world’s biggest exporter of black tea, the auction also markets leaves from at least nine other African countries including Rwanda and Madagascar. Unilever Plc (ULVR)’s Lipton tea unit and James Finlay (Mombasa) Ltd. are among the biggest buyers of tea at the sales. The leaves are exported to nations including Pakistan, the U.K., Russia and Egypt.

Foreign Currency

At this week’s auction 7.94 million kilograms (17.5 million pounds) of tea were on offer, according to Tea Brokers East Africa Ltd., another brokerage that purchases leaves at the sales. Last week tea at the auction sold for an average of $2.66 a kilogram. An auction in Colombo, Sri Lanka is the closest rival to Mombasa in terms of sales volumes with 6.87 million kilograms sold on that auction on Feb. 23,. according to the Sri Lanka Tea Board.

The auction was founded in 1956 in Nairobi, Kenya’s capital, and moved to Mombasa in 1969, according to Africa Tea Brokers. They usually take place every Monday and Tuesday.

Tea is the biggest source of foreign currency in Kenya, East Africa’s largest economy. The country produced 377.9 million kilograms of the crop last year, earning 109 billion shillings ($1.32 billion). Agriculture accounts for 21 percent of Kenya’s total economic output.

‘Higher Price’

The Kenyan shilling rose for the first day in three, gaining 0.1 percent to 82.60 to the dollar as of 4:40 p.m. in Nairobi. Shares of Sasini Ltd. (STCL),a tea producer, fell on the Nairobi Stock Exchange while those of Williamson Tea Ltd., Limuru Tea Co. (LMTC) and Kapchorua Tea Co. (KPTC) were unchanged.

“The new levy will make Kenya’s tea uncompetitive in the global market since it will sell at a higher price,” according to EATTA’s statement. “This is in sharp contrast to exporters in producing countries like India who get cash incentives for both bulk and packet-tea exports.”

The tax is also not applicable to tea sold on the Mombasa auction from other countries and will therefore disadvantage Kenyan farmers, EATTA said.

To contact the reporter on this story: Antony Sguazzin in Johannesburg at asguazzin@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net


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