Malawi’s traditional tea markets decline

The United Kingdom (UK), Malawi’s traditional market for tea, the country’s second foreign currency earner after tobacco, seems to be on a steady decline, according to the Tea Association of Malawi (Taml).

Six years ago, the UK used to absorb over 16 000 metric tones of the country’s tea, but that is no longer the case. Figures from Taml show that in 2013, the country exports to the market registered a 30 percent drop.

This obviously is not good news at all for Malawi which relies on tea alongside other crops such as tobacco, sugar, coffee for its export earnings to beef up the foreign currency buffer for the procurement of essential imports such as fuel, fertiliser and medical drugs.

“The observed unprecedented drop is mostly attributed to emerging and proliferation of competing beverages on the market which are augmented by heavy marketing campaigns despite tea’s inherent superior health attributes,” Taml chief executive officer Clement Thindwa told Business News.

Similarly, South Africa which absorbed a record of over 18 000 metric tonnes of Malawi tea in 2009, only bought slightly over 12 000 metric tonnes in 2013, indicating a 33 percent drop.

Overall, national tea exports have also continued to decline over the past year from almost 49 000  metric tonnes to 37 000 metric tonnes in 2013, raising the need for the industry to explore other notable emerging markets such as Pakistan, Egypt, Singapore and the US, among others.

“The industry is also being daunted by poor tea prices on average for all other grades except pickled dust (PD) and special cultivars (SC) grades that are doing relatively well.

“Other grades keep registering prices below the cost of production due to an apparent international market glut,” said Thindwa.

For instance, the Limbe Tea Auction, located at Kidney Crescent in Blantyre, registered depressed prices over the peak period January 1 to June 6 this year.

The main grade, special cultivar, has commanded an average of $1.85 per kilogramme (kg) compared to $2.51 per kg, against $1.95 per kg in 2013, reflecting a 25.64 percent fall in prices.

“With the projected record tea production levels by international tea industry heavy weights such as Kenya, the prices are expected to plummet further in the course of the year, creating a dire viability situation for the Malawi tea industry given escalating costs of inputs and production, for which we need to strategically brace ourselves,” he warned.

A recent monthly economic report from the Reserve Bank of Malawi (RBM) showed that earnings from tea has slumped 14 percent year-on-year to $3.1 million (K1.2 billion) from $3.6 million (K1.4 billion) same period last year affected by a drop in prices.

The prices dropped to an average of $1.54 per kg from $1.99 per kg the year before, according to the RBM February economic report.

“The drop in prices was attributed to increased supply on both local and international markets. In addition, the quality of the leaf was compromised by excessive rainfall,” said the RBM.

Figures show that tea sales at Limbe Auction Floors amounted 900 000 kg in February compared to 700 000 kg during the same time last year.

But the data show that cumulative volume of tea sales amounted to two million kg, an increase of 9.4 percent from 1.8 million kg sold in a similar period in 2013.

Apart from tea, Malawi also relies a great deal from tobacco, which wires in more than half of the country’s foreign exchange earnings in a year.

Currently, earnings from the leaf have peaked at 138 million about 11 weeks since the selling season opened on March 24.

Last year, export revenue for tea peaked at K16 billion, a 50 percent jump from the previous year’s K10.7 billion.

But Taml then argued that in dollar terms, the earnings had not gone up due to the devaluation of the kwacha in May 2012.

The RBM devalued the local unit by 49 percent and subsequently floated it to be dictated by the forces of demand and supply.

But commodity experts have said this year, tea earnings are expected to drop largely due to record tea production from some of the tea growing country which could result in reduced demand.