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(Bloomberg) -- Kenya’s black tea export volumes are poised to decline for the first time in five years after East Africa’s worst drought in four decades stymied crop planting and demand from its top buyers slowed.
Overseas sales fell 22% to 333.4 million kilograms in the first nine months of the year and are on track for the first decline since 2017, according to the Tea Board of Kenya. Production dropped about 2% in the period. The largest markets for Kenyan tea between January and September were Pakistan, Egypt, the UK and the United Arab Emirates, accounting for 69% of exports.
Reduced supplies, with output dropping in competing producers including Sri Lanka, helped drive prices and bolstered revenue for Kenya, the world’s biggest exporter of black tea. But a lack of investment in increasing yields may hurt the future of the industry that along with horticulture is the East African nation’s biggest merchandise foreign-exchange earner.
Investors are being deterred by labor-union opposition to industry plans to deploy tea-picking machines, said Paras Shah, managing partner for Kenya at legal firm Bowmans
“Foreign investors get very scared of this,” Shah said. “A lot of these, in my opinion, are perhaps activist-led and the government really needs to streamline and fix these issues and provide clear direction on the future of labor in the tea and agricultural sectors.”
Complicating matters is that a $5.1 billion plan by buyout firm CVC Capital Partners to purchase Unilever Plc’s tea assets across the world has stalled in Kenya. The sale of some of the world’s best-known tea brands, from Lipton to PG Tips, included the disposal of Unilever’s stake in Kenya’s Limuru Tea Plc to Ekaterra Tea Kenya Plc. The transaction has been challenged by Limuru’s minority shareholders in the East African nation.
Unilever didn’t respond to requests for comment.
Investment in improving yields would help Kenya insulate itself as climate-driven weather disasters hurt crop output in the region. In the Horn of Africa, to the northeast of Kenya, rains have failed for five consecutive seasons, with the last one having been the driest in 70 years.
Other factors hampering investment include a Kenyan law prohibiting foreign ownership of agricultural land.
“In the last 10 years, there have been two or three attempts to abolish foreign ownership restrictions in the agricultural sector,” Shah said. “Those have failed and I think this government should focus on making this sector more attractive by making it easier to invest in.”