Ethiopia's Foray into the Global tea market Featured

Even though large-scale tea cultivation started in Ethiopia at the same time as countries like Kenya, the country lags far behind in the international market. While the tea exported from Kenya accounts for 22Pct of the total global trade currently, the share of Ethiopia remains less than 1Pct. EBR explores the reasons. 

 Though it is perhaps not well known, the quality of Ethiopian tea is equivalent to that of its internationally renowned coffee. However, the country hasn’t been successful in producing enough tea for international market. 

In fact, it was only a few years ago that Ethiopia managed to satisfy the local demand, despite the fact that 6 million hectares of suitable land is available. By cultivating less than 5,000 hectares of land, Ethiopia exports a little more than 2,000 tons, which satisfies 0.09Pct of the global demand. 

Though Ethiopia started exporting tea five years ago, large-scale tea production dates back to the 1920s. In 1928, in Gore, a small town in the state of Oromia, large-scale tea cultivation began. In 1957 the first public owned tea processing company commenced operation under the brand ‘Gumaro’. In 2000, EthioAgri–CEFT, a company operating under MIDROC Ethiopia Investment Group bought the two commercial tea plantations WushWush and Gumaro along with the Tea Processing and Packing Factory from the government. 

Besides WushWush and Gumaro, Chewaka Tea Estate—a large-scale tea farm located in the South-Western Ethiopia—currently cultivates tea. Established in 1995 by East African Agri Business, Chewaka now covers 600 hectares of land. 

Currently, 2,800 hectares of land is cultivated at Gumero and WushWush. Some 325 small scale farmers located around Gumaro and WushWush plantations cultivate tea on 1,250 hectares, which they sell to EthioAgri–CEFT. Combined, a total of 4,650 hectares of land in Ethiopia is used to cultivate tea. 

Close to 6,000 tons of tea is produced in Ethiopia, annually. From this, 4,500 tons is locally consumed while the rest, is exported. Before Ethiopia managed to fully satisfy the local demand, tea was imported from Kenya and China. And though Ethiopia still brings in a small amount of green, orthodox, and instant tea from abroad, imports of the product have dramatically dropped over the last two years. 

“Currently, EthioAgri–CEFT satisfies 85Pct of the local demand,” claims Isayas Kebede, general manager of the company. “The rest is covered by Chewaka, and imported teas.” Stakeholders stress that tea is long-term crop and cultivation needs huge amounts of capital, a concrete strategy, and suitable environment. “Tea cultivation started in Ethiopia and Kenya around the same time.  But we are not where Kenya is now,” says Isayas. 

Berhanu Tsegaye, director of Coffee Tea and Spices Extension Directorate at Coffee and Tea Development and Marketing Authority, agrees with the fact that Ethiopia is far behind countries like Kenya where massive tea cultivation exists. “Due to lack of government focus, and the absence of a dedicated institution that supports tea cultivation endeavours, the country is unable to utilize its resource.”

The Development and Marketing Authority was re-established in 2015 (it was closed for more than a decade) with the aim of boosting the county’s benefit from the sector. The newly established Authority is accountable to the Ministry of Agriculture and Natural Resources.

“Challenges in acquiring land and lack of incentives are major bottlenecks of tea sector development,” argues Berhanu. “Even companies who have been involved in the tea cultivation and marketing for a long time are discouraged to expand and start additional, large-scale, cultivation because of these reasons.”

Isayas asserts that increasing the number of large-scale tea farms needs exceptional attention. “According to our initial plans, EthioAgri–CEFT should have stated cultivating large-scale tea farms by now. But we lost the past five years, due to different reasons.”

A vast human resource requirement is one of the major challenges facing investors.  “A single large-scale tea farm needs up to 3,000 employees working full-time throughout the year,” explains Isayas. “For instance, EthioAgri–CEFT employs 8,000 people at Gumero and WushWush plantations.”

Despite challenges, Isayas says EthioAgri–CEFT increased productivity to 35 quintals per hectare from 23 quintals per hectare when it acquired the farms by improving management practices.

Tea reaches harvesting stage within three years and can live up to 80 years. Based on the mechanism of harvest, five types of tea—including black, green, and orthodox tea—are produced in Ethiopia. 

“Tea cultivation is very difficult in Ethiopia,” says Zelalem Getachew, sales and marketing director at Ahadu Tea, a company that has been packing and distributing tea for the past 26 years. Ahadu buys 120,000 kilograms of tea from EthioAgri–CEFT annually and packs it and supplies wholesalers and retailers. In Ethiopia, there are 10 firms involved in tea packing.

Zelalem says the company is planning to own its own farm, and start exporting in the near future. “Since competition in the local market is getting stiffer, we need to think outside the box to become competitive, like Kenya, in the international market.”

Indeed, Kenya is among the leading global tea producers. In fact, next to China and India, Kenya is the third largest producer of tea globally accounting for 10Pct of the total world tea production. In 2016, the global tea production amounted to approximately 5.2 million tons of tea according to Statista, an online statistics, market research, and business intelligence portal. China produced approximately 2.35 million tons of tea in 2016 while Kenya produced 470,000 metric tons—almost 80 times higher than Ethiopia. According to the FAO, 10Pct of the population in Kenya is dependent on tea production. Its contribution to the country’s gross domestic product, stood at 4Pct. The FAO states that revenue from tea constitutes 26Pct of Kenya’s export earnings. 

As a major tea producing and exporting country, Kenya also plays a major role in the weekly Mombasa Tea Auction, which has over the years become a centre for Kenya’s tea trade. The auction is an important reference point for the global tea industry, and different types of teas from different countries are sold there.

EthioAgri–CEFT is one of the local companies participating in the Mombasa auction. “We sell half of our product destined for international market through the auction held in Mombasa,” Isayas told EBR. “We also have yearly contracts with Unilever.” Unilever, a British-Dutch transnational consumer goods company, is one of the oldest multinational companies; its products are available in around 190 countries. 

EthioAgri–CEFT also took the lead to introduce Ethiopia’s tea to the international buyers. In 2016/17, the company exported tea worth close to USD3 million.

Ethiopia took some steps to be closer to international markets recently by participating in the 27th International Tea Standard Conference hosted in London in early 2017. It was the first time Ethiopia took part in the annual conference, organized by the International Standards Organization (ISO). The ISO, which is an international standard-setting body, promotes worldwide proprietary, industrial and commercial standards. 

The conference serves two main purposes: crafting standards for different tea types, and connecting tea producers and buyers around the globe.  Member countries pay annual fees; producing countries take the sample of their tea products to the conference. Ethiopian delegates did not do this because Ethiopia is not yet a member. 

Officials and experts from the Coffee and Tea Development and Marketing Authority and Ethiopian Standard Agency participated as guests.  The Agency already requested the ISO place Ethiopia on the membership list, for which approval is expected, according to Berhanu. 

Besides fulfilling quality standards and paying the annual fee, a given country must be a producer or buyer to become member. “Membership helps to expand marketing efforts by meeting all buyers and producers in the world through the platform,” explains Berhanu. “Not many countries know that Ethiopia produces tea. However, we have also learned that Ethiopia’s tea is among the best.” England is long-term customer of Ethiopia’s tea, followed by India and Pakistan.

Yet, Ethiopia’s tea exports remain small for the moment. What was less than 100 tons five years ago, increased to 1,975 tons in 2015/16 and slightly declined to 1,500 tons in 2016/17, according to the information obtained from the Authority. 

Tea generated USD3.7 million in 2016/17, more than the USD3.2 million target set by the government for the period. Out of the total, USD3 million worth of tea was exported by EthioAgri–CEFT in the last fiscal year. 

Considering Ethiopia’s potential in tea production and the growing demand in the international market, stakeholders stress that tea can become major source of export earnings for the country.

Even though Ethiopia’s tea export is currently limited to black tea, experts believe that the consumers at the international market have an interest in different types of tea from Ethiopia.

To diversify its export commodities and utilize its resources, Ethiopia plans to increase the land cultivated by tea from the current level to 1.4 million hectares by the end of the second phase of the Growth and Transformation Plan period, which is 2019/20 and boost export earnings from the commodity to USD1.5 billion. 

“We are studying the experiences of top tea producing countries,” says Berhanu. “The Authority has focused more on coffee so far. But we are trying to bring tea along by establishing a directorate responsible for the development of the product.”

Some foreign investment is also coming into the sector. For instance, a new Indian company is cultivating tea on 70 hectares of land in Godere, one of the woredas in the state of Gambela. The Indian company took 3,000 hectares, of which 200 is already prepared for tea plantation. 

Furthermore, the requests of the existing companies for additional land are being accepted after a long wait. “For so long we were requesting that the government give us land to expand our operations,” Isayas recalls. “Recently, the government gave us 1,000 hectares, which will take ETB200 million to develop. We are waiting for the Development Bank of Ethiopia to release a loan we requested.”

Potential areas for large-scale tea cultivation include Illubabor, Jimma, Welega and Kafa located in the state of Oromia as well as some areas located in the states of Amhara and Gambela.

Berhanu, however, argues that providing large farm areas to investors who want to cultivate tea will not be possible in the future. “Although some investors had requested land in the past, the government was unable to provide it because the areas are occupied by farmers,” he explains. “Unlike coffee, tea cultivation needs empty farm land. So, we have to move the farmers and clear the forest, which is very difficult to do.”

As a result, the Authority is planning to shift its attention from large-scale tea cultivation to small-scale farming. “The plan is to support smallholder farmers located in the potential tea areas. We have visited various countries to decide what type of technologies would suit our small scale farmers.”

According to Berhanu, the government’s plan is to develop smallholder farms into cooperatives. “Over 60Pct of Kenya’s tea is produced by cooperatives. This can be a good lesson for Ethiopia.”

To achieve its target, the Authority has trained 64 smallholder farmers in 2016/17, distributed three million germinated tea seeds, loans, and inputs. “Tea farming is highly advantageous and increases farmers’ income more than any other crop. We have witnessed that the farmers are highly motivated to cultivate tea,” said Berhanu. 

On the other hand, Isayas stresses that the government must give more attention to investors by solving land related problems and providing coordinated support and incentives packages. “Tea cultivation cannot be done on a massive scale without large-scale production and the involvement of investors.”


6th Year . February 16  - March 15 2018 . No.58


 

 

Ethiopian Business Review

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