Cargill Kenya shifts focus to grains, leaves tea auction market

KENYA – Cargill Kenya Limited, a major buyer at the Mombasa Tea Auction for over 40 years, has announced its withdrawal from the market, raising concerns about the future of tea prices and farmers’ earnings. 

The multinational will focus on trading grains such as wheat, maize, barley, and soybeans, leaving a significant gap in the auction dynamics.

The Mombasa Tea Auction is a pivotal hub for East African tea, handling produce from Kenya, Uganda, Tanzania, Rwanda, Burundi, and other regional suppliers. 

Cargill’s departure affects a marketplace already under pressure from oversupply and pricing instability.

Declining influence and market shift

In the nine months to September, Cargill purchased 22.6 million kilograms of tea, representing 5.86% of the total auctioned. This marked a steep decline from its 2022 peak, where it accounted for 13.3% of total tea sales, valued at US$180 million annually. 

The company had been scaling back its purchases since 2022, buying 44% less tea compared to the previous year.

Cargill’s exit, which includes the closure of its tea operations in Mombasa and the loss of 40 jobs, indicates both internal strategy changes and external challenges in Kenya’s tea industry. 

While Cargill focuses on grain trading in Nairobi and Nakuru, other auction players, including Global Tea Commodities, Chai Trading Company, and LAB International, are poised to fill the void.

Oversupply and price pressure

Kenya faces a massive oversupply of 100 million kilograms of unsold tea, valued at Ksh32 billion (US$247.1M). 

This surplus, far exceeding the global minimum stock of 40 million kilograms, has led to depressed prices. Issues such as quality concerns, market mismanagement, and cartel influence have compounded the problem, weakening Kenya’s competitiveness.

The government previously set a minimum reserve price of US$2.4 per kilogram to protect farmers but suspended it in August 2023 to boost demand. 

This policy shift allowed tea to sell below US$2 per kilogram, further eroding its market value. By contrast, regional competitors like Rwanda have maintained stronger market positions, with tea fetching as much as US$4.02 per kilogram.

Government intervention

In response, the Kenyan government has recently formed a 15-member task force to address the tea crisis, focusing on pricing policies, warehousing, and regulatory practices. 

This initiative also includes an assessment of the Kenya Tea Development Agency (KTDA), which oversees the majority of smallholder tea factories.