Prices for tea, the country’s second main foreign exchange earner, have dropped by 20 percent in the second quarter (April to June) to around $2.90 (K2 100) per kilogramme from $3.63 (K2 600) per kg, a development that will likely put pressure on the foreign exchange reserves.
In its Financial and Economic Review, the Reserve Bank of Malawi (RBM) has attributed the declining prices to supply glut in Kenya, Africa’s number one tea producer.
The drop in tea prices come hot on the heels of poor prices of tobacco, the country’s main foreign exchange earner, affecting earnings from the crop which are down by about 35 percent.
With tobacco not doing well this year in terms of pricing, analysts have been hoping that crops such as tea could play a critical role in beefing up foreign exchange reserves buffer.
As the country is heading towards the lean period in terms foreign exchange availability, RBM figures, however, show a healthy foreign exchange reserves position.
Gross official reserves—foreign exchange in the custody of RBM—as of last Friday was recorded at $629.14 million (about K458 billion), an equivalent of 3.01 months of import cover.
On the other hand, private sector reserves held in commercial banks was at $337.05 million (K245 billion) during the same period, representing 1.61 months of import cover.
As if not enough, the crop’s output this year is also expected to be lower due to dry spell that hit the country last year, according to Tea Association of Malawi (Taml), showing a declining trend in output for the past six months.
Taml chief executive officer Clement Thindwa in a recent interview said poor weather will likely impact on the crop’s output.
He said the decline has displaced Malawi as Africa’s number two tea producer. The position has now been taken up by Uganda.
He said: “Tea production has been going down since 2009 when we produced about 52 million kilogrammes, and since then there has since been a decline every year due to poor weather.”
But an industry analyst, in an interview, argued that unless Malawi plants better quality and high yielding crop, tea output will continue to fall.
Said the analyst: “Malawi needs to replant tea with better quality and high yielding varieties. This has a high a short-term effect on production as it takes three to five years for the tea bush to come into full production.
“Just to put things into perspective, Kenya, the leading tea producer in Africa after planting high yielding tea, can produce even more in peak production season in just one month.”
The RBM report shows that tea output in the year todate is currently at 19.1 million kg, an increase of 3.2 percent from 18.5 million kg produced in a similar period in 2015 while volume of tea auction sales is at 2.5 million kg, compared to 1.9 million kg sold in a corresponding period last year.
Malawi’s annual average tea output is 46 000 metric tonnes with only two percent of this consumed locally and industry players argue this skewed consumption is worrisome as the industry becomes over exposed to external consumption factors which are largely uncontrollable but volatile, and render business management difficult.
The local tea industry employs over 60 000 people, making it the largest formal labour employer after government and it is estimated that that over 1.5 million people rely on the industry for livelihood through knock-on and ripple effects.