Kenya’s economy faces fresh concerns following the latest Kenya National Bureau of Statistics (KNBS) Economic Indicators Report for December 2024, which revealed a sharp decline in tea and coffee exports. These two commodities are among Kenya’s top foreign exchange earners, contributing significantly to the country’s revenue. The decline in their export volumes raises serious questions about the future of Kenya’s agricultural sector and overall economic stability.

The report noted that tea exports in December 2024 dropped to 49,700 metric tonnes from 53,300 metric tonnes in November, while coffee exports fell drastically from 4,121 metric tonnes to 2,647 metric tonnes. In monetary terms, coffee export earnings declined from Ksh2.9 billion in November to Ksh1.9 billion in December, marking one of the lowest figures recorded in recent years.

These findings paint a troubling picture, given that tea alone accounts for approximately 23% of Kenya’s foreign exchange earnings, and agriculture remains the backbone of the country’s economy. With diminishing export volumes and a decline in overall trade value, concerns are growing about the long-term sustainability of the sector and its impact on employment, foreign exchange reserves, and economic growth.

Decline in Tea Exports: Causes and Effects

Tea is Kenya’s leading agricultural export, earning the country over Ksh120 billion annually. Kenya is the world’s third-largest producer of tea after China and India, with annual production averaging 450 million kilograms. The country is also the leading exporter of black tea, supplying markets such as Pakistan, Egypt, the UK, and the UAE.

Key Factors Behind the Decline in Tea Exports

1. Unfavorable Weather Conditions
   • The tea sector is highly dependent on rainfall, and fluctuating weather patterns in 2024 contributed to lower tea production.
   • Erratic rainfall and prolonged dry spells affected tea plantations, particularly in Kericho, Nandi, Nyamira, and Murang’a, where a significant portion of the crop is grown.
2. Global Market Fluctuations and Demand Decline
   • Pakistan, Kenya’s largest tea export market, has been grappling with economic challenges, leading to reduced tea imports.
   • Economic downturns in Egypt and the Middle East also affected demand.
3. High Production Costs
   • Increased costs of fertilizers, fuel, and labor have made tea production more expensive.
   • Rising electricity and fuel prices in Kenya, coupled with taxation policies, have significantly increased processing costs in tea factories.
4. Competition from Other Markets
   • Kenya is facing growing competition from Rwanda, Sri Lanka, and India, which have been expanding their tea export markets.

Impact of Declining Tea Exports

• Reduced Foreign Exchange Earnings: The drop in tea exports directly affects Kenya’s forex reserves, which are crucial for stabilizing the Kenyan shilling.
• Job Losses: Over 650,000 smallholder farmers and thousands of workers employed in tea plantations and processing plants face uncertain futures.
• Government Revenue Decline: Tea exports contribute billions in taxes and levies, and reduced volumes could widen the country’s budget deficit.

Collapse in Coffee Exports: A Sector in Crisis?

Kenya’s coffee sector, once a key pillar of the economy, has faced a steady decline over the past two decades. The latest KNBS report shows a further drop, with coffee exports plunging to 2,647 metric tonnes in December, compared to 4,121 metric tonnes in November.

Why is Kenya’s Coffee Sector Struggling?

1. Declining Coffee Production
   • Small-scale farmers, who make up 75% of coffee growers, are shifting to more profitable crops such as avocados and macadamia nuts due to low coffee prices and delayed payments.
   • Kenya’s total coffee production has dropped from 130,000 metric tonnes in the 1980s to an average of 40,000 metric tonnes annually.
2. Poor Management and Corruption
   • The Kenya Coffee Board and cooperative societies have faced allegations of mismanagement, leading to delayed payments and low farm-gate prices.
   • Many farmers complain that middlemen and cartels in the Nairobi Coffee Exchange exploit them by buying coffee at artificially low prices.
3. Global Market Fluctuations
   • Oversupply in global markets and declining demand from key buyers such as the USA, Germany, and Japan have contributed to lower prices.
   • Countries such as Ethiopia, Colombia, and Vietnam have strengthened their coffee export sectors, providing stiff competition.

Economic Consequences of Declining Coffee Exports

• Lower Foreign Exchange Revenue: Kenya relies on coffee as a key foreign exchange earner, and declining exports hurt the country’s ability to import essential goods such as fuel and machinery.
• Farmer Exodus from Coffee Growing: More farmers are abandoning coffee farming, leading to a reduction in acreage under coffee production.
• Loss of Global Market Share: Kenya risks losing its position as a leading exporter of premium Arabica coffee if production continues to decline.

Overall Decline in Domestic Exports and Trade Volumes

The KNBS report also highlighted a drop in the overall value of domestic exports, which fell to Ksh69.4 billion in December 2024, marking an all-year low.

• The total trade volume dropped from Ksh313.6 billion in November to Ksh298.7 billion in December, raising concerns about Kenya’s trade balance.
• Food and beverages, which make up 40.8% of total exports, fell from Ksh31.3 billion in November to Ksh28.3 billion in December, reflecting weak agricultural exports.
• The price of dry beans, a staple food, dropped from Ksh153 per kilo in November to Ksh150 in December, providing some relief to consumers.
• Dry maize prices fell to Ksh50 per kilo in December, down from Ksh70 per kilo in December 2023, signaling improved supply.

Key Trade Partners: Export and Import Trends

Kenya’s Major Export Destinations (December 2024):

• Uganda – Ksh7.4 billion
• USA – Ksh6.0 billion
• Pakistan – Ksh5.2 billion

Top Import Partners:

• China – Ksh53.2 billion
• United Arab Emirates (UAE) – Ksh33.1 billion
• India – Ksh18.8 billion

Kenya continues to import more than it exports, leading to a widening trade deficit. The heavy reliance on imports from China and India, especially for machinery, electronics, and pharmaceuticals, puts pressure on Kenya’s forex reserves.

Conclusion: A Call for Urgent Policy Action

The declining performance of Kenya’s tea and coffee exports poses a significant threat to the country’s economic stability. Given that agriculture remains the largest employer and a key driver of foreign exchange earnings, urgent measures are needed to revive the sector.

Key Recommendations:

1. Invest in Climate-Resilient Agriculture
   • Implement policies to support farmers in adapting to climate change and ensure consistent tea and coffee production.
2. Address Governance and Market Inefficiencies
   • The government must eliminate middlemen, enhance transparency in coffee auctions, and ensure timely farmer payments.
3. Diversify Export Markets
   • Explore new markets in Asia and the Middle East to reduce over-reliance on Pakistan and the USA.
4. Support Value Addition
   • Invest in local processing of tea and coffee to increase earnings rather than exporting raw produce.

If these challenges remain unaddressed, Kenya risks further declines in agricultural exports, loss of global market competitiveness, and economic hardships for millions of farmers. The time for decisive action is now.

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photo source : Google

By: Montel Kamau

Serrari Financial Analyst

19th February, 2025