Kenyan tea firm Williamson Tea reported a rise in pre-tax profit for the first half ended September, while peer Kapchorua posted a fall, and both said falling tea prices were likely to hurt their full-year performance.
Williamson Tea, which shares owners with Kapchorua, said its pre-tax profit rose 32 percent to 526 million shillings ($6.1 million), while that of Kapchorua fell 27 percent to 109.9 million shillings.
Kapchorua’s turnover fell to 523.4 million shillings in the period from 589.4 million shillings in the same period last year, while that of Williamson rose to 1.64 billion shillings from 1.5 billion shillings.
Both companies expressed concern at falling prices for tea at the Mombasa-based tea auction that handles sales for the commodity from Kenya and other countries in the region, coupled with increased tea production.
“It is a matter of national concern that the international tea markets have declined sharply over the period under review with the Mombasa auction prices currently a huge 30 percent below 2012, and now standing at a seven-year low,” they said in a statement late on Thursday.
“The Kenyan crop has increased by 20 percent in the period over 2012 which has combined with increases in crop in other major tea producing countries to create a very weak and commercially unsustainable tea market in Mombasa.”
The two companies said they would have to drastically cut the price they pay for green tea leaves from small scale farmers who supply them.
Kapchorua and Williamson said they also had to contend with rising input costs and that they only managed to make profits by controlling costs on their own green tea production.
“We anticipate very demanding trading conditions and therefore a significant decline to prices we receive for contracts in the forthcoming months,” they said.
“As a consequence we expect much lower returns until we witness a positive shift upwards in market sentiment and actual prices paid … The weak market is therefore likely to negatively impact our next six months.”
Kenya is the world’s leading black tea exporter and the crop is a major foreign exchange earner in east Africa’s largest economy, alongside horticulture and tourism.