The weekly Mombasa tea auction is at the center of the tea trade in Kenya, and an important reference point for the global tea industry.
It is the only centre where teas from different countries are sold alongside each other, and therefore helps to establish price levels and differentials for teas all over the world.
It is important to understand how the auction works, and this short guide is designed to help those visiting for the first time, and anyone else who needs a basic understanding.
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The Export Auction System was initiated in November 1956 in Nairobi on a very small scale with only small quantities of secondary grade teas offered fortnightly under the auspices of the East African Tea Trade Association (EATTA). The bulk of East African tea production was directly consigned to the London Auctions. In time, East African Producer members considered it worthwhile to offer additional volume and quantity in the local export auctions. As quantities increased, the incentive for international buying concerns to open up offices in Kenya grew. Gradually, more international buyers were attracted, spreading interest to markets other than the U.K. In 1969 it was decided by both Producer and Buyer members of the Association that, as tea was mainly warehoused, handled and shipped from Mombasa, the Auctions be moved from Nairobi to the Port of Mombasa.
The Auctions are held weekly, on Mondays and Tuesdays. There is presently, a main grades auction held on Tuesdays and secondary grades auction held on Mondays.The variety of quality and progressively increased quantities offered have made Mombasa the second largest black tea auction centre in the world after Colombo in Sri-Lanka. Unlike India and Sri-Lanka where tea is seasonal, production in this region is all year round. Mombasa has gained a reputation as a centre for some of the best CTC top grades in the world and an international blending floor with teas coming from within and outside Africa for blending. Every major tea producing and consuming country focuses on the weekly activities in this centre to gauge the market trends and create benchmarks for their international prices of tea. Due to the success story of the Mombasa auctions, courtesy of the EATTA, more producing countries continue to join the Association.
Presently there are offerings from Kenya, Uganda, Tanzania, Rwanda, Burundi, Democratic Republic of Congo, Malawi, Madagascar,Mozambique and Ethiopia.Producers from as far as New Guinea and Indonesia have expressed their wish to join the Association and have their teas offered in the Mombasa auction. Mombasa is now the only auction centre in the world trading in straight-line teas from more than one country. Quantities have grown by over 300 percent in the last 20 years. This could not have been possible without the tight checks and controls in the whole system. These checks range from setting minimum standards to severe disciplinary action against errant members of the trade as EATTA is often the platform for addressing problems affecting members.
The auctions attract principal overseas interest from the major tea consuming countries in the world with the United Kingdom, Pakistan, Egypt, Afghanistan, Sudan, Iran, Yemen, United Arab Emirates, Ireland, Somalia, Canada and Singapore as the major players. The Buyer representation spreads over more than fifty countries internationally. The Buyer members, by way of obtaining supply contracts, effectively promote and market African tea abroad. With the closure of the London Auction in 1998 the volumes offered at the Mombasa Auctions have considerably grown with an expectant market expansion. Tea Exporters are required to register all Sale Contracts with the Tea Directorate within thirty days of being finalized in a Contract Registration Form together with the relevant export documents.
A certain percentage of tea is sold by Brokers through Private Treaties to Buyer members which is a complementary feature to the weekly Monday Auctions. Teas bought from the Auction or by Private Treaty, in accordance with the Constitution of the Association, may be exported or packed and sold on the local market, in accordance with the Laws of Kenya. Import Duty and Value Added Tax are payable on any Non-Kenyan teas removed from a Warehouse for home consumption.
Sale No. 42 of 26th October, 1992 is fondly remembered as the sale the Mombasa Tea Auction went international by conducting a most successful US dollar auction in accordance with Kenya Government Policy as per Exchange Control Circular No. 5/92/13 of 15/10/92. Although there were a few teething problems, the system entrenched itself within a short while. This is a big step which neither India, the largest producer of tea nor Colombo, the biggest auction in the world, have managed to achieve to-date. All sales are held under the self-regulating rules and regulations of the EATTA which ensure fair play. Trade is between members. Auction sales are numbered on an annual basis starting with Sale No.1 on the first Monday in January and ending with sale 50 or 51 in December.
The Association regularly works towards further improvements in warehousing, handling, shipping and communications in order to attract the international buying support that is so essential for the success of the East African Tea Trade. The largely unexplored opportunities in the value added export market are an area for the Packer members to address. The Government is encouraging growth in this sector with facilities such as export processing zones. Other incentives such as VAT and import duty exemptions on packaging machinery and materials, soft loans and tax holidays will greatly enhance activity in this area.
The activities of the Association are driven by a Board of directors, which meets quarterly. The Board comprises six Producer representatives, three Buyers, one Brokers and one Warehouse and one packer representative elected each year in rotation at an Annual General Meeting. In turn, the Board elects a Chairman and Vice-Chairman and appoints Committees to transact its business on its behalf. The Association has functioned effectively through four committees each chaired by a board member.
To take care of their sector's special interests, the different categories of members have formed their own Sub-Associations under the umbrella of the EATTA. These are the Tea Producers’, Tea Buyers', Tea Brokers', and Tea Warehouses Associations.
The day to day administration of the Association is provided by a Secretariat based at the Tea Trade Centre on Nyerere Avenue, Mombasa where the two auction centre are housed. The Secretariat compiles and circulates statistical information and trade enquiries to assist members in their sales operations. Minutes of all Association meetings are recorded and filed at the Secretariat, which operates on funds raised from members' annual subscriptions.
Regular consultations and meetings are held between the various related central government Ministries, departments and other allied trades such as the Kenya Ports Authority, the Shipping lines, all in the interest of the tea trade in the region. The Association's Board works closely with the Tea Board of Kenya, which is the apex of the Industry in Kenya. A Tea Convention held after every two years, is organised by the EATTA.
The East African Tea Trade Association was formed in 1957 to promote the best interest of the Tea Trade in Africa.
The Association's objects are:
The Association has approximately 300 corporate members of six categories
With a current membership of about 240 members from across the tea industry, East African Tea Trade Association (EATTA) is the most credible and authoritative membership organization that is fully in charge of this crucial sector in the region.
Its insuperable history dates back to 1956, when a handful of tea producers, buyers and brokers came together and founded the Association. They decided that the practice of consigning all the Kenya and East Africa’s teas to the London Auction in the United Kingdom was not a very wise thing to continue doing. “Why should Kenya not have its own auction system?” This was the pondering question in the minds of the determined pioneers of the tea trade.
They established Kenya Tea Export Auction, as was then known. However, the amount of tea offered at the auction was very small. The new auction mostly dealt with the secondary grades. Kenya’s annual production of tea was just 10 million kilos then and the bulk of it was still finding its way to the London Auction. This however never killed the morale of the local auction initiators.
The auction was done after every two weeks at Plantation House, along Haile Selassie Road, Nairobi, which remained the venue of the tea business until 1969 when EATTA members resolved to have it relocated to Mombasa. The relocation of the auction from Nairobi to Mombasa was itself not without some controversy and strong opposition from a section of the members. For this reason, the process to relocate took nearly two years.
A meeting of the EATTA Management Committee held at Grand Hotel in Kampala on July 23, 1968 mooted the idea of relocating the auction from Nairobi to Mombasa. Participants in the meeting held in the afternoon after an International Tea Conference in the hotel, agreed in principle on the relocation. But they had to circulate minutes of that decision to members in order to get their views.
Present at the Kampala meeting included representatives of the African Tea Brokers Ltd, Kenya Tea Development Authority (KTDA) as it then was, The African Highlands Produce Company Ltd, Kenya Tea Company, Salama Ltd, Abangulu Ltd, Brooke Bond Mombasa Ltd, Stansand (Africa) Ltd, Uganda Tea Brokers, Phillips Harrison and Crosfield Ltd and the Uneximp Ltd.
The members instructed the Committee Secretary Mr. E.B. Sadharwala of George Williamson to circulate the minutes of the resolution (on relocation) to all the EATTA members and to give a six-week notice. It however was a big setback for pro-relocation members when a Management Committee meeting held on November 5, 1968 chaired by Mr. M.J. Clarke heard that only 43 members had voted in favour of the relocation against 76 members who said they preferred the auction to remain in Nairobi. Seven members had abstained in voting while 31 others were yet to respond.
Many members mainly producers complained that it would be very costly for them to travel all the way to Mombasa to attend auctions. Those from Uganda and Tanzania also felt Mombasa was going to inconvenience them.
It happened that more and more tea buyers and brokers were opening their offices in Mombasa where they warehoused their teas and booked ships to export it after having bought it at the Nairobi auction. The brokers and buyers told the producers that they stood to realize better prices for the commodity once the auction was moved to Mombasa. These developments helped to build a case for relocation and it was not long before majority members saw the sense of the proposed shift. Come 1969 and all roads led to Mombasa, the town that would henceforth host the auction to-date and the future.
At the same time, the tea offerings at the auction grew significantly compared to the early years of the Nairobi auction. In August 1968, when the auction was still in Nairobi, the then EATTA Chairman Mr. O. Brook reported that membership had reached 155 comprising of 63 buyers, 76 producers, 4 brokers and 12 associate members. The offerings, on the other hand, had grown to 195,112 chests and a weekly auction was initiated on a trial basis.
Another significant development in the management of EATTA took place in the same period when a special meeting was convened on August 20, 1968 purposely to alter the organisation’s constitution and the rules and regulations, to pave way for the establishment of an all powerful 12-man Management Committee mandated to oversee the day to day operations of the Association on behalf of the members. This management structure exists up to date and has helped in the smooth running of the Association.
Many problems dogged the tea sector in the 1960s, 70s and the 80s. These included delays at the Mombasa Port, high shipping costs, drought, fluctuation of prices, sometimes-unfriendly government regulations and packaging for export. However, through its growing influence, EATTA was able to ensure most of these problems were addressed except those that were obviously beyond its control like the weather conditions and the fluctuations in the world market.
EATTA has been able to negotiate reasonable shipment rates with the shipping lines for its members. It has over the years worked closely with the relevant government institutions like the Kenya Ports Authority (KPA), Kenya Bureau of Standards, Tea Board of Kenya (TBK), the Ministry of Commerce and Industry, Finance Ministry and that of Agriculture, among other institutions, to ensure all emerging issues affecting the industry are tackled with due diligence.
An important part of its mandate is to ensure that teas imported into the country for sale at the auction are cleared by the Customs without unnecessary red tape. The Mombasa Auction currently serves 11 countries and it would be foolhardy for the government to put blocks on the official routes through which the commodity is brought into Mombasa for sale.
The tea handling chain has to be foolproof to avoid mix-ups and compromise on the standards. Therefore, back in 1981, the Association saw the need to put in place a detailed code of practice for the warehousing operators. The code that was prepared by the Tea Brokers Association sets out guidelines on tea handling, a system that eases the work of identifying unevenly bulked tea before it is entered into the catalogue.
EATTA has also proved its mettle as an effective self-regulator by successfully enforcing quality standards instead of depending on the government. The importance of the Mombasa Auction continues to grow. Containerized shipments introduced in the late seventies, created further interest from international tea buyers who soon realized the advantages of quick and safe shipment to destination. Thereafter, the conversion of packing to easily palletized paper sacks stretch-wrapped and containerized for shipment has been an additional incentive to exporters.
The introduction of bidding in US dollars in October 1992 has also proved a further strong incentive to producers offering tea in the Mombasa Auctions and additional quantities not only from Kenya but also from the other EATTA-member countries mentioned earlier. This allows payment for teas sold in US dollars ten working days from the date of sale and obviates any devaluation in local rates and ensures rapid payment in a stable currency.
Some more recent challenges affecting the tea traders locally have included the following: poor infrastructure, inefficiency of the Mombasa Port, insecurity, tea hawking, high production costs and depressed tea prices.
However, through lobbying, EATTA has been able to impress upon the relevant authorities to effect various intervention measures. Many roads within Shimanzi area where most warehouses are located are currently undergoing rehabilitation and the same case applies to the highways connecting the Kenyan port town with its hinterland where tea originates.
To ensure producers realize better returns for their tea, the Tea Board of Kenya is currently working out a strategy to facilitate tea value addition initiatives through blending, packaging and branding of the Kenyan tea. These activities have been minimal and the investors have complained over the lack of incentives and favourable legal and policy structure.
The United Nations Environment Program (UNEP) is working closely with EATTA on a new project dubbed “Greening the Tea Industry in East Africa” that would involve setting up small hydro power projects to supply tea factories with their energy needs instead of continuing to rely on firewood, which is expensive and has had a devastating effect on the environment.
Production cost comprises 60 per cent of the tea prices realized at the Mombasa auction, 30 per cent of which are energy costs. It is estimated that reverting to HEP energy would help reduce the energy costs to 12 per cent thereby improving the producers’ profit margin substantially.
The primary functions of the association are:
