KTDA 2018: A new loan to develop orthodox tea production in Kenya

The Kenyan model is unique in the world: over 600,000 small planters own 54 Tea Companies, which provide 60% of the country’s total production. Together, they are consequently both the country’s leading tea producer and exporter (+USD 600m of sales a year). 

The Tea Companies are in turn direct shareholders and owners of KTDA Holding, a service provider which operates throughout the value chain with various subsidiaries responsible for logistics, sales and distribution, inputs, technical assistance to planters, microfinance, renewable energy and management services for each factory. 

This model allows KTDA’s planters to receive the highest remuneration in the world (70-75% of the turnover of each factory is paid back to the planters), while producing “CTC” tea, which is recognized for its quality, with a price premium at the Mombasa auctions (the world’s main marketing place for this type of tea). 

The project concerns 5 Tea Companies, i.e. 56,000 small planters. The objective of the financing is to allow:

• 4 of these factories (located in Kimunye, Gitugi, Imenti and Thumaita) to produce “orthodox tea”. This new type of tea will allow them to diversify their source of income in terms of new export markets and will mitigate the impact of price volatility. CTC tea is the tea traditionally produced in Kenya. It is a very robust black tea used by international buyers to make blends. Orthodox tea is a milder tea of better quality, made using the same leaves, but with a different production method, and is traded over-the-counter. 
• Concerning the fifth factory (Mogogosiek), the objective is to support growth in its production of CTC tea with the refinancing of Boito, its new satellite factory. The Boito factory will increase the capacity by 15 kT and will process tea from the 7,600 shareholder small producers.

The 5 tea companies currently employ over 1,000 people, including 52 permanent jobs already created thanks to the construction of the Boito factory. The project should create 10 additional jobs in each of the 4 factories where the orthodox tea production lines will be installed, thereby supporting a total of 1,053 jobs over the next 5 years. 

Orthodox tea will also allow small planters to diversify their source of income. According to PROPARCO’s estimates, these activities allow small planters to earn about EUR 1,000 a year, i.e. EUR 84 a month, in a country where over 33% of the population lives on less than EUR 1 a day. 

PROPARCO’s operation will support a key player for the local economic sector: by introducing the manufacturing of orthodox tea into KTDA Group, which produces some 60% of national tea production, the project will also have knock-on effects on the entire tea industry in Kenya. This industry accounts for 4% of national GDP and provides a livelihood for 11% of the population.  

Finally, the project will have positive impacts on the balance of payments, as KTDA is the leading tea exporter in the country, which its itself the world’s largest tea exporter. Orthodox tea will also allow KTDA to develop exports to new markets. It is estimated that the additional exports attributable to the project will amount to some EUR 18m a year. 

PROPARCO will be playing an advisory role in this operation with the establishment of an environmental and social (E&S) action plan, in particular with the aim of improving the implementation of KTDA’s E&S management system. Discussions are also ongoing with KTDA concerning technical assistance for the marketing and sales plan for orthodox tea.