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    Njeru Industries shakes up tea buying with fast payments

    pimage-9047-357-photo.jpgBy George Munene

    Creating a private tea processor can be an uphill struggle, but Njeru Industries, which is now moving to buying 10m Kgs of tea a month, has proven that farmers will move to private processors when the payment terms are better: further showing that buyer competition can serve smallholders far better than a single buying board.

    Njeru Industries is a family-owned tea estate and tea processor located along Nanyuki Road at Makutano, Meru. From its first establishment as a cottage tea processor, back in 2013, the sector’s dominant buyer the Kenya Tea Development Authority (KTDA) was contending its existence, initially arguing that it would encourage tea hawking. As recently as last year, KTDA raised a complaint that the private company didn't have the 250 hectares minimum required to process orthodox black CTC tea.

    KTDA has also repeatedly accused the company of contravening Sections 14 and 19 of the 2013 Crops Act that bar factories from buying green leaf from any person other than the grower appearing in its register and the farmer from selling their tea to any party other than the factory they are registered to.

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    Despite this, the company has thrived, thanks to its better pricing per kilo, which is fixed and predictable, and its prompt payment, which has proven too beneficial for farmers to pass up versus KTDA’s slow and variable payment system.

    Njeru Tea offers farmers Sk30 per kg quickly versus KTDA's current Sh16 plus a bonus later on. The catch is that with Njeru farmers forego any bonus payment. This is significant, because bonus payments can constitute more than half the year’s earnings across the tea picking from the beginning of July every year and ending in June.

    The KTDA bonuses are offered to farmers bi-annually; once in May - referred to as a mini bonus, this is a cut of the main bonus that is given to farmers in October or November. This year's bonus is speculated to come in per kilo in the Sh36-Sh38 range, taking the total KTDA price per kilo to around Sh52 with the initial monthly payment and the bonus too..

    But the delays in payment create multiple problems. The first relates to the payment of the tea pickers.

    KTDA has also been instrumental in drawing up the payment guidelines for tea pickers that now sit at Sh12 per kilo. The rules say farmers must also provide morning tea and lunch to their pickers, but this catering is often too much hassle for farmers, so they tend to add an extra shilling or two per kilo to the picking rate and forego feeding their workers.

    Thus, essentially the farmer pays out Sh13 for every Sh16 they'll make for the day on selling their tea to KTDA. But they also end up with a cash flow issue. The pickers are paid on the day. But the KTDA Sh16 per kilo payment is not settled until the end of the following month. Whereas with Njeru, farmers are guaranteed to have their Sh30 per kilo monthly earnings in their accounts latest by the 10th of every month.

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    In weighing up this faster payment, many tea growers, as smallholder farmers, are finding the draw of a one-off monthly pay to meet their daily demands is far greater than waiting for up to six months for KTDA's lump-sum payment.

    They are also able to earn for far more kilos in total with Njeru.

    The infamous two leaves and a bud demanded by KTDA factories has been a bone of contention for many farmers. Stories of farmers having their leaves (which they've already paid to be picked) refused for not meeting this strictly enforced standard are all too common. This has led to built-up resentment, previously just verbalised, but now, with a viable buyer for their tea in place, driving farmers to do something about it by selling instead to Njeru. Farmers picking for Njeru Industries are allowed up to 3 leaves and the stock - this is arduous for the pickers, but means far more kilos for both them and the farmer, with 20 Kgs of KTDA picked tea translating into as much as 40-50 Kgs of Njeru tea.

    Once this sum is added, farmers are finding they can replace an initially slow payment of Sh16 and the bonus of another Sh36 or so as a lump sum later, with a rapid payment of Sh60 or more for the same costs.

    Farmers also complain that the method used in determining the bonus rate given to different vibandas is arbitrary and opaque. Farmers delivering their tea to Weru factory are often peeved as to why their bonus rates are always lower than those offered to their counterparts a few kilometres away at Kinoru.

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    But as they switch, KTDA is arguing that it has invested in farmers by offering them subsidised fertiliser and loans. The mini private factories are now reaping from these investments made in farmers who have jumped ship, it says.

    However, nothing in the tea business is ever as it first seems. Farmers argue that the KTDA-provided fertiliser isn't as effective on their tea bushes - a hard fact to disprove given the fertiliser is KTDA branded - it's provenance and contents are, therefore, hard to verify.

    By contrast, Njeru is now promising branded Mavuno tea fertiliser to farmers.

    The loans issue is a real one. The payments regime of delayed payments has pushed most small tea farmers into a vicious borrowing loop, most often with KTDA’s Greenfeather loan scheme.

    The size of loans a farmer is eligible for depends on the amount of tea picked over their history with KTDA. These loans are deducted at Sh4 for every kilogram picked for the month with the remainder docked off the bonus earned. Payable over 2 years, farmers are often encouraged to borrow even more once they conclude paying the first-year tranche.

    Most have to, as the Sh4 means the Sh16 is reduced to Sh12 and does not cover the cost of pickers, leaving the farmers often with nothing to live on until the late bonus.

    The loan schemes, strict dictates on tea plucking and what farmers pay to their pickers are why a common refrain amongst farmers is that all they are is subcontractors, with KTDA effectively owning their farms, and by extension themselves.

    But the threat of private competition has seen KTDA keen to move even further down the same path of tying up farmers, such that it even started contracting farmers to mandate KTDA as their exclusive tea buyer. However, it was a practice deemed predatory and in breach of the tenets of a liberal market and saw President Kenyatta decree it be stopped.

    However, it's not all roses and rainbows with Njeru Tea: there's no insurance facility, while loan schemes to farmers are only just now being introduced.

    Despite this, those who were early converts are reporting good tidings and more farmers are opting to take their tea to Njeru collection points that are being put up across counties, while they also keep supplying a bit of their tea to KTDA to maintain their company number, slowly keep servicing their loans, and keep qualifying for the Kinga ya Mkulima insurance scheme outsourced from Britam.

    An agent of Njeru Tea Industries at Muthambi, Tharaka Nithi, said the private company’s plan is to process no less than 10m kilograms of tea leaf monthly. Whether this proves to be sustained, for now, it means tea farmers are for the first time in their lifetimes enjoying an essential right to a choice that they've never known before.

    The private company is also showing KTDA what works best in attracting farmers as suppliers, in market demonstrations the authority can easily learn from if it chooses to.

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