The genesis of tea mess: How politicians turned industry into a cash cow

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Before 1987, Kenya had only three tea brokers — and that was before things started going south. Now, as matters get worse within the sector, even the brokers are complaining.

To become a broker in those days, one had to apply to both the East African Tea Trade Association (EATTA) — a body which controls the tea trade in eastern Africa at the Mombasa auction — and the then regulatory authority, the corrupt and inept State-run Tea Board of Kenya (TBK).

INSIDER TRADING

But when the Kenya Tea Development Agency (KTDA) chairman, the late Stephen Mugambi Imanyara and his predecessor Eustace Karanja, opened their own brokerage, Centerline, the game changed.

And after President Daniel arap Moi’s children teamed up with his son-in-law, the late Stephen Kositany, to join the show with the brokerage Bicorn Exim Limited, what followed was a muddied field where politics and commerce dined together.

By becoming a broker — as well as custodian of farmers’ tea — Mr Imanyara, who used to own Imenti House in Nairobi, had broken all the rules in the book and gotten away with it. The same practice was a norm at the Coffee Board of Kenya where its directors were also traders and brokers. It led to the collapse of the sector.

Those who held regulatory authority became the wealthiest tea traders in Kenya. Mugambi was the sole transporter of KTDA tea and the king of insider trading.

Before that, the only local broker was the late Philip Wahome’s Tea Brokers of East Africa, which was registered in 1978 by George Emks, who owned majority shares.

After the death of Mr Emks, Mr Wahome, the first indigenous Kenyan to establish a local bank — Continental Bank of Kenya — bought the company and brought on board then Vice-President Mwai Kibaki and their mutual friend, David Mathenge.

At what point things went south remains a puzzle. But the issue of politicians and agriculture insiders with interest in the tea trade was raised as far back as 1999 by former Githunguri MP Njehu Gatabaki, when he told Parliament: “The problem with KTDA is that everybody, from the senior officer to the lowest officer, deals in the business of selling, marketing and procurement of tea services.”

VESTED INTERESTS

He went on: “Tea brokerage is controlled by who is who in Kenya. The President is a tea broker, Hon (Nicholas) Biwott is a tea broker and former Minister for Finance, Simeon Nyachae, is also a tea broker … when will we distinguish between vested interest and public interest?”

Mr Nyachae had interests in Choice Tea Brokers, together with John Simba — the man who in 2007 had been picked to lead a task force to probe the woes in the industry.

It is not clear whether they still own the company but on its website, the company says “the board of directors of Choice Tea Brokers comprises people of high standing in the community, the government of Kenya and the business fraternity”.

The entry of politicians — starting with individuals with family ties to the first three Presidents — into the tea business changed the matrix and chances of farmers eking a living out of their produce dwindled. After all, the policy-makers who would have guided the industry were now interested parties and wanted to make money out of farmers’ sweat — as brokers and middlemen.

When insiders within the TBK and KTDA started becoming brokers, questions were raised on who stood on behalf of farmers as conflict of interest reigned.

TOTAL PRICE

Others who entered into the trade included former Coast Provincial Commissioner, the late Eliud Mahihu, when he was a member of the KTDA board and also chairman of the regulator TBK for 14 years. He was operating Venus Tea Brokerage with some members of the Moi family.

As far back as 1992, Mr Mahihu had complained that levies collected from farmers to finance access roads had not been spent on this purpose. He claimed that $3.2 million (Sh320 million at current rate) had been misappropriated in 1990. Mr Mahihu was first appointed as board chairman in 1980, when Mr Lucas Galgalo replaced him as the Coast Provincial Commissioner.

Before 1987, it was hard to penetrate the membership of EATTA; it called for stringent qualifications. Brokers were required to have qualified tea tasters, the equivalent of wine connoisseurship. These tasters determine the quality of the product on the lots already committed for sale at the auction.

Also, the broker had to have good financial backing and a bank guarantee to ensure that he was able to pay the price of the lot on bid. What farmers have never been told is that once the hammer falls, their money is paid to KTDA within nine days less 0.75 per cent and that when the buyer pays, he gives the broker 0.5 per cent of the total price.

KICK BACKS

In effect, the broker earns 1.25 per cent of the purchase price. How the balance of 98.75 per cent is shared — and why tea farmers end up with a fraction of the auction price — is the story of KTDA. While brokers may be part of the problem, the industry regulator and KTDA appear to have failed farmers.

Previously, and before the liberalisation of the sector, KTDA used to assign brokers to various factories. After liberalisation, this was left to factory directors. It was also the beginning of mayhem in the sector.

“Unless you bribe these directors, they will never sign any contract for you,” says a broker who has lost key factories. And since factory directors owe allegiance not to farmers but to KTDA, which vets their election, growers are unable to understand the complex nature of tea auction.

Brokers are usually given three-year contracts but factory directors have a leeway to reduce the term — creating a chance to ask for kick-backs.

“Sometimes directors ask for as much as Sh300,000 each and because they are as many as seven, you end up paying Sh2.1 million to get the contract. They assume that you will get this money by selling their tea,” says a tea broker.

SECURE DEALS

Brokers are now seeing their fortunes evaporate, thanks to the chaos in the sector. It was during Peter Kanyago’s tenure as chairman that KTDA introduced the assignment of two brokers for each factory — one to deal in the morning and the other in the afternoon. It was not Mr Kanyago’s decision but that of KTDA and it has brought about confusion among brokers but they dare not raise their voice.

With the new rules, brokers rushed to factories to secure deals with directors, and to win contracts, they had to part with some money.

Brokers who couldn’t pay have seen a number of factories they used to represent taken away by the competition.

For instance, Norman Wilson’s African Tea Brokers, founded in 1905, now has two factories while Thomson Lyolds — with a broker known as Combrok and which used to command the brokerage sector — has been pushed out of KTDA factories. It now handles private entities.

When KTDA pushed for the two-broker policy, what farmers were told was that one broker would sell a factory’s tea at the Mombasa auction in the morning and the other in the afternoon. But the hidden agenda was to allow some well-connected firms a chance to enter the trade.

WIN CONTRACTS

This not only created a free-for-all dash to the factories but also gave brokers a chance to introduce bribery as a parameter for winning contracts.

“Managers of some brokerage firms are encouraging this vice to win contracts but not to help farmers,” offers our source. “Once you have paid them, they have no control over what you do with the tea and you will have to recover the money from farmers.”

While brokers are supposed to be self-regulating, EATTA is yet to resolve the governance problem although it has the Rules, Regulations and Auction System committee. “We have brought this issue to the attention of EATTA. We have said that we have a governance problem. My fear is that if brokerage dies, that will be the end of tea farming in Kenya,” observes an established broker.

Established in 1956 as a voluntary organisation to articulate and promote interests of the industry, EATTA concentrated on activities of brokers and buyers with zero interest in how farmers were paid.

For years, farmers have been duped to believe that the money they receive every year-end is “bonus” — yet it is a small part of the money they should have earned over the year.

Legally, once the hammer falls at the auction, money from the sale of a factory’s tea should be paid by brokers within nine days — less 0.75 per cent. The buyer also pays the broker 0.5 per cent of the buying price meaning that they earn 1.25 per cent from the farmers’ produce.

UNDERHAND DEALS

With the 1.25 per cent earning, the broker’s work includes to taste the tea and retrace the value.

“A professional broker and tea taster can tell whether the tea put on sale went through the withering, cutting and sorting process correctly,” says the insider. “The reason we do that is because we earn commission on the final sale price.”

Previously, KTDA used to assign brokers to various factories. But with the liberalisation, this was taken over by the factories, which now enter into contracts with brokers since they are independent of KTDA as limited liability companies.

This is the move that introduced corrupt tendencies among KTDA directors. When EATTA was founded, it was supposed to self-regulate the brokerage field in order to eliminate cut-throat competition and underhand deals.

RUN ROUGHSHOD

Although a motion had been taken to EATTA by the Rules, Regulations and Auction System Committee to resolve the governance problem, nothing has been done.

The problem is that previously, brokers could not do anything without the approval of KTDA, which had to seek permission from the Ministry of Agriculture. There were government officials in charge of KTDA. By then, the government could remove a rogue KTDA MD or the chairman — if it was in the interest of the farmer.

“When the government walked out of the sector, it left the farmers at the hands of managers who were not accountable to either the government or the farmer,” offers an insider.

Currently, KTDA — or rather more than 70 per cent of the tea billions — is controlled by 12 directors who run roughshod over 66 factories and control the farmers’ board meetings by appointing, illegally, a company secretary.

With political interests running within the body, everyone fears to upset the entire system — lest they burn their fingers. That way, farmers have been left on their own — and not even their brokers can help them.