The case for living income investments in Kenya's tea supply chain

Kenya’s tea economy depends on approximately 720,000 smallholder farmers, 78% of whom cultivate tea on plots of just 0.5 acres or less. Despite their critical role in sustaining Kenya’s tea economy, most of these farmers are not able to earn a living income.

The Kenyan tea sector is under pressure: oversupply of black (CTC) teas has driven prices down, while climate change could reduce yields by up to 20% in the coming decades according to the Kenya Tea Development Agency’s (KTDA) Climate Risk Mapping study. Constraints around small land sizes, climate change and low tea prices limit the ability of farmers to invest in their farms or diversify into other crops.

In response to these challenges, IDH and KTDA - with support from Taylors of Harrogate, Waitrose, and Marks & Spencer - conducted a living income study. The Inclusive Business Analysis (IBA) explored practical ways to improve livelihoods, incomes and climate resilience for smallholders in Kenya’s tea sector. This article highlights three key findings and opportunities for action within and beyond the tea supply chain.

Finding 1: farmer segmentation enables targeted income solutions 

Small land sizes limit tea farmers’ ability to earn a living income or invest in their businesses. By segmenting farmers based on land size, KTDA can tailor services, build trust and enhance smallholder tea business sustainability by placing farmer first principle at the core of its operations.

Segmentation, combined with income data, would allow KTDA to design region-specific living income interventions and align with due diligence legislation. Coupled to data on actual incomes for different land sizes, farmer segmentation presents a clear opportunity to define effective living income interventions in different regions. It also creates opportunities for collaboration with buyers on preferential sourcing, data strategies and procurement practices.

Considering the impact of climate change on tea farming, crop diversification is instrumental to increase farmer resilience, although it may only partially close the living income gaps. The analysis shows that diversifying with crops that complement tea earnings has the potential to increase farmers' annual incomes by up to 98%. KTDA could leverage its existing service delivery structure to provide blended services and inputs for both tea and other specific crops.

Introducing climate-resilient tea varieties offers a potential pathway to increasing farmer incomes and resilience, but it requires careful planning and coordination. These varieties can boost tea production over time, and if yields are maintained at current levels, farmers can cultivate tea on smaller portions of their land. This shift creates opportunities for crop diversification, which can enhance household income and climate resilience.

However, this strategy hinges on a delicate structured balance where KTDA must play a central role in developing a model that optimises land use, encourages partial replanting to maintain stability in the tea market and mitigate impact on oversupply, while promoting diversification into complementary crops.

This analysis, while theoretical, underscores the importance of coordinated interventions, supported by financial products to de-risk replanting and diversification efforts. When executed thoughtfully, it has the potential to transform the livelihoods of smallholder farmers sustainably.

Farm level investments alone will not close living income gaps. Procurement practices that transfer value through the supply chain offer a practical solution. For example, a $0.05 premium per kg of made tea could boost a farmer’s income by $24 on an annual basis.

Linking such premiums to preferential sourcing mechanisms, long-term contracts, and increased direct sales can significantly impact farmer earnings.

KTDA’s understanding of factory profitability is vital for tailoring procurement strategies with buyers. Joint investments into factory efficiency, research and development and improved traceability can enhance both farmer incomes and supply chain sustainability.

Investments in specialty teas - green and orthodox varieties - offer potential for value addition and income growth for tea farmers, however, success in this area depends on market demand and investment.

• Farmer segmentation and income data collection: Develop a farmer segmentation approach and gather data on household income by land size. This will enable KTDA to optimise service delivery, design effective living income interventions and collaborate with buyers on preferential sourcing mechanisms, data strategies and other procurement practices.
• Enhancing climate resilience and diversified value chains: Strengthen farmer resilience by promoting crop diversification; KTDA could leverage its service delivery structure to offer blended services and inputs for tea and alternative crops, boosting overall productivity and incomes.
• Explore the potential of improving procurement practices through partnerships with buyers: Collaborate with buyers to establish procurement practices that enhance farmer incomes, such as joint investments into factory efficiency, research and development and traceability. Link premium payments to preferential sourcing mechanisms, long-term contracts and increased direct sales with specific KTDA factories.

To read the full report, click here.

For more information, please contact:

• Marlies Huijssoon, Senior Program Manager Tea, IDH: huijssoon@idhtrade.org   
• Sudi Matara, General Manager, KTDA Foundation and Sustainability: smatara@ktdateas.com

The analysis focused on KTDA Management Services and seven tea factories East and West of Kenya’s Rift Valley. The assessment considered KTDA’s service delivery structures, factory efficiency, procurement practices and farm-level diversification.

The analysis assumes an oversupply of Kenyan CTC teas, driving down prices and limiting market absorption. It explores strategies for farmers to increase their income without relying on increased tea yields. Conducted in 2023, the study considers the legislative and business environment, including the Minimum Reserve Price for tea and KTDA’s strategy to sell 80% of their tea through auctions.