Inclusive Business Model Analysis: KTDA, Kenya

Tea is a leading foreign exchange earner contributing about 23% of total foreign exchange earnings and 2% of the Agricultural GDP of Kenya. Annually, the country produces over 450 million Kgs of tea, which earns over KES 120 billion in export earnings, and 22.0 billion in local sales. The tea industry supports 5 million people to earn an income directly and indirectly. Tea is grown in the highlands located within the West and East of Rift and on higher altitude of 1,500 - 2,700 metres asl, tropical volcanic red soils and well-distributed rainfall 1200 - 1400mm annually. Unlike other countries, Kenya produces tea year-round with minimal seasonal variations in quantity owing to its location along the equator.¹ However, climate change effects are on the rise with stress, especially drought, accounting for 14-20% loss in yield and 6-19% plant mortality. Meanwhile, the suitability of tea growing areas is expected to decline by 8% within five years and 22.5% within fifty-five years.²

Kenya's tea industry is comprised of small-scale producers who tend to tea on relatively smaller plots of land and multinational corporations that manage large-scale plantations.

The Kenya Tea Development Agency (KTDA) is an important institution that offers support and services to smallholder tea farmers in Kenya. KTDA was established in 1964 and manages a network of 71 factories registered as limited companies and primarily owned by smallholder tea farmers through shareholding. KTDA looks to improve smallholder tea farmer incomes through enhancing climate resilience, access to competitive market prices and value addition in processed tea.

To meet these objectives, KTDA through the Inclusive Business Analysis aimed to answer the question ‘How can KTDA and partners (buyers) improve the livelihoods and increase income and climate resilience of farmers they currently source from?’

To help answer this question, the following sub-set questions guided the analysis:

1. How can blended service provision to farmers improve KTDA's business case?
2. What procurement practices exist in the tea sector and how do they impact living income?
3. How can service provision close KTDA tea farmers’ income and resilience?
4. How can KTDA leverage tea factories to increase the effectiveness and efficiency of its service delivery?

Our analysis shows a positive business case at farm and business level. The case report covers the following recommendations:

1. Optimizing factory performance as well as supporting crop diversification at farm level to increase farmer incomes.
2. Improving awareness and knowledge of climate risks and resilience and facilitating access to mitigation measures to cushion farmers against the impact of climate.
3. Optimizing direct sales to enable earning higher premiums while giving buyers more direct control over their sourcing.
4. Enhancing transparency and exploring opportunities for value distribution with buyers to incentivize commitment.