Why Higher Tea Auction Prices Have Not Prevented Lower Bonuses for Kenyan Farmers

Last Updated 31 mins ago by Kenya Engineer

Kenyan tea farmers have received lower annual bonus payments at many Kenya Tea Development Agency (KTDA)-managed factories despite an increase in average auction prices during the 2025/2026 financial year, highlighting the role of production volumes, processing costs and payment structures in determining growers’ earnings.

The season, which ran from July 2025 to June 2026, saw the average price of Kenyan tea at the Mombasa auction rise to approximately US$2.23 per kilogramme from US$2.16 in 2024/2025, according to figures cited by EBC Financial Group. Yet several factories declared lower second payments to farmers, with Rukuriri Tea Factory paying KSh 50 per kilogramme of green leaf supplied, down from KSh 57.50 the previous year.

The outcome illustrates why movements in the auction price do not translate directly into equivalent changes in the money received by growers. Auction revenue must cover the costs of processing, transporting and marketing tea, alongside other factory expenses and the monthly payments already made to farmers.

Green leaf supply is one of the variables affecting factory performance. KTDA-managed factories received approximately 1.095 billion kilogrammes of green leaf during the 2025/2026 season, compared with about 1.144 billion kilogrammes in 2024/2025, a reduction of roughly 4.3 per cent.

The lower supply came amid dry weather that affected tea production in parts of the country. Tea Board of Kenya figures cited in the EBC analysis showed national output falling by 5.76 per cent in January 2026 and 16.27 per cent in February compared with the corresponding months of 2025. Production subsequently recovered, with output exceeding the previous year’s levels from March to June.

For tea factories, fluctuations in leaf supply affect the amount of raw material available for processing and the utilisation of installed production capacity. Factories must maintain equipment, buildings, labour and other operational services even when the volume of leaf delivered declines.

The financial effect, however, varies between factories according to their processing efficiency, cost structure, tea quality and the prices achieved for their products.

Energy and transport costs are another consideration in the tea value chain. Factories use electricity and fuel to support processing operations, while vehicles collect green leaf from collection centres and transport made tea through the supply chain.

Kenya’s petroleum prices rose sharply during the latter part of the 2025/2026 financial year. Nairobi diesel prices, according to the figures cited in the EBC analysis, increased from KSh 166.54 per litre before the April 2026 price adjustment to a reported peak of KSh 242.92 in May.

The increase followed disruption to international energy and shipping markets associated with the Middle East conflict. The extent to which the higher prices affected individual factories would depend on their fuel consumption, transport arrangements and the timing of expenditure.

Electricity costs also contribute to processing expenses. The effect of energy-price changes on the annual bonus is not uniform, since factories differ in their energy requirements, operational efficiency and financial performance.

These costs are being raised alongside concerns over the 0.8 per cent tea export levy introduced during the period. KTDA has argued that the levy increases the cost of Kenyan tea and could affect demand, although its precise effect on auction prices and farmer payments requires further assessment.

The structure of farmer payments is another factor in understanding the lower bonuses.

Smallholder tea growers generally receive regular payments for green leaf delivered throughout the year. A second payment, commonly known as the bonus, is determined after the factory’s annual financial performance has been assessed.

The second payment is calculated from the proceeds generated by tea sales after accounting for relevant operating costs and the monthly payments already made to farmers. It is therefore possible for a factory to increase its regular monthly payment while declaring a smaller annual bonus.

EBC Financial Group’s analysis points to higher monthly rates at some factories in the Embu and Nyeri areas, including Rukuriri, where the rate reportedly rose from KSh 25 to KSh 30 per kilogramme from February 2026.

An increase of KSh 5 per kilogramme over several months can shift part of the money received by farmers from the annual payment to earlier instalments. The effect on a farmer’s total earnings depends on the volume of leaf delivered, the months during which the higher rate applied and the final bonus declared.

Consequently, a lower bonus does not, on its own, establish that a farmer received less money over the entire financial year. A meaningful comparison must include both monthly payments and the annual second payment.

Although many KTDA-managed factories reported lower bonuses, the movement was not uniform across the industry.

Rukuriri’s payment fell to KSh 50 per kilogramme from KSh 57.50 in the previous season. Other factories also recorded reductions, while some reported increases. Momul, for example, declared KSh 40.50 per kilogramme, compared with KSh 32.50 in the preceding season, according to published factory-payment reports.

The variation reflects the fact that factories operate under different production and financial conditions. The price achieved for made tea is important, but so are the quantity and quality of leaf supplied, processing efficiency, management of operating expenses and the payment arrangements adopted by each factory.

The figures also demonstrate why a single national bonus rate would not adequately describe the position of smallholder tea farmers. Each factory’s declared rate applies to qualifying green leaf delivered to that factory, and the resulting payment varies with the quantity supplied by an individual grower.

The financial conditions facing tea factories in the current financial year will influence the resources available for farmer payments. Fuel and electricity costs, labour expenses, leaf production and the prices achieved at auction will all need to be considered alongside any changes in monthly payment rates.

Agricultural minimum wages were also increased by 15 per cent with effect from 1 May 2026, according to the EBC analysis. The effect on individual factories will depend on their staffing arrangements and exposure to the revised wage rates.

At the same time, the performance of the Mombasa auction remains important to Kenya’s tea industry because export earnings provide the revenue from which much of the value chain is financed. Higher auction prices can support stronger returns, but the benefit to growers depends on how much tea is produced and sold, the costs incurred between the farm and the market, and the way the resulting revenue is distributed.

For farmers and factory managers, the central question is therefore broader than whether the auction price has risen. It is whether higher sale proceeds can be sustained alongside reliable leaf production, efficient processing and manageable operating costs, while ensuring that the benefits reach growers.

Improving productivity, controlling energy and transport expenses, maintaining processing equipment and strengthening the transparency of factory accounts will remain important to the financial performance of Kenya’s smallholder tea sector.

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