Government set to take over control of the tea sector

The Government has
released a time line on how it will take over management of the lucrative tea
sectors despite opposition of Kenya Tea Development Agency (KTDA).

In the latest move Agriculture
Food Authority (AFA) an affiliate of Ministry of Agriculture and Livestock has
issued a timeline on the implementation of the regulation that the agency has
resisted.

The takeover process was initiated on January
14, after President Uhuru Kenyatta emphasized on government commitment to
support the tea value chain to the advantage of the growers.

Regulator’s Interim
Director Mr Anthony Mureithi ordered implementation of the time lines they
start September 30, with trading rules and regulations.

“The regulations are
clear on what should be done. It is responsibility for all the players in the
sector to follow them to the latter,” said Muriithi when The Mountain Journal
called.

Kiru Tea Factory in
Murang’a, three years ago started a journey to recruit their company secretary
after they sacked KTDA Company Secretary Kennedy Omanga whom they replaced with
Bernard Kiragu.

By February 1, the
regulations that demand reduction of number of director should be effected in
full despite the growing opposition by incumbent directors saying they are
guided by the rule of the law.

By August 31, the
Company Secretary of the factories should issue notice for the directors
election. Election of directors to be held by November 30, ahead of release of growers register,
publication of polling stations.

By November 1, factories should appoint their
company secretary, or out source the service.

Kenyatta was emphatic that tea reforms had to address all aspects of
the sector, which includes the operations and mandate of the key players in the
value chain: KTDA, Tea buyers and Tea Brokerage as well as the entire Tea
Auction System.

The specific issues that HE the
President directed the Ministry to address were:

a) Corruption and exploitation of
farmers as well as conflict of interest in the management of the tea value
chain;

b) The reform of the value chain in
order to increase revenues to farmers as opposed to middlemen and brokers;

c) The problem of falling earnings for
farmers and related issues of inefficiencies in the tea value chain;

d) The challenge of low tea prices,
delayed payments, low initial payments or bonus and fluctuating net earnings to
farmers;

e) The governance weaknesses in the
whole sub-sector including but not limited to conflict of interest in the
operations of KTDA and its subsidiaries;

f) The lack of transparency and
opaqueness in the management of KTDA subsidiaries and non-declaration of dividends
to farmers;

g) The persistent problems of
exploitation of tea farmers by persons who are not tea growers commonly known
as “soko-huru” or “mukohoro” who buy tea from farmers on cash basis and sell it
on to tea factory limited companies;

THE CROPS (TEA INDUSTRY) REGULATIONS, 2020

IMPLEMENTATION TIMELINES

TEA DEALER		REQUIREMENT	TIMELINES	JUSTIFICATION
MANAGEMENT AGENT	1.	Directors do not act in a position of directorship at or have a commercial relationship at a tea factory limited company that they intend to offer management services to.	By 28^th February 2021	To enable tea Management Agents to reconstitute their Boards where necessary to comply with this requirement.
		GUIDELINES Management agents may use the following guide to comply with the aforesaid requirement: i. Company Secretary to issue notice of elections for the Board of directors of the management agent	By 31^st August 2020
		ii. Release of the election guidelines, rules and candidate requirements;	By 31^st August 2020
		iii. Submission of interest by eligible candidates;	By 30^th September 2020
		iv. Formation of the candidates vetting committee and appointment of the presiding officers by the returning officer;	By 15^th October 2020
		v. Release of voters /growers register by the returning officer for growers to confirm registration;	By 15^th October 2020
		vi. Release of the election dates and schedules for the elections of directors;	By 15^th October 2020
		vii. Publication of the polling stations for the election of directors;	By 15^th October 2020
		viii. Hold election for directors of the management agent;	By 30^th November 2020
		ix. Hold AGM and endorsement of the directors;	By 31^st December 2020
		x. Publication of the endorsed directors to serve at the management agent.	By 15^th January 2021
	2.	Submit an annual return to the Authority and a copy to the respective county government using in Form AFATDN3 (First Schedule).	By 15^th January 2021	Annual returns are to be submitted by 15^th of January after the end of the Calendar year.
	3.	Notify the Authority of fees and commissions charged for services rendered annually during application or renewal of registration.	Immediate	Does not require amendments of any contractual agreements.
	4.	The term of the management agreement shall not exceed 5 years	By 28^th February 2021	To allow for time to align current management agreements between the management agents and the factories to the Regulations
	5.	The annual fees for the services rendered shall not exceed (1.5%) of the net sales value of the tea sold at the auction per year.	By 1^st November 2020	To allow for time to reorganize their operations
	6.	A tea factory limited company wishing to terminate its management agreement shall give at least six months’ notice or such period as may be specified in the management agreement and inform the Authority immediately stating the reasons thereof.	By 28^th February 2021	To allow for time to align current management agreements between the management agents and the factories to the Regulations.
	7.	A management agent wishing to terminate its management agreement with a factory company shall give at least six months’ notice or such period as may be specified in the agreement and inform the Authority immediately stating the reasons thereof.	By 28^th February 2021	To allow for time to align current management agreements between the management agents and the factories to the Regulations.
	8.	Staff costs for personnel seconded to the smallholder tea factory limited company by the management agent shall be borne by the management agent and not directly by the respective factory.	By 1^st November 2020	To allow for time to reorganize their operations
	9.	Company secretarial services shall be excluded from services offered to smallholder tea factories limited companies by management agent.	By 1^st November 2020	To allow for time to reorganize their operations
	10.	An indemnity of 0.5% of principals’ annual business turnover from a reputable financial institution.	Immediate	This is the current operational practice.

TEA MANUFACTURING FACTORY	1.	Construct and commission the tea factory within three years from the date of issuance of the license failure to which the license shall lapse	Immediate	To enable the Authority to rationalize licensed and installed processing capacity
	2.	No person shall commence construction of a tea factory without a valid manufacturing license from the Authority	Immediate	To comply with the provisions of the Crops Act and the Regulations.
	3.	Register and enlist with the auction organizer to participate in the tea auction directly	Immediate	To comply with the provisions of the Regulations.
	4.	Offer all teas processed and manufactured in Kenya for the export market for sale exclusively at the tea auction floor with the exception of orthodox and purple teas within two (2) months from the commencement date of the regulation.	By 1^st November 2020	To allow for additional time to comply with the requirements of the regulations.
	5.	A tea factory limited company wishing to terminate its management agreement shall give at least six months’ notice or such period as may be specified in the management agreement and inform the Authority immediately stating the reasons thereof.	By 28^th February 2021	To allow for time to align current management agreements between the management agents and the factories to the Regulations.
	6.	A management agent wishing to terminate its management agreement with a factory company shall give at least six months’ notice or such period as may be specified in the agreement and inform the Authority immediately stating the reasons thereof.	By 28^th February 2021	To allow for time to align current management agreements between the management agents and the factories to the Regulations.
	7.	Tea brokers, buyers and the auction organizer shall ensure that the proceeds from the sale of tea are remitted to the tea factory limited company accounts within fourteen (14) days from the date of the auction less the agreed commissions for brokers.	Immediate	This is the current operational practice.
	8.	The remuneration paid to a tea broker by a tea factory limited company for services rendered shall not exceed zero point two percent (0.2%) of the gross sales by the broker.	By 1^st November 2020	To allow for time to reorganize their operations.
	9.	Any tea not sold at the auction shall be re-listed for sale during a subsequent auction.	By 1^st November 2020	To allow for additional time to comply with the requirements of the regulations.
	Smallholder tea factory limited companies shall ensure that:-
	10.	They have a procurement policy providing for competitive procurement of goods and services including but not limited to management agency services, fertilizer, machinery & equipment, warehousing and transportation of tea	By 28^th February 2021	To allow for time to develop required policies.
	11.	The Board of directors are elected through a democratic system of one man one vote.	By 28^th February 2021	To enable tea factories to reconstitute their Boards to comply with the requirements of the tea regulations.
	12.	The board membership is a maximum of three (3) members (current board members to continue to serve for the remainder of their term).	By 28^th February 2021
	13.	The tenure of the board members is for a maximum of two terms of three years each.	By 28^th February 2021
	14.	Put in place measures to ensure that not more than two thirds of the board members elected are of the same gender.	By 28^th February 2021
		GUIDELINES Tea factories may use the following as a guide towards compliance with the provisions in the regulations on board members: i. Company Secretary to issue notice of elections of directors of the factory going on retirement/rotation;	By 31^st August 2020
		ii. Release of the election guidelines, rules and candidate requirements;	By 31^st August 2020
		iii. Submission of interest by eligible candidates;	By 30^th September 2020
		iv. Formation of the candidates vetting committee and appointment of the presiding officers by the returning officer;	By 15^th October 2020
		v. Release of voters /growers register by the returning officer for growers to confirm registration;	By 15^th October 2020
		vi. Release of the election dates and schedules for elections of directors;	By 15^th October 2020
		vii. Publication of the polling stations for the election of directors;	By 15^th October 2020
		viii. Hold election for directors of factories;	By 30^th November 2020
		ix. Hold AGM and endorsement of the directors;	By 31^st December 2020
		x. Publication of endorsed directors	By 15^th January 2021
	15.	Pay tea growers at least 50% of the payment due for green leaf delivered every month within thirty (30) days of receipt of the proceeds of the sale of tea.	By 1^st November 2020	To allow for time, for factories to reorganize their operations.
	16.	Payment of the balance due to the tea grower is made within the financial or calendar year as shall be agreed with the tea growers.	By 1^st November 2020	To allow factories time to reorganize their operations.
	17.	Recruit their own in-house Company Secretaries or outsource the service. Company secretarial services to be excluded from services offered by a management agent.	By 1^st November 2020	To allow factories time to appoint a company secretary or outsource the service.
	18.	A management agent agreement between a smallholder tea factory limited company and the management agent shall be for a period not exceeding five (5) years.	By 28^th February 2021	To allow for time to align current management agreements between the management agents and the factories to the Regulations.
	19.	The remuneration for services rendered by the management agent shall not exceed one point five percent (1.5%) of the net sales value of the tea sold at the auction per year.	By 1^st November 2020	To allow factories time to reorganize their operations.
	20.	Staff costs for personnel seconded to the smallholder tea factory limited company by the management agent shall be borne by the management agent and not directly by the respective factory.	By 1^st November 2020	To allow factories time to reorganize their operations.

TEA BUYER/EXPORTER	1.	Demonstrate availability of equipment for the tea buyer or exporter to undertake tea value addition;	By 1^st November 2020	To allow for time to comply with the provisions of the regulations.
	2.	Value add at least forty percent (40%) of their annual Kenya tea exports (except tea extracts, tea aroma, tea oils, tea by-products and specialty teas) as follows: i. buyers/exporters registered before the coming into effect of the regulations shall value add at least 5% of their annual Kenyan tea exports annually to gradually comply with the requirement within 8 years. ii. buyers/exporters registered after the coming into effect of these regulations shall value add at least 10% of their annual Kenyan tea exports annually to gradually comply with the requirement within 4 years.	By 1^st November 2020	To allow for time to comply with the provisions of the regulations.
	3.	Submit to the Authority prior to the auction a performance bond equivalent to 10% of the estimated value of the tea or teas they intend to buy at the auction in the form of a bank guarantee from a licensed commercial bank within the meaning of the Banking Act in Kenya. The estimated value of tea or teas referred to shall be based on a three (3) month weighted average value of tea or teas the buyer has bid and won at the auction over a three-month period preceding the auction.	By 1^st November 2020	To allow for time to comply with the provisions of the regulations.
	4.	Forfeit to the seller the 10% performance bond if they fail to pay in full or collect the teas.	By 1^st November 2020	To allow for time to comply with the provisions of the regulations.
	5.	Pay in full (100%) the value of the tea bids they have won at the auction before collecting and/or taking custody of the tea or teas.	Immediate	This is the current operational practice.
	6.	Submit to the Authority a return on quarterly basis indicating their level of compliance with the value addition requirements.	By 1^st February 2021	Enable the Authority monitor the level of compliance with requirements on value addition for both new and existing buyers (Reg. 16(4)).
	7.	Ensure that the proceeds from the sale of tea are remitted to the tea factory limited company accounts within fourteen (14) days from the date of the auction less the agreed commissions for brokers.	Immediate	To comply with the requirements of the regulation.
	8.	The remuneration paid to a tea broker by a tea buyer/exporter for services rendered not to exceed zero point five five percent (0.55%) of the gross sales by the broker.	By 1^st November 2020	To allow buyers /exporters time to reorganize their operations.

TEA IMPORTER	1.	Apply for pre-import approval from the Authority for any tea imports that are not destined to the tea auction or that are not transit teas	Immediate	To comply with the requirements of the regulation.
	2.	Provide evidence that the teas they intend to import are not available in the local market or at the tea auction;	Immediate	To comply with the requirements of the regulation.
	3.	Provide a sample of the teas to be imported and pre-import verification certificate from the country of origin;	Immediate	To comply with the requirements of the regulation.
	4.	Obtain pre-import approval from the Authority	Immediate	To comply with the requirements of the regulation.
	5.	Re-export the tea within a period of six months of the date of import and proof of such re-export shall be maintained for inspection by the Authority.	Immediate	This is the current operational practice.
	6.	Value add at least twenty percent of the re-export quantity of any teas imported in bulk for re-export.	By 1^st November 2020	To enable importers to put in place mechanisms for undertaking value addition.

TEA BROKER	1.	Not have a direct or indirect commercial relationship with the tea factory that they intend to offer brokerage services to.	Immediate	To comply with the requirements of the regulation.
	2.	Be an independent company and its directors/management not to have direct or indirect interest that conflicts or may conflict with the interest of the factory/factories it offers or intends to offer brokerage services to.	Immediate	To comply with the requirements of the regulation.
	3.	Not engage directly or indirectly in any business activity that conflicts with the interest of the factory/factories it offers or intends to offer brokerage services to.	Immediate	To comply with the requirements of the regulation.
	4.	Ensure that the proceeds from the sale of tea are remitted to the tea factory limited company accounts within fourteen (14) days from the date of the auction less the agreed commissions for brokers.	Immediate	To comply with the requirements of the regulation.
	5.	Offer tea brokerage services to a maximum of fifteen (15) tea factory limited companies at the auction. Registered brokers to continue offering services under their currently existing arrangements until their annual registration is due for renewal by the Authority	Immediate	To comply with the requirements of the regulation.
	6.	Notify the Authority of fees and commissions charged for services rendered annually during application of renewal of registration.	Immediate	To comply with the requirements of the regulation.
	7.	Remuneration paid to a tea broker not to exceed zero point seven five percent (0.75%) of the gross sales by the broker. The tea factory limited company to pay zero point two percent (0.2%) and the buyer/exporter zero point five five percent (0.55%).	By 1^st November 2020	To allow brokers time to reorganize their operations.

TEA AUCTION ORGANIZER	1.	Digitize and automate the tea auction system for efficient service delivery and information dissemination;	Immediate	In line with the provision of R23(4) which requires existing auction organizer to establish an electronic trading platform within a period of 2 months from the date of commencement of the regulations.
	2.	Not admit into its membership persons who are not registered by the Authority;	Immediate	To comply with the requirements of the regulation.
	3.	Ensure that members shall only offer for sale at the auction, the type of teas for which they are licensed to manufacture; 2	Immediate	To comply with the requirements of the regulation.
	4.	Ensure that only members who have valid licenses and registration certificates from the Authority participate in the auction;	Immediate	To comply with the requirements of the regulation.
	5.	Submit to the Authority a monthly tea auction report of all teas sold through the auction in the previous month using Form AFATDR (First Schedule) not later than the fourteenth day of each month;	Immediate	To comply with the requirements of the regulation.
	6.	Notify the Authority of any intention to suspend trading at the auction at least fourteen days before the intended suspension;	Immediate	To comply with the requirements of the regulation.
	7.	Notify the Authority of fees and commissions charged for services rendered annually during application of renewal of registration;	Immediate	To comply with the requirements of the regulation.
	8.	Ensure that the proceeds from the sale of teas are remitted to the tea factory limited company accounts within fourteen (14) days from the date of the auction less the agreed commissions for brokers.	Immediate	To comply with the requirements of the regulation.
	9.	A tea auction organizer existing before the coming into operation of the tea regulations shall establish an electronic trading platform for the auction of teas within a period of two (2) months from the date of commencement of the regulations.	Immediate	In line with the provision of R23(4) which requires existing auction organizer to establish an electronic trading platform within a period of 2 months from the gazettement date.
	10.	All teas processed and manufactured in Kenya for the export market other than Orthodox and purple teas shall be offered for sale exclusively at the tea auction floor within two (2) months from the commencement of the regulations.	1^st November 2020	To allow Auction Organizer time to comply with the requirements of the regulation.
	11.	Any tea not sold at the auction shall be re-listed for sale during a subsequent auction.	1^st November 2020	To allow Auction Organizer time to comply with the requirements of the regulation.
	12.	The trading rules and regulations developed by an auction organizer shall provide for:
		i. the carrying on of the tea auction generally and details of trading, clearing and settlement systems;	By 30^th September 2020	To allow the Auction Organizer amend their trading rules and regulations to comply with the regulations.
		ii. mechanisms put in place to prevent market abuse practices;
		iii. reasonable access to all registered members to participate at the auction;
		iv. mechanisms for effectively investigating breaches of the trading rules, enforcing the trading rules and providing for appeals;
		v. reporting procedures to the Authority whenever it rejects any application for membership, suspends or expels a member or suspends trading;
		vi. procedures for expulsion, suspension or disciplinary action against members for conduct inconsistent with just and equitable principle relating to trading in tea or for contravention of the trading rules and regulations or the Crops Act, 2013 and the Tea Regulations;
		vii. procedure for disputes resolution;
		viii. clear demarcation of roles and responsibilities of the board, chief executive officer and the committees of the board;
		ix. the appointment of directors and a fair representation of persons in the selection of members of the board and administration of its affairs including professions relevant to the tea industry;
		x. the powers of the chief executive officer including in emergency situations;
		xi. the governance of the conduct of activities of its members, including their responsibility to act with integrity;
		xii. mechanisms to ensure that there is no conflict of interest in dealings amongst its members;
		xiii. mechanisms for engagement and consultations with all its members and other relevant stakeholders;
		xiv. promotion of fair treatment of members and persons who apply for admission as members;
		xv. exclusion of persons who are not fit and proper from being members;
		xvi. compliance by members to the Crops Act and the tea regulations;
		xvii. reporting by members of any breaches of applicable rules and regulations.
	13.	An Auction Organizer to submit the trading rules and regulations to the Cabinet Secretary for approval	1^st October 2020	To allow Auction Organizer time to comply with the requirements of the regulation.

TEA PACKER/FACTORY/BUYER		Declare the percentage of Kenyan tea on the packaging and on the blend sheet if they blend any or various grades of tea produced in Kenya with any other tea produced outside Kenya.	1^st November 2020	To allow tea packers, factories and buyers/exporters time to comply with the requirements of the regulation.

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