Kenya Tea Development Agency Ltd

IN RECENT MONTHS, FUNDAME-ental issues around the management of the small-scale tea sector have been raised that need clarification. It is gratifying that the management of the small-holder tea sector by the Kenya Tea Development Agency is recognised as a success story worth emulating.

In the year 2000, the government privatised KTDA into a unique model predicated on ownership by the farmer. The farmer was to own shares in a tea factory to which he delivers green leaf. The tea factories in turn were to own shares in KTDA. The organisation is also the managing agent for tea factories by virtue of agreements entered into by each factory and the agency, in individual and separate negotiations.

The KTDA model has been the subject of studies by other tea-growing countries such as India, Rwanda and Tanzania. This year, for instance, KTDA announced a 28 per cent growth in tea payments to farmers, supported by the largest tea earnings in the country’s 46 year history.

KTDA, BEING A LEGAL PRIVATE LIMited liability company, is subject to, and compliant with, the same regulatory oversight and laws that all other private companies are subject to. It has always enjoyed independent oversight provided by several key powerful players, including tea farmers, independent auditors, the Registrar of Companies, the Tea Board of Kenya and the Ministry of Agriculture.

Indeed, the country has numerous private companies which have also managed their businesses well under the same oversight exercised over KTDA. In the past, KTDA experienced serious challenges that led to agitation by tea farmers and MPs from tea- and coffee-growing areas for its privatisation.

The privatised KTDA has since enjoyed autonomy, world-class management standards, competitive tenders, and consistent payment of dividends. In contrast, the country has witnessed the collapse of the cotton, sugar, pyrethrum, cashew-nut and meat industries.

KTDA is not a monopoly as has been alleged in some quarters, but an agent whose principal pays a commission upon successful completion of management assignments. The agency has a contractual relationship with tea factories under the laws of contract.

Nothing prevents other management agents offering similar management services. The argument that KTDA holds a monopolistic grip on tea factory management is, therefore, inaccurate, malicious and ill-informed. There have also been unsupported allegations that tea directors and the agency do not serve the farmer’s best interests.

This is not true because it is the farmer as shareholder who elects and rejects directors, and the farmer as supplier who provides the leaf required for the business to prosper. The Companies Act sets the minimum number of directors, and the maximum is provided for by shareholders in their Articles of Association as with any other private company.

Liberalisation allowed farmers freedom to manage their affairs and decide on their leadership, and the election of representatives is the best way to secure these interests. With over 500,000 tea growers, and many more people indirectly involved, it is clear that the farmers’ interest is well represented.

A number of companies have much larger Boards than those of tea factories. The adoption of the much-touted two-director system would not be in keeping with good corporate governance. For tea factory companies with turnovers of half a billion shillings each, having six directors respects the element of cost reduction and allows a sufficient accountability and skills into the Board.

WHEREAS LITERACY IS IMPORTANT, it is only one of the qualities of a good director and reforms and elections have seen highly-experienced and qualified directors take over the leadership of tea factory companies across the country.

One of the services provided by KTDA under the management agreements, and with the consent of the factories, is procurement. Management of procurement centrally and economies of scale have led to the achievement of better prices for goods and services.

The KTDA tender system has policies in place to ensure that it is open, advertised nationally, and subject to evaluation and selection by different committees.

Mr M’maitsi is the head of legal & regulatory Affairs, while Mr Gori is the Corporate Affairs manager, the Kenya Tea Development Agency.