Troubles brewing in tea sector

Cape Town - New troubles of two tea estates, given over to emerging farmers under various land reform programmes dating back to the apartheid government's attempts to build a viable tea industry in the Transkei, have been described by Tina Joemat-Peterson the Agriculture Minister. She responded in a written reply to a parliamentary question put by Piet Pretorius of the Democratic Alliance.

The Magwa estate in Lusikisiki in the Eastern Cape, has had a long history of troubles and went broke in 1997 and in 2003. Since 2004, the operating company has been Magwa Enterprise Tea (Pty) Ltd, a wholly owned subsidiary of the Eastern Cape Development Corporation (ECDC).

However, according to Joemat-Peterson, the project is not operating at full capacity because of provincial Department of Agriculture funding delays and non-adherence to an adopted business plan. These delays and non- adherences started as from August 2007, she said. .

The Majola estate is still owned by the workers and community, on similar terms and conditions as applied to Magwa prior to its insolvency. But, says the minister, "Since September 2003, there has been no fertiliser that has been applied by the estate. Inorganic fertilisers in the form of NPK macro-elements are the most basic forms of plant food especially when it is to be administered in bigger quantities.

"Our estate needs a minimum of 250 tons of these fertilisers to be applied each season. The price of this input increased in such a way that in September 2003, Majola Tea could no longer afford to apply.

"This increase was matched against constant tea prices that were just dropping in real terms. There has always been a shortage of labour since working for a tea estate at that time was not that attractive."

The most important challenge to the viability of the two estates has been the price of tea, the minister said.

"Bulk black tea's current cost of production at Magwa Enterprise Tea at approximately R14 a kg," she said. "The current market price for the purchase of bulk tea fluctuates between R11 and R20 a kg, which (according to Magwa Enterprise Tea management) is again sold at between R67 and R69 a kg in retail outlets.

"Companies such as Unilever and National Brands buy the tea from Magwa, and blend it with various teas purchased from other countries such as Malawi. Tea can be purchased from Malawi at between R8 and R9 a kg due to lower labour costs, and the fact that the tea is imported duty free.

"The purchasers then package, market and distribute the tea and sell it to retail outlets, who add a margin of approximately 27% to the purchase for on sale to consumers."

She also listed a series of critical issues affecting the estates.

"The most challenging problem to overcome at this point in time is the effects of the macro environment in South Africa and globally," she said.

"These issues consist of high oil prices, high inputs cost, high interest rates, high Inflation/cost of living in South Africa, job losses, slowdown in economic growth."

- I-Net Bridge