The Causes of High Cost of Tea Production and Sustainability of the Tea Subsector in Kenya

The crisis in the tea industry is not only one of unstable prices but also one of high cost of production. Over 3 million Kenyans, approximately 10 % of the population, are directly and indirectly employed by the tea industry which is the largest sub-sector in the agricultural sector. Tea plays an important role as the economys main anchor contributing about 80 % in the agriculture sector. Although the volume of tea production has gradually increased, the smallholder tea farming has decreased per acreage and may decrease further if the current trend of price reduction continues. prices of commodities are fixed by the market forces of demand and supply in a perfect market, selling price of tea obtained at Mombasa tea auction are further affected by both controllable and uncontrollable costs at individual factory level and by the agency in processing and marketing tea for sale. Cost of production has continued to rise due to high energy, labour, financing and transport costs. Energy is still the single largest contributor to the cost of production according to Tiampati (2015). This concept paper will greatly rely on the agency theory, which underpins this study, given that the tea agency, KTDA manages the tea sector through their staff, who form management level in the tea factories, supported by directors elected by tea farmers in the tea growing areas. The paper will also endeavor to find out the causal relationship between independent variables proposed for this research i, e agency cost, price volatility, foreign exchange fluctuations and external factors and the high cost of tea processing.