Kenya is the largest producer of black tea in the world and in 2021 the country produced approximately 500,000 metric tons of tea, accounting for about 9% of global tea production, ahead of China and Sri Lanka. The tea industry plays a crucial role in Kenya’s economy and is a major source of employment and income for millions of people, directly supporting 650,000 growers and approximately 5 million people indirectly. Tea exports contribute significantly to foreign exchange earnings for the country at around 4% of the GDP or K.sh 120 Billion (GBP £700 million).
Insurance can play a critical role in supporting the tea market in East Africa, including Kenya. Extensive cover can be provided across the tea supply chain, from farmers through to the distributors.
Trade Credit insurance in particular can incept as soon as a contract is created when the tea is sold at auction, with an obligation to deliver and for the goods to be accepted upon delivery. This insurance product provides financial protection by mitigating the risk that exists for the exporter between delivering the tea and receiving payment. Without this product, the exporter is open to non-acceptance and non-payment risk should the buyer not fulfil their contractual obligation, leading to a potential cashflow issue.
ASR is pleased to be working alongside MIC Global Risks and Tea Insurance Africa to create a bespoke product to meet the specific needs of the East Africa Tea Trade Association Members.
Various insurance coverage can be provided even before the tea is sold. At the tea growing stage, certain weather-related risks namely drought, fire, flooding, infestation and soaring temperatures can directly impact tea production and yield. Parametric insurance provides a safety net to those directly affected by natural disasters by paying out a predetermined amount based on a specific trigger event, rather than indemnifying the actual losses incurred.
The primary benefit of such covers is speed of payment and financial security. By minimising the financial impact of adverse events, small holder farmers can sustain their farming activities, and contribute to rural development. While as a continent, Africa generates just 4% of the world’s greenhouse gas emissions, it suffers the worst effects of global warming. It is expected that Kenya will be one of the countries most impacted by this, with predictions suggesting optimal and medium tea-growing conditions could shrink by between 25% and 40% respectively by 2050.
In addition to cover for the crops themselves, property insurance can cover plant equipment, machinery breakdown, business interruption as well as the warehouses where the tea is stored. Transport and logistics insurance can protect against the risks experienced when goods are in transit. Liability insurance can provide cover against contamination from crops through to the packaged product together with the normal premises exposures from warehouse and office operations.
Stakeholders operating in the tea supply chain in Kenya and across East Africa can be better protected by covers and products developed specifically for Africa. ASR can provide cover from seed all the way to teacup. If you would like more information on our insurance offering, please get in touch with the ASR team.
By Anna Burt, Assistant Underwriter – Political Risk & Trade Credit at Africa Speciality Risks
Tea Board of Kenya
World Economic Forum – Climate change threatens Kenyan tea sector, putting millions of workers at risk
Christian Aid – Climate threat brewing for British cuppa
Frontiers – Combating Climate Change in the Kenyan Tea Industry