KTDA’s tea bonus problem: Billions in borrowing leaves factories in debt

For hundreds of thousands of Kenyan tea farmers, the annual second payment, commonly known as the tea bonus, is more than an end-of-year payout.

It is often the money used to pay school fees, settle loans, buy farm inputs or keep a household going.

That makes the latest revelations about how some KTDA-managed factories financed these payments particularly significant.

A Tea Board of Kenya (TBK) audit found that KTDA’s 71 factories had accumulated Sh26.06 billion in loans by June 2025.

A later loan schedule cited by the Daily Nation put outstanding balances for factories covered in the schedule at Sh34.05 billion by the end of 2025, showing that the debt picture remained substantial.

Why does KTDA borrow in the first place?

The answer starts with how the tea business works.

KTDA was established in 1964 to develop Kenya’s smallholder tea sector, taking over responsibilities previously handled by the Special Crops Development Authority.

It helped organise small-scale farmers around factories, processing and marketing, turning a fragmented farming activity into a major export industry.

Today, KTDA says it works with about 600,000 smallholder farmers, whose factory companies own KTDA Holdings.

Its 71 factories process more than half of Kenya’s tea.

The complication is timing.

Farmers deliver green leaf every day, but the resulting made tea may take time to sell and generate cash.

KTDA has therefore historically used borrowing as bridging finance.

The agency argues that farmers cannot wait months for tea to be sold before being paid.

In 2024, KTDA said stocks of unsold tea had reached 104 million kilogrammes, compared with 37 million kilogrammes in 2021, creating a serious cash-flow squeeze.

It said a Sh12.8 billion commodity loan was used as bridging finance.

Borrowing drives the bonus equation

The concern raised by the TBK audit is not simply that factories borrowed money.

It is what the borrowing was used for and how some of it was approved.

The regulator found that factories had loaned each other Sh10.36 billion, with no clear policy governing inter-factory financing.

Some factories were unable to repay within the expected one-year period.

The audit also found cases where loans were taken without the required factory-board resolutions.

More seriously, TBK flagged overvaluation of closing tea stocks used as security for commodity loans.

According to the regulator, this contributed to over-borrowing and inflated second payments.

The audit consequently recommended that future bonuses be based on actual performance and available funds, rather than borrowing and overstated stock valuations.

West Rift farmers cry foul

The debt problem is not evenly distributed.

By June 2025, factories west of the Rift Valley accounted for Sh21.61 billion of the Sh26.06 billion audited debt, compared with Sh4.45 billion for factories east of the Rift.

That matters because tea prices have also diverged sharply.

In the nine months to September 2025, West Rift tea averaged Sh226.17 per kilogramme, down 16.3 percent from the previous year.

East Rift tea averaged Sh379.96, a much smaller two percent decline.

Lower prices mean less revenue available to cover factory costs, repay loans and support farmer payments.

KTDA's defense

KTDA has rejected suggestions that the entire debt burden represents financial mismanagement.

It has argued that factories faced exceptional cash-flow pressure from unsold stocks, weaker prices and an unfavourable exchange rate.

It also says the Sh12.8 billion commodity loan was cleared by September 2025, although other facilities remained outstanding.

The agency has since moved to phase out its decades-old inter-factory lending system in favour of commercial bank borrowing.

The bigger question now is whether the tea bonus can remain a reliable payment without factories borrowing against future earnings.

For farmers, a high bonus may look good on paper.

But if part of that money is effectively financed by debt that the factory must repay later, the apparent gain can come with a cost.

That is why the TBK audit's central recommendation is simple:

The second payment should follow what the tea business actually earned - not what it can borrow.