Organizational factors influencing risk management practices by the Kenya Tea Development (KTDA) factories in Kenya

Abstract

Tea is one of the leading agricultural products in Kenya, earning the country more than $120 million from exporting and contributing to 2% of the country’s GDP. However, despite efforts by various stakeholders in the tea sector in Kenya such as the Kenya Tea Development Authority (KTDA), to improve and stabilize the tea production value chain, recent global and local events have posed significant risks to tea production, more specifically processing and sale of tea. Empirical studies have highlighted these risks and categorized them into strategic, financial, and operational among others. However, these studies have not assessed, among these risks, the important ones and the effective ways to manage the risks for tea processing. Therefore, this study had three main objectives. First, evaluate the key risks that KTDA factories prioritize and manage. Secondly, to establish company factors influencing risk prioritization and management, and finally, the management perspectives on the risk priorities and their management. Guided by the agency and resource-based theories, the study targeted the senior management of all 71 KTDA factories in the year 2023. Secondary data was collected from the annual reports of the factories, while primary data was collected using an online questionnaire. Descriptive statistics were used on various aspects of risk prioritization and management, ordinal logistic regression multivariate analysis was used to establish organizational factors influencing the risk management practices. 69 factories responded to the study. Overall, the results and findings show that financial risks are ranked as the most important risk for tea processing factories. The tea factories are concerned with economic risks and environmental risks, tea price risk, exchange rate risks and credit risks. As well as production risks and risk and marketing risks. Risk reduction is the overall strategy for the majority of the risks from political, socio cultural, Human resource and marketing and sales. The factories next apply risk avoidance for credit, sustainability production and reputational risks. Overall, tea factories with a risk committee, and older factories rank strategic risks as more important while those that are profitable will rank strategic risks as less important. Meanwhile profitable factories and those that have operated for long rank environmental risks as minor but those with high leverage rank environmental risks as major. In terms of assets, those factories that are large in terms of revenue rank legal risks as minor but major when size is measured in terms of Total assets. In terms of challenges with risk management for tea processing factories, Leadership was ranked as the top challenge, followed by communication and complexity of risk issues lack of resources and finally awareness. Tea processing factories have experienced a lot of challenges with risk management especially in the period after Covid. The production managers requested various government agencies to stabilize the local currency and also have a favorable tax regime for tea producers, especially if exporting. They feel that KTDA needs to play a more practical role in aiding factories to manage risks. There is more reliance on risk professional consultants to aid tea factories in managing risks due to capacity at board level. Risk management poses work constrains for some factories and new laws such as data protection. These findings are important as they provide information for tea processing to review their risk management strategies and for regulators and stakeholders in the tea sector to guide on policy. Similar studies can be conducted to other agribusiness players in the tea sector.