RECORD-breaking 1998 tea harvests in Kenya will prove a mixed blessing for Glasgow-based James Finlay, which has seen lower selling prices erode margins despite a significant boost to production, writes Kristy Dorsey.

The Glasgow-based tea trader more than trebled interim pre-tax profits in the first six months of the year, but this was based on an average selling price of $2.07 (#1.26) for black teas, Kenya's leading foreign exchange earner.

Prices at the end of the year closed at $1.89, which substantially eroded James Finlay's second-half margins.

''As far as Kenya is concerned, which is our biggest tea-growing area, 1998 as a whole was a very satisfactory year,'' executive chairman Richard Muir said. ''But if prices continue at their present level, then things don't look so good, but at the moment there are signs that prices might be moving up.''

Although prices opened 1999 at an average of just $1.86 per kilogram, Muir noted that the last two weekly trading sessions had seen slight upward movements. Added to this is the threat of much lower production in the coming year, with a lack of seasonal rain threatening crops.

Although the unfavourable weather will cut production, it should also serve to raise the prices at which tea is sold.

James Finlay, which is due to announce results for 1998 within the next two to three months, grows almost 8% of all tea in Kenya. Statistics from Africa Tea Brokers show that production in the first 11 months of 1998 was 267.65 million kilograms, up 37.4% from the same period in 1997.