High tea prices not expected to be sustained

A recent press release by the FAO shows that in 2009, prices for black tea reached record levels, peaking at US$3.18/kg in September 2009, compared to US$2.38/kg in 2008 (+33.6%). These high prices come after a four-year period when growth in consumption outpaced growth in production. While the economic downturn did little to dampen tea consumption, there are fears that these high prices could over-stimulate production and lead to a supply-and-demand imbalance, with prices falling back in 2010, on the back of recovery in production in areas adversely affected by weather events.

Source

FAO Media Centre, press release, 22 December 2009
http://www.fao.org/news/story/en/item/38315/icode/

Editorial comment

With production growth being held back in India, much will depend on the patterns of production in other major tea producers, with ACP producers largely being price-takers in the tea market. The tea market, however, is highly differentiated, with considerable scope existing for single-origin or brand-differentiated teas. This is an area where ACP suppliers could usefully be assisted in developing proactive policies.

Tea production is set to outstrip demand

FAO is suggesting that in the coming ten years the expansion of tea production could substantially exceed growth in consumption, with the current situation of market balance being transformed into one of growing surplus production. This could serve both to depress prices and reduce ‘returns to producers in developing countries’. In this context increasing attention is being paid to ‘expanding consumption in producing countries’ and getting to grips with the challenge of establishing quality standards. According to the FAO ‘better quality should increase demand while preventing low-quality tea from being traded should curtail the over-supply situation in the world tea market.

Source

FAO, May 14th 2008
http://www.fao.org/newsroom/en/news/2008/1000836/index.html

Editorial comment

The importance of growing demand for tea and regulating the quality of tea traded internationally would appear to be the kind of programme which the ‘All ACP’ agricultural commodities programme funded by the EC should support. Unfortunately these market-related issues are not areas where EC development assistance has traditionally been focused. Although it should be noted that such market-development-support programmes are a common feature of the EU’s own restructuring efforts for production and trade under the CAP (with €78.1 million in public funding being deployed in 2007 in support of such export-promotion programmes).

Tea prices remain strong

According to FAO reports tea prices are expected to remain strong in 2008 despite rising production. In 2006 tea production grew by 3%, reaching 3.6 million tonnes, while consumption grew by 1% to 3.64 million tonnes., but tea prices rose by 6.5% in US dollar terms in 2007. Up to 2017 the FAO projects annual production growth of 1.9% for black tea and 4.5% for green tea. An oversupply of 300,000 tonnes of black tea is anticipated with a danger of even higher levels if supply over-reacts to current high prices. The FAO has called for strategies to improve demand, including using quality standards to segment the world tea markets. Imposing minimum quality standards ‘would by default reduce the quantity of tea in the world market and improve prices, at least in the short to medium terms’.

Source

FAO press release, February 14th 2008
http://www.fao.org/newsroom/en/news/2008/1000784/index.html

Editorial comment

There would appear to be questions as to whether the price increases for tea in US dollar terms represent a real increase in disposable income for tea producers, given the declining value of the US dollar and escalating input costs.