How Are Tea Prices Brewing?

Spend Matters welcomes this guest post from Avneet Deol of Mintec. 

On an average day, more than half of the American population drinks tea. In 2015, Americans consumed over 80 billion servings, or 3.6 billion gallons, of tea. Approximately 85% of all tea consumed was black tea, 14% was green tea, while the remaining 1% was oolong, white and dark tea.

This article looks at supply and demand in the tea market, as well as price trends over the last year in Kenya and Sri Lanka, the major exporters of black tea.

On a global scale, production for 2016 is expected to increase 2% year on year to 5.3m tons, as firm growth in Kenya offsets shortfalls in India and Sri Lanka. Production in China, the world’s largest producer, is also forecast up 3% year on year, but the pace of growth is the slowest in over a decade. This is due to damage to the tea bushes from extreme weather conditions particularly at the start of 2016, when temperatures reached the lowest level in several decades.

Global consumption is expected to exceed production at 5.6 million tons, up 5% year on year. Growth has largely been driven by China and India, the world’s largest consumers. Consumption in these markets is high due to the size of the populations. However, because consumption per person is actually low compared with other markets, there is room for further growth. Consumption in the U.S. is forecast to increase, by 3% year on year, due to strong consumer demand for healthier beverages.

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However prices for different markets are mainly affected by local developments that could affect the tea offered at auctions. In Kenya, the largest exporter, tea prices fell during the first nine months of the year on the back of higher production. Recent data shows that production for the first 10 months of 2016 was up 24% year on year at 0.4 million tons, due to increased rainfall in the first half of the year that relieved crop damage caused by droughts in the previous year. However prices have risen 30% since September, due to unfavourable cold and dry weather conditions from the second half of the year that delayed crop intake, reducing the volume of tea at auctions.

Meanwhile in Sri Lanka, prices generally fell in the first half of the year due to an increase in supply after the first and second harvest (known as a flush in the tea market). However, prices have risen 25% in the second half of the year because production is below last year’s levels. Total production for the first ten months of 2016 was down 15% year on year. This is mainly thanks  to erratic weather throughout the year, starting with severe dry weather in January through to April, followed by heavier than usual rainfall in May, concluding in prolonged dry spells in the second half of 2016.   

Although the overall global supply deficit may not affect tea prices for different markets, this year has been price-turbulent nonetheless. As supplies are dwindling and this year’s season comes to an end in major markets, there are no signs of relief for prices in the short term, at least not until after the first flush in 2017.

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