STiR coffee and tea magazine

STiR coffee and tea 41 Tea Supply and Demand Source: International Journal of Creative Research, "The Urge of the Tea Industry for Equilibrium Pricing" Ms. Shivani Rajendran, Dr. S. Jeyalakshimi I PSG College of Arts and Science, Coimbatore, India (Oct. Tea Supply Curve Tea Demand Curve Equilibrium Consumer surplus Producer surplus Global Marketplace Equilibrium Quantity Quantity Why it Takes So Long for Tea Prices to Swing Back Ian Gibbs chairs the International Tea Committee (ITC), which has tracked tea pro- duction globally since 1935. "If you look at prices over the last 20 years, in real terms, they have been stagnant at best and are probably less in real terms than was paid 90 years ago," he explains. "Tea is unlike most other commodities in that if prices rise, farmers can react fairly quickly by plucking more tea assuming it's in season," he said, adding that "quality can be expected to suffer." As a result, any rise in prices can easily be "corrected" downwards. It is also impor- tant to appreciate that the situation differs for each farmer, especially the smallholder farmers, who will determine what is best for themselves given the payments they re- ceive, soil, climate, alternative markets, etc. Gibbs explains that it is not just a question of restricting supply, "which would be much more difficult than 100 years ago since there are so many more suppliers." The priority, he says, is to increase domestic demand. Greg Lui, co-founder at Leilani Fine Tea in Vancouver, British Columbia, agrees. "What the industry needs to do is increase global demand. Increasing demand is the job of marketing. Marketing is an exercise in understanding consumer desires and their psychology. We need to change the perception of tea as a low-cost commodity. Tea should give us uncompromised quality with unforgettable experiences," says Lui. Elusive Equilibrium Santosh KC, a consultant, researcher, and biomolecules expert at the Tea Research Institute in Kathmandu, Nepal, lists several factors contributing to tea's prolonged economic disequilibrium. He writes, "The long lifespan and high initial investment in tea plants lock produc- ers into extended production cycles. The fragmented market structure with inelastic demand also exacerbates the situation. Furthermore, climate change unpredictability, government policies, global trade dynamics, and shifting consumer preferences com- plicate and delay adjustments to demand. Collectively, these factors contribute to the decades-long recovery period for tea prices." Anshu Giri, the director of Samsher Tea, the largest Nepal-based exporter of CTC (cut, tear, curl), explains that you need two key figures to estimate the surplus accu- rately: production and consumption. It is relatively easy to get production data from government sources, but consumption figures haven't been published/tracked yet in countries like Nepal. At best, he explains that the data available is an approximation based on old surveys. US Black Tea Imports Declining Firsd Tea marketing director Jason Walker shared the above graphs and a note of caution. "A few months ago, I pulled some GATS (Global Agricultural Trade System) data and noticed the 10- year trends for tea vs. coffee vs herbs is not promising for tea in the US," he said. Last year, the US imported 5,000 metric tons of herbal teas valued at $72 million, up from $46.5 million in 2014. Demand for specialty beverages is high but as Greg Lui explains, there is a difference between demand and quantity demanded. The two concepts are not inter- changeable: Demand is how much tea a consumer is willing to buy – the sheer quantity – at a given price and time, he says. "When prices drop, the quantity of tea increases. However, global demand remains the same," he says. Quantity demanded is the total amount of tea consumers need or are will- ing to buy at a particular price over time. In many developed countries, the quantity demanded is declining. US Imports | Black Tea (2014-2022) 115,000 105,000 95,000 85,000 2014 2016 2018 2020 2022 Source: USDA FAS | GATS Import Volume (All Countries) US Imports | Herbal Infusions (2014-2022) 6,000 5,000 4,000 3,000 2014 2016 2018 2020 2022 Source: USDA FAS | GATS Import Volume (All Countries) 1,700,000 1,600,000 1,500,000 1,400,000 2014 2016 2018 2020 2022 Source: USDA FAS | GATS Import Volume (All Countries) US Imports | Coffee (2014-2022)

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