STiR coffee and tea magazine

42 STiR coffee and tea | 2024 Issue 3 (June / July) Production and consumption figures like those above disguise disparities. Where tea is grown for export, black tea production has increased rapidly. Consumption, however, is barely holding its own. In traditional black tea markets, including the Russian Federation and the UK, consumption per capita has fallen dramatically in the last 20-30 years. Nepal Tea Production and Consumption FY 2021-2022 (Million Kgs) CTC Orthodox Green Other Production 19.50 6.50 0.80 0.15 Consumption 11.00 0.30 NA NA A Successful Collusion that Quickly Restored Tea Prices The collapse of tea prices in 1929 was not solely due to the economic downturn of the Great Depression. It was also a consequence of oversupply, a trend that had emerged after a post-World War I expansion in acreage, explains University of Warwick researcher Bishnupriya Gupta, whose analysis of historical trends in tea demand was published by the Economic History Association. This historical context is crucial to understanding the persis- tent economic disequilibrium in the global tea market. In 1930, the first attempt to enforce an International Tea Agreement to set production limits failed. A second attempt in 1933 established a Tea Cartel that immediately boosted prices and remained in place until World War II. The five-year agree- ment mandated that participating countries reduce by 15% the amount of tea in their choice of harvest years from 1929 through 1932. The agreement froze market share, and laws passed by participating countries prevented new firms from entering the tea market. Selling tea seeds was forbidden. Export quotas as- signed to individual firms could be traded. Output declined, and prices quickly stabilized to the point where The Economist in 1933 wrote that: "Producers of com- modities like wheat and sugar may envy the facility with which the tea growing industry obtained a 30% rise in average tea prices and a 90% enhancement of tea share values — all within the space of a little more than six months." A futures market for tea has been studied, but wagering on predictable price swings has little appeal. Establishing an OPEC-like organization for tea resurfaces periodically. The or- ganization would coordinate and unify tea production. Member country policies would stabilize tea markets and secure an ef- ficient, economical, and regular supply of tea with a fair return on capital to those investing in the industry. But unlike oil, you cannot switch the tap on and off for tea. Dan Bolton "In Nepal, we know we have a huge surplus because, as producers, we know first-hand that our domestic market can't absorb our production, thus requiring us to export to India, Russia, Pakistan, etc., and look for alternate markets," he writes. Public auctions are the best sources of data. However, many tea-producing economies still don't have a public auction system (e.g., Nepal), and whatever little data is available comes from industry sources and would be considered interpolated data at best, writes Giri. "In Nepal, for example, the government col- lects production data annually from producers. However, many producers still don't provide accurate data to government au- thorities for fear of backlash regarding tax authority scrutiny, etc. Nepal's production data is probably underestimated for this very reason." writes Giri. He said Nepal is considering implementing a public auction (for CTC only) system this year. The groundwork has been laid, and if everything goes according to plan, we expect the com- mencement of auctions this year. This should give us more ac- curate data in the future. He asks, "Do governments and producers want to pub- lish surplus figures?" With the current state of the tea indus- try, any hint of overproduction/surplus incentivizes buyers to take quick advantage of the situation and drive down prices. For producers, the greater the production surplus, the greater the pressure to sell. "I have seen this play out firsthand in Pakistan as we export teas to Pakistan. Pakistani buyers quickly point out the huge sur- plus in Kenya to get us to lower prices," writes Giri. Nesparis K. Chirchir is a factory manager on the front lines in Nandi County, Kenya. He regularly experiences adverse weather, but "seasonal peaks and troughs lead to periods of high supply followed by low supply. This cyclic nature disrupts a steady equilibrium." Like Giri, his most pressing concern is oversupply. Production Estimates Consumption Estimates Annual ('000 mt) 2021 2022 2023 2024 2025 Total 6,450 6,477 6,487 6,565 6,740 Annual ('000 mt) 2021 2022 2023 2024 2025 Total 6,173 6,209 6,318 6,570 6,772 Source: FAO | EIU Tea Report | June 2024 Nepal's domestic consumption does not match production rates, resulting in a large surplus of tea.

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