Issue link: https://read.dmtmag.com/i/491371
32 STiR tea & coffee industry international Tea prices increased from $1.48 in 2002 (all prices quoted in USD) to $2.86 in 2012 and then descended to $2.79 in 2013. The projected trajectory is down- ward, dropping 2% in 2014. Tea prices should bottom out in 2015, at $2.59 per kg and then increase to $2.81 by 2023. However, Chang pointed out, this is a nominal increase: "In real terms, prices will decline." Chang emphasized that the composite price reflects black tea prices only, and ex- cludes green tea. It is very heavily weight- ed toward CTC tea. "If you were to break out orthodox teas, which are popular in the Near East and Russia, you would find those prices increased firmly," he added. One approach (to falling tea prices) is for producers to cut production. That, he said, would result in higher prices; "…cut back on production, say by 5% below baseline, [and] prices could go up 27% for the decade…." But he advised against cutbacks, suggesting greater ef- forts should be directed at expanding de- mand in tea producing countries, where consumption is low or modest. It is preferable to develop tea specialties and target market segments, such as affluent consumers in China, said Chang. Product line diversification is a useful approach, along with promoting the proven health effects of tea. Overall, world tea production is in balance with consumption. In conversa- tions with delegates from countries other than the big four, there is less optimism. In Indonesia, for instance, tea production does not come close to meeting demand and tea must be imported from Vietnam and Sri Lanka. Also, Indonesia produces mostly CTC teas, so the drop in world tea prices affects them dramatically. This is also the case in Kenya, which produces mostly CTC. Referring to CTC, Chang pointed out "there is an excess of supply at current levels; …a further weakening in prices will occur to clear the market." Further diversi- fication may improve the outlook. The topic of tea pricing struck a chord, prompting many comments from delegates. Indonesian Tea Board chair Rachmat Badruddin led off with this comment regarding the supply and demand balance in his country: "We have to do something to expand the market, especially, in Indonesia's case. The internal tea market is small, that must rise to 0.4 kg per head." He suggested that FAO get involved in the generic promotion of tea: "The drop in price may be the last straw for some of us," he said. There is a huge demand for quality tea according India's delegate Arun Singh who advised "Prune more areas; prices for good quality tea have moved up!" Tanzania's delegate also endorsed generic tea promotion, "because consumption is low." He suggested an FAO promotion subsidy. Replying for the FAO, Chang said the organization supported a generic tea promo- tion in the 1990s, developing a logo and trade mark. He said he would check if materi- als are still available. The UK delegate supported Chang's approach, "Focus on quality, and promote internal consumption. Consider Turkey: they're the highest with 2.9 kg. per head!" Speaking to the welfare of the smallholder in India, Singh said "Perhaps we should push for government subsidies for the smallholder who cannot subsist when prices move downward." Looking at tea market segments, green tea is projected to grow at more than twice the rate of black through 2023. That reflects productivity growth in China, which pro- duces mostly green tea. However, global black tea exports will still lead green tea. Green tea consumption figures are almost impossible to come by, but black tea consumption is expected to grow by about 3% and reach 4.14 million metric tonnes in 2023. This expansion will depend on projected consumption growth in producing countries, rather than in import markets, where tea consumption will decline. The tea industry may need to launch a promotional campaign to slow declines in consumption. One of the delegates remarked, "These consumers haven't stopped drinking, so what beverages are they switching to and how do we get them back?" The group noted significant increase in consumption of bottled soft drinks, juices, bottled water, and ready-to-drink RTD "grab-and-go" products. The significant lowering of the tea price provokes questions about the comparative role of macroeconomic or supply-demand factors. El Mamoun Amrouk, a FAO trade and markets division economist assigned to the IGG secretariat, presented an analysis in which he concludes the composite tea price is most strongly affected by supply and demand and market specific factors (short supply due to weather, drought, pest infestations, and disease) rather than macroeconomic factors. However, macroeconomic factors cutting across commodities do have an effect. He mentioned growing aggregate demand in emerging markets; rises in energy prices; depreciation of the US dollar; expansion of monetary policy. "All of the above could cause prices to rise or fall," he said. Amrouk told the group that if one looks at the trend in commodity prices, many rose starting in 2002/3 – tea, coffee, food, energy, oil, copper, gold, and other metals – floating all boats. By 2013, the trend reversed. Left, Alfred Busolo Tobu, interim director general, KTDA and Arun Singh, c.e.o. Goodricke Group Ltd., represent- ing Tea Research Association, Kolkata