Black Tea Prices Falling

Demand remains well ahead of production globally but auction prices for black tea are suffering a steep decline in India and Kenya.

Export volumes are falling as well. India’s tea exports declined 1.5% during the first six months of 2014 compared to previous year totals, according to the India Tea Board which reported 146.17 million kilos shipped. Egypt, Pakistan and the UK receive most of India’s CTC (crush-tear-curl) grades while whole and broken leaf is sent to Iraq, Iran and Russia, all three countries have experienced market disruptions.

Prices at the Kochi Auction continue to decline. Broken and whole leaf tea were down INRs 5 to 10 (2-cents) for the week with teas selling at INRs 280 to 318 ($4.56 to $5.10 per kilo or about $2 to $2.35 a pound). September’s average bought leaf prices, the amount smallholders receive for their unprocessed leaves, ranged from INRs 64 to 132 ($1 to $2.20 per kg).

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At the India Tea Auction House in Coonoor, India

At the Mombasa Auction Kenya’s better quality teas recently sold for $2.10 to $3.40 a kilo (95-cents to $1.50 a pound) a price well below the cost of cultivation. Two years ago these same teas sold for $3.78 to $4.38 a kilo.

“KTDA (Kenya Tea Development Association), a cooperative which represents 560,000 farmers, offers a guaranteed sum for each kg of tea on delivery at tea-collecting stations, plus a sum paid annually linked to global prices. Overall, farmers received 31.61 shillings (35 cents) per kg in the 2013/14 season, down from 50.01 shillings (55 cents) in 2011/12,” according to Reuters.

Reuters reports that Kenyan farmers are threatening to uproot their tea plants following a sustained period of low prices.

Good returns encouraged many of Kenya’s small growers to expand their tea planting since 2000. Last year tea exports generated $1.3 billion on record output of 432 million kg. This year Kenya’s ideal weather, greater efficiency in production and bumper harvests has led to an even greater abundance of leaf.

The government is considering a price stabilization fund, which would involve the state buying up some of Kenya’s tea when prices are low and selling it onto the global market once prices stabilize, to cushion farmers against fluctuations.