United Nations Projects Steady Tea Prices

Tea prices will remain high in 2012 as demand for black tea exceeds production and domestic consumption in producing countries expands. 

Several close observers of the global market for tea released statistics this month suggesting how the new year will unfold.

On Wednesday the United Nations Food and Agricultural Organization (FAO) predicted “global tea prices are set to stay strong through 2012, with demand driven by growth in Asia.”

The agency’s Intergovernmental Group on Tea says that the high price of tea, which averaged $2.85 per kilogram in 2011, reflects the fact that demand for black tea – accounting for most of world production – has exceeded supply since 2009.

Commodity analysts at the Economist Intelligence Unit report that “growth in global tea consumption slowed in 2011 and forecasts that it will continue to do so in 2012, before picking up in 2012.”

Production in most countries falls from historic highs

Global production increased by 4.2 per cent to 4.1 million tons in 2010 but is off from historic highs in most producing countries.

Tea is grown commercially in 49 countries but six major producers account for most of global supply.

Black tea output increased by 5.5 per cent in response to record prices, while green tea output increased by 1.9 per cent, according to FAO.

China remains the world’s largest tea producing country with an output of 1.39 million tons in 2010 and a 33 per cent share of the world’s total. A preliminary estimate puts 2011 production above 1.4 million tons, according to The International Tea Committee which tracks the largest producers.

A 12-month running total through Nov. 2011 of the major producing countries shows an overall decline last year of 26,043 metric tons compared to the 3,372,333 mt produced between Dec. 2009 and Nov. 2010.

Political upheaval disrupted export patterns and a severe drought in Africa and rising temperatures reduced yields.

Northeast India had a good harvest, producing 755,190 metric tons during the period Dec. 2010—Nov. 2011 (the latest figures available) while tea production in South India fell from 246,535 to 241,149 metric tons. India’s gardens exceeded the mark set in 2010 but the increase of 30 million tons barely kept pace with domestic demand.

Totals for Sri Lanka, Indonesia and each of the major African producing countries are down and Kenya, Malawi and Uganda are way down while China and Bangladesh reported modest gains.

Consumption rising

Declines in production are countered by significant demand in domestic markets where tea is grown.

“Global tea consumption grew by 5.6 per cent in 2010 – the latest year for which figures were available – to four million tons. This increase was underpinned by the rapid growth in per capita income levels, particularly in China, India and other emerging economies,” according to FAO.

In China, total consumption reached 1.06 million tons in 2010 – the largest in the world – while in India it reached 828,890 tons, FAO says in a news release.

“Growth in India's tea consumption, which is estimated at 2.3 percent in 2011, will slow to 2 percent in 2012, before recovering slightly in 2013,” according to the EIU forecast. “This is much weaker than consumption growth in China and reflects higher inflation and sharp rises in the cost of milk and sugar, which have a more significant impact on demand in India than in China, where tea is typically taken without either.

“As in China, tea is facing competition from the growing popularity of coffee among the young. However, the Indian market has significant future potential (Indians drink an average of just 300 cups of tea a year, compared with 800 in the UK), and we expect consumption to continue to expand. More coordinated advertising campaigns will help to lift demand for branded tea, which currently accounts for around one-third of the domestic market,” according to EIU.

Long term forecast

World green tea production is expected to reach 2.6 million metric tons in 2021, growing at a rate of 7.2 percent a year driven by a significant anticipated growth in China, where production is expected to reach 2.3 million metric tons.

FAO estimates world black tea production will grow at almost 1.9 per cent annually to reach 3.28 million tons by 2021 and also come into equilibrium with demand at a price of $2.75 per kilogram – just under the current price. The higher prices resulted in an estimated 2.2 per cent increase in the export earnings of producing countries last year.

Source: United Nations News Centre (FAO), Reuters