As the summer growing season ends, tightening supplies have firmed up tea prices worldwide.
The Economist Intelligence Unit (Commodity) reports tea prices held in July “although prices at the Mombasa auction in Kenya (where around one-third of global tea exports are sold) dipped at the first weekly auction in August.”
“We (EIU commodity forecasters) expect a relatively moderate fall this year, with prices averaging $2.9/kg in the third quarter and $2.7/kg in the fourth quarter. However, with a greater market surplus forecast for 2012, we expect prices to drop to $2.55/kg by the end of the year, producing an annual average of $2.63/kg,” according to the September EIU report.
Prices rose steeply in 2009 peaking at record levels of nearly $3/kg in late 2010.
In Africa the culprit leading to declines was drought during the early days of the season while India and Sri Lanka have suffered from late summer downpours.
Production in Kenya, the world’s largest exporter of black tea is expected to decline 25 percent, according to Sicily Kariuki, Kenya Tea Board Managing Director. Exports topped 441 million kilos in 2010 but are likely to fall to about 330 million in 2011. Kenya produced 399 million kilos in 2010. Exports were higher because of carryover from the previous season. The country exports 26 percent of the world’s tea, largely in bulk.
The 31 million kilo shortfall in Kenya is mirrored by smaller African producers such as Uganda which reports a shortfall of 5 million kgs compared to 2010.
Persistent rains over the tea growing regions of South India during August and September lowered leaf quality and yield and made it difficult to harvest. The rains have since abated. Meanwhile, production in northern India has surpassed last year’s yield.
Offsetting these declines is the growth of China’s tea exports both green and black. China exports grew by 14 million kgs through May. While the world’s greatest producer of tea, China ranks 5th in exports, behind Argentina. Prompted by government incentives, China is expanding production of black tea for export. Only 2 percent of domestic consumption is black tea as Chinese prefer green (70%), oolong (12%) and scented tea (8%).
EIU predicts a new surplus of 93,000 kgs worldwide, the smallest since 2003. A rising middle class is boosting consumption in China, India, Pakistan, Bangladesh and Vietnam (which together account for around 50% of global consumption). In China, for example, domestic consumption is expected to increase 5.8 percent.
“Local data indicate that tea consumption per head in high-income households is double that in low-income households (0.4 kg per year, compared with 0.2 kg), so strong growth in incomes will support tea consumption,” according to EIU.