Relax, have a cup of tea ..err 1/2 cup?

KOCHI (Commodity Online): Let's have a cup of tea is an offer that many can't resist in India.Meetings and discussions can't take place without this favourite beverage. But it is by no means unique to India, according to Food and Agriculture Organisation (FAO), it has become a global habit no matter the price. But in 2009, tea growers gained as production slumped due to bad weather in India, Sri Lanka and Kenya and tea prices zoomed to all time high.

The FAO Tea Composite price, the indicative world price for black tea, reached a high of $3.18 a kilogramme in September amid droughts in India, Sri Lanka and Kenya underpinned by increased demand, compared to an average price of $2.38 per kilogramme in 2008.

India's earnings from tea exports have been higher this year compared with last year despite lower volume being shipped because of increased prices fetched in the global market.Tea Board data shows that till September, India could export only 131.23 million kg against 150.25 million kg in 2008. But, every kilo fetched an average price of Rs 135.42 against Rs 111.93 last year. Therefore, the overall earnings increased to Rs 1,777.05 crore from Rs 1,681.80 crore.

Oversupply concerns
Rising global prices have also created oversupply concerns for 2010 as planters may plant more of the crop.The concern is that tea producers could over-react to the current high prices by planting more crops, threatening an over supply in the market, FAO said.

Some producing countries, such as India, have acted responsibly and announced that they would not be expanding current tea areas beyond what is required for replanting and rehabilitating existing tea gardens said Kaison Chang, Secretary of FAO's Inter-Governmental Group on Tea, the only international tea authority.

The return of normal weather patterns in the main producing regions indicates that the tight global market situation should begin to ease alleviating the pressure on world tea prices in the New Year, he said.

Although consumption growth outpaced production between 2005 and 2009 (an estimated 0.8 percent as opposed to -0.6 percent, respectively) the gap between consumption and production growth was largest between 2007 and 2009, when it reached 3.4 percentage points, coinciding with the surge in prices.

Some of the price increases were passed along the value chain to consumers as retail prices increased by five percent across supermarkets in Europe.

Tea Board data showed that in the nine months of 2009, Russia continued to be the highest importer with 33.68 million kg (last year: 33.66 million kg) and the CIS highest conglomerate with 41.20 million kg (43.70).UAE imported 11.97 m kg (19.11), closely followed by Iraq with 11.11 m kg (mere 0.61).Value-wise, Indian earned the highest value of Rs 385.90 crore (Rs 327.89 crore) from Russia and the CIS conglomerate with Rs 493.40 crore (Rs 442.26 crore). Price-wise, India received the highest price of Rs 570 a kg (Rs 93.93) for exporting 0.01 million kg (0.09) to Turkey.

It received Rs 292.35 a kg (Rs 251.15) from the Netherlands, Rs 284.63 (Rs 269.14) from Ireland, Rs 280.46 (Rs 263.01) from Japan, Rs 280.43 (Rs 206.89) from Australia. Among the traditional importers, Russia paid Rs 114.58 a kg (Rs 97.41), the UAE Rs 144.80 (Rs 106.96).The lowest price of Rs 65.85 (Rs 60.66) was received from Kenya.

Habit forming
The fact that demand for tea remained robust, despite the global recession, supports the assertion that tea consumption is habit forming and is relatively price inelastic for most blends except higher priced quality teas.

In addition, the share of household income spent on tea purchases is relatively small. Supply response to high tea prices has been delayed as it requires investment decisions that have long-term implications: it takes at least three years before a tea bush can be harvested, FAO said.

Higher tea prices have not affected the consumer in developed countries because of intense competition in the beverages market. However in developing countries manufacturers are likely to transfer a larger share of the price increase to consumers, as tea procurement costs account for a significant share of the final retail price.

In India, for example, average retail tea prices were quoted about 15 percent higher in September 2009 than in the same month in 2008. In Pakistan retail prices increased by 12 percent in September 2009 compared to September 2008.

Looking ahead to 2010, the return of normal weather pattern in the main producing regions indicates that the tight global market situation should begin to ease alleviating the pressure on world tea prices, FAO analysts said.