Tea prices rise as output falls

The price of tea has jumped to two-year highs.

Story highlights

  • The price of tea has jumped to two-year highs due to poor crop yields
  • Dry conditions, poor rains and frosts have hit tea production in Kenya
  • A bad monsoon has reduced production prospects in India and Sri Lanka
The price of tea has jumped to a 2½-year high as poor crops in some of the world's most important producers strain supplies.
Dry conditions, poor rains and frosts have hit tea production in Kenya, the largest exporter of black tea. A bad monsoon has reduced production prospects in India and Sri Lanka, two other major exporters.
The wholesale price of the highest quality black tea -- known as broken pekoe 1 or BP1 -- has surged 41 per cent higher since the start of the year, last month surpassing $4 a kilo, a level seen only once before in late 2009, when prices reached $5.45.
The increase in prices will be felt the world over by drinkers of sweet brews in Cairo, milky cuppas in London and iced tea in Los Angeles. Tea lovers in poorer countries such as Af-ghani-stan and Pakistan are likely to feel the biggest impact, analysts said, as retailers' margins are lower than in the west.
However, Kaison Chang, secretary of the intergovernmental group on tea at the UN Food and Agriculture Organisation, said retailers were unlikely to pass on the full rise. "You would expect some impact on the retail level but the competition among all beverages at the retail level is pretty intensive," he said.
Unlike coffee, tea does not trade in a futures exchange but via physical deals at weekly auctions in Mombasa, Kenya.
Traders and analysts believe that prices may climb further this year as the production shortfalls squeeze the market. Kenyan tea production was 158,000 tonnes in the first six months of the year, down 11.3 per cent from 2011, according to the Tea Board of Kenya. Indian and Sri Lankan output is likely to be 5-10 per cent lower than last year, according to Mr Chang.
"Indications are that the price is going to go up pretty high," he said. The falls in production would support prices at a level of about $4.50 a kilo, he added.
The biggest importers of tea -- Russia, the UK, Pakistan and the Middle East -- have stocked up in recent months, traders said, meaning that prices could ease in the short term as buyers step back from the market.
In its most recent market report, Van Rees, a Dutch tea trader, said it expected prices to "take a breather before taking off again for winter".
But demand is rising quickly in India and China, traditionally large exporters. "The consumption level in China and India has been growing pretty rapidly over the last five years or so and that has contributed significantly to the increase in prices," said Mr Chang.