TEA MARKET

Tea market

Tea market

Tea market

Tea is cultivated in about 36 countries all over the world, but production is heavily concentrated in just a handful. By 2007, five countries (China, India, Kenya, Sri Lanka and Turkey) almost 80% of the world's tea. While China, India and Sri Lanka have long dominated world production, the share of the African countries has increased dramatically over the last two decades. The different types of tea can be classified into Green, Black or Oolong tea depending on the way that the same basic leaf (camellia sinensis) is manufactured. The manufacture of green tea differs from black in that the withered leaf is steamed and rolled before drying or firing, so avoiding the fermentation stage. Oolong tea is semi fermented.

Tea is a very labour intensive product and labour costs represent 55-60% of the total cost of production At the moment, most of the world's tea is traded in either auctions or forward markets unlike coffee and cocoa which make greater use of futures and option markets. Tea sold through forward contracts is gaining popularity because of its advantage in shielding both the buyer and producer from price volatility. However, even forward contracts/futures and options may not deter volatility because excessive speculation is still possible and also given the complexities of determining the price of each grade of tea from each estate it often invites speculation. Competition between producers for a share of the world market is intense for a number of reasons. For example a large number of countries produce tea and many are big enough to prevent the establishment of a clear leader, which allows fierce competition In addition, producing countries stay in the market despite its scant rewards because they have invested a great deal in tea production and lack alternatives. One area where tea was traditionally different from coffee and cocoa was that the world tea market used not to be particularly prone to price volatility often because tea markets are dependent on different auction prices in producing countries, unlike coffee where the price was determined more centrally. However there was a noticeable increase in volatility in the 1990s due to many factors such as the exchange rate fluctuations and more changeable demand (such as the collapse of the economy of the former Soviet Union) A large proportion of the world's tea (more than half) is consumed in producing countries unlike coffee or cocoa. For example, India produces almost 20% of the world's tea; it exports less than 20% of the world's supply. The export trade must cater to very different markets. The United Arab Emirates buys low ground Sri Lankan tea which is not in demand in Europe. Consumer tastes differ not only with regard to quality but also types of tea. A tea producer therefore will typically produce 5 main grades and 2 or 3 secondary grades, and must find a market for each. However it should be noted that large trans-national corporations such as Unilever and ...