Confronting the Long-term Challenges of Tea

NIAGARA FALLS, Ont. The tea associations of the United States and Canada jointly produce a conference each year known for its candor and quality presentations. “Issues and Opportunities” a discussion led by John Snell exemplified the high level of trust in a global industry facing significant obstacles. He skillfully orchestrated an executive-level conversation after raising thought-provoking questions regarding global warming, machine harvesting, staff and training and the economy. Snell, who is Director Tea Procurement and Development at Mother Parkers Tea & Coffee, invited individuals in the audience with expertise in these matters to weigh in as a means of stimulating conversations throughout the three days and beyond. Richard Darlington, Managing Director of AVT Tea Services Ltd., and a former Finlays executive, introduced the session with perhaps the most compelling challenge facing tea producers — pricing. Pricing has traditionally firmed and softened, Darlington told the 150 assembled.

“Since the 1970’s the tea industry has been used to occasional blips in price,” he explained, but since 2008 a new pattern has emerged. Tightening supplies initially due to shortages in the 2007 crop year have created much stronger markets. “At the start it was assumed this was another blip,” he said, but consumption continues to climb due to population increases and affluence. These trends are “unlikely to change” which means higher price levels in the medium term. Global production increased by 4.2% to 4.1 million metric tons in 2010 but consumption grew by 5.6% in 2010 to 4 million metric tons. Consumption surpassed production in 2011 and is likely to do so again in 2012. Tea Prices meanwhile averaged $3.026 per kilo this week, up from $2.972 last month. This is a change of 1.79% from last month and a pricing level 29.5% higher than five years year ago. In September 2007 tea prices averaged $2.133 per kilo. “The question is: Where will we be in 10 to 20 years’ time?” asked Darlington. In the past producers quickly brought more tea to market as prices climbed, restoring balance.  Black tea production is up, largely due to record prices. Black tea output has increased by 5.5% in response to record prices, while green tea output increased by 1.9 per cent. But will increased costs for labor, competition for land, global warming and legislation impacting the use of agro-chemicals make $3 and $4 kilo tea the norm? The seven bullet points below identify the issues. Join the discussion on the World Tea News LinkedIN group to offer you own opinion.

•      Were the crop problems in 2007 just a catalyst to a market correction to more sustainable levels and if so why?

•      One could argue that the diversification of throat share offerings has risk for the tea industry so, is it tea as an ingredient that is the savior or the main market beneficiary?

•      Have the type of companies buying tea changed and are their needs and valuations at odds with traditional companies?

•      If you need to use certain chemicals to affect sustainability…and yet these necessary activities marginalize your ability to enter certain markets, will you not focus on other markets for sales?

•      Are we going to have the peaceful scratch of tea pluckers at work replaced by the internal combustion engine and what does this mean for quality, productivity and sustainability?

•      What is the next move to enhance profitability and will it come at the expense of a layer of industry players? Is vertical integration the answer or does it pose as many questions as it does answers?

•      How does certification impact pricing and does any perceived bonus disappear once capacity has been built to satisfy all consumer needs?

No one can accurately predict future prices but trend is clearly indicates prices will rise. Looking ahead to the next 10 years, the United Nations Food and Agriculture Organization (FAO) Intergovernmental Group on Tea estimates that world black tea production will grow at almost 1.9% annually to reach 3.28 million tons by 2021 and also come into equilibrium with demand at a price of $2.75 per kilogram.