Global demand for tea shows no sign of abating in 2018, but there is evidence of significant upheaval in the export market for black tea.
Erratic weather is to blame for seasonal variances, but so too is the emerging consumer preference for green tea and herbals. Seizures for adulteration and a random beetle also jarred black tea markets in 2017.
In its January Tea Forecast The Economist Intelligence Unit (EIU) predicts “global demand for black tea will continue to rise, but the pace of growth will be outstripped by that for green tea, fruit tea, herbal tea, rooibos, purple tea (mainly from Kenya) and high-end organic tea, reflecting their greater reported health benefits and heavy marketing.”
In September Rajesh Gupta, compiler of the annual Global Tea Digest wrote that “the world tea market seems to be heading towards a shortfall of crush tear and curl (CTC) processed black tea, with major tea producing countries like India, Kenya, Uganda and Bangladesh reporting a lower output so far this year.”
“According to our compilation of the latest data gathered from various producing countries, the global black tea production till September this calendar has fallen to 1,545 million kg (mkg) from 1,594 mkg in the corresponding period of 2016,” Gupta told the Hindu Business Line.
The 49 mkg shortfall marked a decline of 3 percent.
A senior official at Tocklai Tea Research Institute (TTRI) said various factors such as less hours of sunshine, prolonged spells of rain, Puja holidays and decreased plucking rounds caused this drop.
"Mild to moderate pest infestations and Helopeltis (tea mosquito) were noticed in all the areas. In eastern Assam, looper, scale, red slug and red rust were also noticed in various places," he said.
A month later, a harvest bounty put India ahead for the year at 1,090 mkg, a gain of 15 mkg, but the turnaround in India and a strong harvest in Sri Lanka did not appear sufficient to offset declines in Kenya which exported 480 mkgs in 2016, the largest quantity of any country.
Kenya exported only 351 mkg so far in 2017 compared to 442 mkg during the same period in 2016, yet still expects to increase production by 20 percent to 500 mkg annually by 2020, according to Samuel Ogola, head of the Kenya Tea Directorate.
Every tea producing country is striving to increase overseas sales of high-margin leaf and artisan teas, but for most of the world’s tea lands, domestic consumption is the engine that determines profitability.
In Japan and China, where local buyers pay top prices for tea, exports are curtailed. Domestic tea drinkers in India and China alone consume 59 percent of the world’s tea, up from 48 percent in 2010, according to EIU. In Kenya, where very little tea is sold domestically, virtually all (95 percent) is exported.
The challenge for high-volume producers is price. The cost of production is rising in tea-supplying countries as the price consumers are willing to pay for commodity tea declines. This is evident even in iced and bottled teas, once filled with the least desired teas and concentrates, but increasingly fresh brewed with more expensive tea and a greater quantity of leaf per liter.
Production Costs Rise as Price Falls
In Sri Lanka, India and Kenya industry experts have expressed deep concern over the sustainability of the organized tea sector amid erratic weather, spiraling input-staff costs and low-price discovery.
"An analysis of the last 10 years reveals that input costs have increased at a compound annual growth rate (CAGR) of more than 10 percent per annum while tea prices have grown at a CAGR of only 6 percent to 7 percent. Unfortunately, we are unable to fetch a proper price of tea," according to Indian tea researchers.
Kenya risks losing its top spot as a leading tea exporter because of the high cost of production that makes the country’s beverage less competitive in the world market, according to a report in The Nation.
“Stakeholders are worried that if the current demand by employees of multinationals to increase their wage by 30 percent is implemented, it will spell doom to a sector that has been raking in billions of shillings annually. At Sh185 ($1.80) per kilo of made tea, Kenya’s cost of production is amongst the highest in the world when compared with other growers of black crush tear and curl (CTC) tea such India where it takes Sh166 ($1.60) to process the same quantity and Sh123 ($1.20) in Malawi,” according to the newspaper.
Sri Lanka earns $4.25 a kilo for tea sold to Russia. Prior to 1990, like Kenya today, Sri Lanka primarily shipped raw product to multinationals but by 2014 boxed and bagged teas (known collectively as value-added teas) accounted for 40 percent to 45 percent of the $1.65 billion in exports, equivalent to 15 percent of the country’s foreign exchange earnings. Sri Lanka still has the largest share, about 29 percent, of the Russian market, though it declined from a peak of 50 percent in 2006.
Blending more expensive teas from Assam, Sri Lanka, India and Kenya with lower priced teas is a long-standing strategy employed by multinationals, but it only works if one or more of these countries produces cheap tea.
Russia and the nine surrounding Commonwealth of Independent States (CIS) make up the world’s largest tea import market. Russia alone accounted for 19 percent of Sri Lanka’s $1.27 billion tea exports and was Sri Lanka’s largest tea importer until last year when a sanction-free Iran took the top spot. Russia imported 141,300 metric tons of tea worth $436 million in the first 10 months of 2017, according to customs data provided by the Sri Lankan government.
That total plummeted to zero in December with the discovery of a single khapra beetle. Russia subsequently refused to land any Sri Lanka tea, a decision that shocked the tea industry. It also led Kenya to schedule trade discussions in January with Russia, which is experiencing economic difficulties and is seeking trading partners willing to lower their price.
“We see this as an opportunity and a challenge at the same time. An opportunity in the sense that we should use this chance to grow our volumes to Russia and learn from the misfortune that befell Sri Lanka to improve our standards,” a spokesman for the Kenyan directorate told The Nation.
“We are targeting to hit at least 44 million kilos of tea exported to Russia in the next three years mainly looking at increasing quality black tea,” said a spokesman for the directorate.
Moscow currently buys 18 mkg annually, about 13 percent of the tea produced by Kenya, but volume has declined in recent years. Kenyan tea exports through October dropped 15 percent compared with the previous year, with all top buyers except Pakistan registering a “significant decrease,” according to reports in the Business Daily.
It will be tough for Kenya to win over the Russian market because Sri Lanka—being the biggest exporter of tea to Russia—has put in massive resources in the last 20 years to cement its position.
In December members of Rusteacoffee, an association of Russian tea producers, asked Russian agricultural safety watchdog Rosselkhoznadzor to resume tea imports from Sri Lanka, but with tougher controls, and exports resumed by the first of the year.
Meanwhile the Tea Board of India seized 250,000 kilos of adulterated tea from eight factories in Coonoor, Kotagiri and Kundah. Coloring, evident when the teas are dipped in cool water, were found in 50 random test samples halting shipments to Russia and several Middle Eastern countries.
China Falls for Black Tea
The least well-known variable in 2018 is China, the world’s largest tea producer. China’s $23.4 billion tea industry is massive, producing 2.35 billion kilos in 2016. Domestic consumption was 1.35 billion kilos with only 324 mkg, or about 14 percent exported. The country produced 13 percent more tea than either consumed or exported.
It is for this reason, as part of the One Belt, One Road initiative, that China intends to double exports by 2020. In Guizhou province, China’s largest producing region, of mainly black and green tea, exports doubled to more than $72 million from January through November 2017 with big gains in Southeast Asia and North America.
Doubling exports is challenging. This is because Chinese tea earns only a fraction of its domestic price in overseas markets. In Russia, for example, a tie guan yin wulong is priced at $20 per kilo, almost five times greater than a Sri Lankan tea and 10 times greater than what Russian importers are willing to pay for a Kenyan tea. In the domestic market, a Chinese grower would earn $60 per kilo for the same tie guan yin and perhaps double for a fine grade.
China supplies most of the world’s green tea, and produces significant quantities of wulong, but during the past few years young Chinese have fallen for black tea. This has greatly increased trade with India, Sri Lanka, Kenya, even Nepal.
Tata Global Beverages, one of the world's largest tea companies, is targeting Singapore, Malaysia and China, where it has made pilot entries to woo the country’s youth with black tea, according to Tata Managing Director Ajoy Misra. “We are appealing to the new generation with black tea,” Misra told The Hindu.
China currently buys about 2.5 percent of Sri Lanka's tea exports. To increase sales, in December Plantation Industries Minister Navin Dissanayake convinced Chinese officials to allow Sri Lankan tea to be sold at Chinese tea auctions. The Chinese purchased $32 million of Ceylon tea in 2016 down from a record $34 million in 2015.
China's black teas including pekoe, lapsang souchong and congou have long been shipped overseas but China is now also aggressively producing traditional CTC for export. Brands including Baoshan Changninghong in Yunnan and Sunriver Keemun in Anhui are exporting to several countries.
The Wuyi mountain region, which specializes in black tea, and Yunnan Province, only came up with a Chinese term for black tea (hongcha) less than 200 years ago, notes Huang Wei, a research associate at the Shanghai Library.
Writing in the tea blog Sixth Tone, Wei notes that “finally, over the last few decades of economic reform, the black tea movement has returned to its place of origin: China.”
She describes “a diverse range of black teas from overseas that have taken the mainland Chinese market by storm, including British-style honey and lemon tea, American iced tea, Hong Kong-style “silk stocking” and “yuenyeung” teas, and Taiwanese bubble tea.”
The popularity of black and wulong tea peaks in the fall: “During the early 20th century, the most popular travel guide to Shanghai under Nationalist rule listed black tea as one of Shanghai’s cultural symbols. Today, black tea is still largely the drink of choice for Shanghai locals,” according to Wei.
She concludes that “the production, dissemination, and consumption of black tea over the last two centuries can almost be thought of as a 'world tour' beginning and ending in China. Perhaps more so than any other beverage, black tea has stood the test of time and connected cultures across the globe.”
With reporting from Pullock Dutta in Assam, India.
Sources: Sixth Tone, The Hindu, Business Daily, The Nation, Bloomberg, Asia Times