Tea prices under pressure, to weaken further

The Intergovernmental Group (IGG) on tea has warned that if there is no correction in the global tea market through adjustment in supply, the price of the commodity will continue to weaken.

Local tea industry experts say this could potentially affect Malawi’s foreign exchange revenue from tea, the country’s second forex earner after tobacco. Malawi is the second biggest producer of tea in Africa after Kenya.

IGG, a forum for intergovernmental consultation and exchange on trends in production, consumption, trade and prices of tea, has noted that average Food and Agriculture Organisation (FAO) composite price for tea has weakened over the last two consecutive years, largely due to poor crush-tear-curl (CTC) auction prices of the commodity.

“This downward trend would continue and pose a real threat to the global tea industry sustainability and its ability to support a number of economies that rely on the industry,” warned Tea Association of Malawi (Taml) chief executive officer (CEO) Clement Thindwa in an interview yesterday.

IGG met in Bandung, Indonesia last week, pooling together 101 delegates from mostly tea producing countries, including Malawi, represented by Taml CEO and its chairperson Sangwani Hara.

The countries that participated at the meeting account for at least 93 percent of world tea production, 87 percent of global tea trade and 72 percent of world consumption.

Thindwa said while overall growth in demand for tea is increasing, most of it is happening in the green and specialist tea segments.

Similarly, he said price of traditional tea has continued to increase firmly, underpinned by a strong growth in demand in traditional orthodox tea markets of the near East and the Russian federation.

Thindwa said in the medium term, projections suggest the supply and demand of black tea, which Malawi produces, will be in equilibrium in around 2023 at a price of $2.81 9 (K1 447, at the current exchange rate) per kilogramme (kg) of quality teas, recovering from its lowest point of $2.59 (K1 333) per kg in 2015 after market adjustments.

“Although this indicates an increase in nominal terms, in real terms, prices would actually decline. Worse still, if there is no correction in supply response and assuming that output increases, say a further five percent, the impact on prices would be quite dramatic, for example, a 40 percent decline over the next 10 years,” he said.

In view of the serious threat to tea prices on the global market, which could have negative impact on Malawi, the IGG called for caution and that efforts need to be directed at expanding demand.

For instance, there is capacity for increasing per capita consumption in producing countries, including Malawi, as they are relatively low compared to traditional import markets.

In Malawi, only two percent of the tea produced is consumed locally, suggesting that the country does not consumer much of its tea.

There have also been calls for the country to diversify into other segments of the market such as organic and specialty teas and increase awareness on the health benefits of tea consumption need extensive promotion, and in line with this, Taml will establish a National Tea Day to run every year from 2015.

Figures from Taml show that tea production has been fluctuating over a five-year period from 2010 when 51.5 million kg was produced. A year later, output slumped to 47 million kg, before declining further to 42.4 million in 2012. In 2013, output was recorded at 46.4 million kg and figures show that in the year to September 2014, production was at 40.6 million kg.

Output over the years has not surpassed a record 52 million kg realised in 2009.