Major tea-producing nations join forces to promote beverage

Major tea-producing nations join forces to promote beverage

Attempts to control exports, prices won't be easy: planters

[MUMBAI] Brewing a tea cartel is proving more difficult than a cuppa for six major producers of the world's most widely consumed beverage which last week decided to join forces without explaining exactly what they planned to do.

India, Kenya, Indonesia, Malawi, Rwanda and Sri Lanka, which account for more than 80 per cent of global tea output, agreed in Colombo to form the International Tea Producers Forum, an organisation they said was aimed at stabilising prices, promoting the beverage and ensuring sustainable production.

Their manifesto, however, had few precise mechanisms - an executive committee will be set up in November - and industry experts say any attempts to act like a real cartel and control prices or limit production will be stymied by the complexity of the commodity and the piecemeal nature of its market.

The forum's founding nations, which produce about 1.9 billion kg of tea per year, face similar challenges such as labour shortages, climate change and a need to improve agricultural practices.

They are unlikely, however, to agree on production quotas or price fixing mechanisms due to the different varieties, and amounts, that each nation produces.

"Nobody will accept a quota. What you produce, you have to sell. Tea cannot be stored. Tea is a perishable commodity so no country will ever accept a quota," said Deepak Atal, managing director of Amalgamated Plantations, the second biggest tea producer in India, the world's third biggest tea exporter. "You will compete in the world market and sell your tea."

Kenya is the world's biggest tea exporter, according to latest data from the United Nations food organisation, followed by China, which was invited to join the forum as an observer.

The forum is the first attempt to create unity among the world's main tea producers since a cartel was formed 80 years ago to lift prices by curbing exports. The measure worked, and prices rose by more than a quarter within six months.

Back then, British firms such as Finlays controlled most of the tea trade, but today's tea market is filled with a plethora of sellers hawking a vast array of varieties, which complicates any attempt to control exports and prices.

"In 1930s, the industry was controlled by a few British companies. They owned tea gardens in multiple countries. That's why it was easier to agree on exports curbs," said a tea broker based in Kolkata, capital of West Bengal state which is one of India's main tea-growing areas. "Today there are hundreds of tea garden owners and exporters."

Unlike other commodities such as rubber or sugar, tea has no futures market and no benchmark grade, which makes pricing largely arbitrary. Physical tea is often sold on a weekly basis, via auction.

According to the Tea Board of India, tea prices in India have risen about 40 per cent in the last five years, but during the same period, rubber, wheat and sugar-cane prices have more than doubled.

Average Indian black tea prices stood at US$2.25 a kg in 2012, slightly higher than US$2.23 a year ago.

"The quality of tea is different in each country, and even within a country, so benchmarking them is not possible," said Gopal Poddar, chairman of Limtex India, a producer and exporter based in Kolkata.

Global tea consumption growth slowed in 2007 before picking up three years later at about 6 per cent, compared with coffee at about 4 per cent.

World tea production is estimated to grow at 1.87 per cent annually in the next 10 years, the UN's Food and Agriculture Organization said in 2012, slightly slower than the 1.99 per cent pace over the previous decade, to reach 3.28 million tonnes by 2021. - Reuters