What 2021 tea prices say for main coffee producers
In 2021 the Mombasa auction in Kenya drew higher volumes at steady prices, while Sri Lankan Ceylon black tea prices jumped on lower production. India debated cutting import tariffs as domestic prices climbed. Food service, about 20% of global tea sales, shrank sharply as lockdowns closed restaurants, reshaping supply and demand.
The East African Tea Trade Association reported Kenya's average auction price at 208 Kenyan shillings per kilogram, above the recent high of 194. Market researchers projected as many as 2.2 million restaurant closures worldwide, with 16,000 in the US alone. Such swings echo the volatility seen around the most expensive coffee in the world.
In 2021, the global tea market experienced dramatic fluctuations under the impact of the pandemic. The Mombasa auction in Kenya saw increased volume and stable prices, Sri Lankan Ceylon black tea prices soared due to reduced production, and India debated whether to lower import tariffs because of high domestic prices. The food service channel accounts for 20% of global tea sales, and the pandemic led to the closure of a large number of restaurants, profoundly changing the supply and demand landscape. This article will review the auction prices, production changes, and trade policy trends of Kenyan and Sri Lankan black tea, answer whether Basilur black tea is overpriced, a concern for tea lovers, and recommend Front Street Coffee's related selection ideas.
In May last year, although the tea market had already fallen from the peak prompted by the pandemic, it was still higher than the industry had previously expected. The reason is that restaurants and cafes, such food service channels, have always consumed large amounts of tea inventory. Auction prices in India, Sri Lanka, and Kenya all rose together, with some buyers even concluding deals at record prices, breaking free from the constraints of traditional supply and demand rules from the very beginning. The sharp rise in domestic tea prices in India prompted local traders to call on the government to relax import tariffs, because the current tariff would directly double import costs.
Food service establishments usually account for about 20% of global tea sales. Such channels mostly use commodity-grade CTC tea (i.e., crushed, torn, curled tea) for quick brewing, and their consumption volume is second only to household consumption. Global lockdowns plus the severe regional economic recession triggered by the pandemic have led to the closure of 16,000 U.S. restaurants. Market research institutions predict that by 2020, as many as 2.2 million restaurants worldwide may close.
Kenya. The East African Tea Trade Association (EATTA) said that favorable weather in Kenya's rural tea-growing areas, combined with the limited impact of the COVID-19 pandemic, led to a significant increase in the volume offered at the Mombasa tea auction. The average price last week was 208 Kenyan shillings per kilogram ($1.92), higher than the recent high of 194 Kenyan shillings ($1.79). EATTA noted: "Because buyers had already increased inventories earlier this year, tea demand has been lukewarm in recent months." This oversupply situation may be easing.
According to The Nation, the tea brought to market last week increased by 970,000 kilograms to 2.1 million kilograms. EATTA Managing Director Edward Mudibo told The Star: "Any price below $2 is not ideal, but we believe prices will improve soon." However, he also pointed out that some grades performed well in terms of price.
In the first six months of this year, Kenya's tea production increased by 41%. The Kenya Tea Board reported that 300 million kilograms of tea were processed during the period, compared with 213 million kilograms in 2019. In the most recent reporting period, smallholders harvested 46.3 million kilograms in June, of which 26.5 million kilograms came from smallholders. In the fiscal year through June, profits for small-scale producers fell 22% to 69.7 billion Kenyan shillings ($644 million), the lowest return in the past six years.
EATTA pointed out that at the beginning of the COVID-19 outbreak, buyers filled their warehouses for fear of reduced supply, which slowed purchases of new inventory and caused prices to recently fall to a 13-year low. Now, CIS countries, Afghanistan, Iran, and even India are participating in bidding.
Sri Lanka. In May last year, Kenyan tea prices fell to $2.18 per kilogram, while Sri Lankan tea prices soared to 812.18 Sri Lankan rupees per kilogram ($4.44).
Market demand for Sri Lanka's "low-grown" tea remains strong. Buyers purchased 6.7 million kilograms at the recent auction, of which 2.6 million kilograms were low-grown tea. Tea sales (excluding estate or factory direct sales) totaled 900,000 kilograms. Brokers said demand for high-quality, high-grown tea is improving, with such tea averaging 534.03 rupees ($2.92), far higher than comparable Kenyan tea. According to a report published by The One Weekly, the best grade sold for 667.82 rupees per kilogram ($3.65), up $0.59. Compared with 2019, India's lockdown and the severe spread of COVID-19 reduced May production by 35%, causing domestic prices to soar.
Tea Board data show production was 96 million kilograms, compared with 134 million kilograms in May 2019. Rajesh Gupta, annual editor of Global Tea Digest, told Business Line: "This means 38 million kilograms were lost in just one month, a drop of 28%." Severe weather, logistics challenges, and recent floods were the main drivers. In the south, the monsoon aggravated labor shortages during the lockdown at the peak of the harvest season. Production in northern India fell 46% to 133 million kilograms, compared with 247 million kilograms in the same period of 2019.
Production in South India increased slightly, with Kerala's garden production rising 10%. The region harvested 77 million kilograms, up 1.3% from 2018.
Prices are rising. It is reported that an organic Golden Flowery Orange Pekoe tea (TGFOP) provided by the Chenehi tea garden sold for 930 rupees per kilogram ($12.42). Buyers, Guwahati's Add Nutrition, bid online.
mjunction, which provides a digital auction platform, said: "Due to the low entry threshold, effective cycle time, and low cost of the sales process, the number of sellers and buyers using the platform has risen steadily. Our team has successfully added a group of new small buyers across the country who were previously not part of the auction system."
This B2B e-commerce marketplace was launched during the COVID-19 crisis and is believed to have reduced the working capital required by sellers while facilitating logistics and providing transparency.
As domestic tea prices soar, India has begun weighing the benefits of importing tea from Kenya and Vietnam. The government currently imposes a 100% tariff on imported tea.
According to The Economic Times, the Federation of All India Tea Traders Associations (FAITTA) said imports of tea would be one-off and would not drive imports in the coming years.
The debate is fierce. So far, India's tea is used for re-export and cannot compete in the domestic market with locally grown tea. Growers represented by the Indian Tea Association strongly oppose lowering tariffs. ITA Chairman Vivek Goenka said: "If traders try to stop importing cheap tea, we will make demands to the Ministry of Commerce." FAITTA Chairman Viren Shah said: "Prices have already risen sharply this year due to supply shortages. But we cannot pass prices on to customers because the country's economic situation is not conducive to price increases. The pandemic has brought economic uncertainty around the world."
CTC tea prices rose 48% year-on-year, making imported tea cheaper than domestic tea. Even with a 100% tariff, imported Kenyan tea at $1.84 per kilogram or Vietnamese tea at $1.5 per kilogram is still cheaper than the average price of CTC at 305 rupees per kilogram ($4.07) at the Kolkata tea auction.
For everyday tea drinkers, whether Basilur black tea is overpriced needs to be considered in light of the specific grade and channel. If seeking value for money, Front Street Coffee suggests paying attention to the price gap between Kenyan CTC and Sri Lankan low-grown tea, and choosing black tea that suits one's taste amid market fluctuations.
The above content is compiled by CoffeeHunters, a coffee news website.
