The Tea Market – A Background Study

The Tea Market – a background study

The Tea Market – a background study

draft for comments 26/06/02

CONTENTS
SECTION 1: MARKET FUNDAMENTALS_____________________________________3 1.1 The Economics of Tea___________________________________________3 1.1.1 Price decline_____________________________________________3 1.1.2 Price volatility____________________________________________4 1.1.3Production_______________________________________________5 1.1.4 Consumption_____________________________________________6 1.1.5 Profitability: rising costs vs. rising productivity__________________8 1.1.6 The forecast______________________________________________ 1.2 The Politics of Tea______________________________________________9 1.2.1 Developing countries’ reliance ontea__________________________9 1.2.2 The intervention of politics in the tea trade______________________9 1.2.3 Tariffs_________________________________________________10 1.3 Policy Responses______________________________________________10 1.3.1 Supply Management______________________________________10 1.3.2 Boost Consumption_______________________________________11 1.3.3 RiskManagement________________________________________12 SECTION 2: CAPTURING VALUE ALONG THE SUPPLY CHAIN________________14 2.1 Production: Smallholders vs. Plantations__________________________14 2.1.1 Smallholders____________________________________________15
2.1.1.1 The marketing of smallholder tea___________________________15 2.1.1.2 Processing problems for smallholders_______________________15 2.1.1.3 Bearing the brunt of highercosts___________________________16

2.1.2 2.2

Plantations______________________________________________16
2.1.2.1 Working and living conditions in tea plantations_______________17

Further up the supply chain_____________________________________24 2.2.1 The role of the auction houses_______________________________24
2.2.1.1 Pros and Cons__________________________________________24 2.2.1.2 Theglobal tea brokers___________________________________25 2.2.1.3 The concentration of buyers at auction______________________25

2.3 2.4

2.2.2 Blending_______________________________________________26 2.2.3 Retail__________________________________________________26 The Big Players_______________________________________________27 2.3.1 A profile of the global companies____________________________28Policy Responses______________________________________________30 2.4.1 Codes of Conduct________________________________________30
2.4.1.1 The Ethical Trading Initiative_____________________________31 2.4.1.2 The Tea Sourcing Partnership_____________________________32 2.4.1.3 Premier Brands’ Quality Assurance Programme_______________33

2.4.2 Nationallegislation_______________________________________34 2.4.3 A way out for estate workers________________________________34 2.4.4 Fair trade_______________________________________________34 2.4.5 Strengthening producers’ associations for smallholders___________35 2.4.6 Diversification___________________________________________36 SECTION 3: TEA AND THE ENVIRONMENT_________________________________38 3.1 Policy Response: viability of organictea-growing___________________39 ANNEX 1: Plantation wages in Kenya, Sri Lanka, India and Malawi__________________40 ANNEX 2: Producing country profiles__________________________________________42 2

The Tea Market – a background study

draft for comments 26/06/02

Section 1: Market Fundamentals
1.1 The Economics of Tea
The price of tea has been in long-term decline while production costshave risen, putting downward pressure on farmers’ incomes and labourers’ working conditions. Since 1980, the real price of tea has fallen by 15%1. As the chart below shows, another problem has been price volatility. In the last two decades, the annual average price has fluctuated between a high of 333 cents/kg to a low of 142 cents/kg in 1980 terms, and the instability index2 has averaged 13,...