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Tea Prices

It looked like the tea price rise of the year 2009 was loosing steam coming into the New Year. According to the Food and Agriculture Organization (F.A.O), an agency of the United Nations, the world price for black tea was up more than 33% to settle at $ 3.18 per kg in September 2009 from the same period in 2008.By August 2010, the price per kg of black tea was $ 3.15.Although the price in August was an increase from the July price of $ 2.59/ kg, tea prices are generally looking up.

In 2009, the rally in tea prices was attributed to harsh climatic conditions in the major tea producing regions of Africa and Asia namely Kenya, India and           Sri-lanka .Poor rainfall led to shortages in global tea production. Consequently there was a consistent increase in tea prices since the tea produced could not meet the ever growing global demand.

Due to drought Kenya and India which are the leading exporters of black tea, recorded a drop in tea production levels by 9% and 7% respectively. On average, according to the India tea association (I.T.A) global tea production fell by 2.4 % to 1.86 billion kilos .On the other hand, Kenya, India and Sri-lanka saw their tea auction prices rise on average by  39.3%.

As the harsh climate eased off towards the end of 2009, tea production in early 2010 rose by as much as 82% in Sri-lanka and 25% in India. All indications were that increased tea production would push the prices downwards. By May 2010, the market showed signs of responding positively. In deed the global price per kg of black tea dropped to $2.86 in May from $ 3.12/ kg in April only to shoot back upwards unexpectedly in August. Analysts predict that the price will stagnate at around the August level for the reminder of year 2010.

The global economic meltdown of 2009 did not do any good to tea prices. America was hard hit by the economic downturn and so the United States dollar weakened against major currencies. This had a negative effect on tea prices.

Currently, the base price of tea seems to have moved up permanently .In Kenya for example, the auction price has settled at around $3 per kilo compared to an average of $2.5 the previous decade. This is despite the fact that farmers have started increasing the size of their tea plantations. However, it is very unlikely that any increase in supply, due to an expansion of the area under tea, will have any impact on the prices judging by the high rate of annual growth in consumption.

Tea (especially black tea) is the world’s favorite beverage .It has little effect on household incomes. Tea is now being marketed as a health drink so it’s adoption in non- traditional tea markets is incredible.

Some of the reasons that are likely to keep pushing up tea prices include; First the fact that there is a renewed consumer confidence after the inflationary trends of 2009. Secondly, trade unions in tea growing regions have been advocating for higher labor standards.  Tea harvesting machines have for example been met with a lot of resistance in Kenya.  This means that the costs of production will remain high and hence push up the prices and finally, the news from the metrological departments is not very good.  Going by their forecasts, the year 2011 will be another dry one for Africa and Asia.