Global tea prices set for a bull run

Global tea prices are likely to maintain their upward trend this year because of tight supply in the wake of a projected 10 per cent decrease in production in Kenya, according to the latest findings by the Food and Agriculture Organisation (FAO) of the United Nations Organisation.

The findings indicate an improvement in the fundamental oversupply situation that had persisted for many years. The market fundamentals for 2007 suggest that the trend is likely to continue as the FAO Composite Price, the world indicator price for tea, has increased by 6.5 per cent to $1.95 a kg in 2007.

The global tea production grew by more than 3 per cent to reach an estimated 3.6 million tonne in 2006. The increase was mainly due to a 9.5 per cent rise in Chinese output to 1.05 million tonne and a record 28 per cent increase in Vietnam to 133 000 tonne. The production and consumption figures for 2007 are still being compiled.

A rehabilitation and expansion programme implemented by Vietnam explains the impressive growth in output as tea bushes reached optimum yields.

In China, government policies to increase rural household incomes and major rationalisation of the farming systems including the replacement of low yielding bushes also boosted production.

India, the the second largest producer, also saw its harvests grew by 3 per to 945 000 tonne in 2006.

Meanwhile, the global tea consumption grew by 1 per cent in 2006 to 3.64 million tonne. For the first time, China's consumption surpassed that of India, recording a dramatic increase of 13.6 per cent in total consumption.

For India, although the annual tea consumption growth at 2.51 per cent was not as spectacular as that of China, it was considerably higher than the average 1.6 per cent over the previous decade. 

The global tea trade remained relatively unchanged at 1.55 million tonne in 2006 as increased shipments from Sri Lanka, India and Vietnam offset major drop in Kenya and Indonesia, according to the report.

In the medium term, FAO projections for the next 10 years to 2017 indicate that the black tea production will grow at 1.9 per cent annually to reach 3.1 million tonne, while green tea production is expected to grow at a considerably faster rate of 4.5 per cent to reach 1.57 million tonne.

In terms of consumption, black tea is projected to reach 2.8 million tonne, indicating an oversupply of about 300,000 tonne as stronger consumption growth in producing countries is unlikely to offset declines in traditional net import markets.