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Tea prices could prompt over-supply, warns FAO

By Jess Halliday , 04-Jan-2010
Last updated on 04-Jan-2010 at 12:21 GMT2010-01-04T12:21:11Z

Record world tea prices in 2009 could cause some tea producers to plant more crops and lead to eventual oversupply to the market, the FAO warns.

In September the UN agency’s Tea Composite price for black tea reached US$3.18/kg, compared to an average price of $2.38 in 2008. The reason was severe droughts in India, Sri Lanka and Kenya, compounded by increasing demand for tea from the beverage sector.

While India has pledged not to expand its tea areas beyond what is required for replanting and rehabilitation, there is concern that producers elsewhere could plant more in an attempt to capitalise on the high prices or protect against future crop failures. The result could be too much tea once new tea bushes reach maturity in three years’ time, which might lead to a price crash.

Such a reaction is not without precedent in agriculture. For example in 2004 sky-high prices for vanilla caused a flurry of plantings; prices subsequently collapsed as the food industry balked at the prices and turned to cheaper synthetic vanillin instead. Not only did this leave farmers with pods they could not sell, but there is some evidence that planting of vines too close together may be leading to fungal diseases.

In advising tea producers against knee-jerk plantings, Kaison Chang, secretary of the FAO’s Inter-Governmental Group on Tea, reassured that prices are expected to drop back to normal levels.

“The return of normal weather patterns in the main producing regions indicates that the tight global market situation should begin to ease, alleviating the pressure on world tea prices in the New Year,” he said.

More tea?

The FAO said that a share of the higher prices has been passed along the value chain to consumers, with retail prices for tea increasing 5 per cent in Europe. Fierce competition in the beverage market has kept it in check to some extent, however.

Tea consumption has been on the rise around the world in the past decade. The FAO estimates a 0.8 per cent growth in consumption between 2005 and 2009, while production growth was -0.6 per cent.

The gap between consumption and production growth was widest between 2007 and 2009, reaching 3.4 per cent.

In addition to its popularity as a habitual beverage, tea (especially green tea) is used as a food ingredient thanks to high antioxidant levels. Considerable research has also been conducted into health benefits of compounds in tea, and some flavour firms have developed advanced tea flavour portfolios.

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