The Tea Market Environment - Essay Example

Introduction After water, tea is one of the most commonly used liquids in the world. Due to its low cost, freshness and well diversified flavors, teais being used in almost every society of the world. According to a research more than three million cups of tea are being consumed on routine basis. Due to the climate, soil and rainfall there exists different types of teas and while tea affects the taste buds so there exists different un-substitutable choices of people for each flavor. Asia enjoys a dominant position in the international market of tea. Wide range and high quality make the Asian tea strongly attractive in the international trade market. At the current time it is India at the top position of tea producing countries. India is not just the largest producer but also the biggest consumer of tea as well. India is closely followed by China, Sri Lanka, Kenya and Indonesia. Other than Asia, key tea producing countries include Burundi, Rwanda, Uganda and Zimbabwe from Africa. While in the South America, Argentina and Brazil are the major players in this industry. In addition to these, globally there are many other countries as well which are involved in the tea production, few of them include; Turkey, Iran and Russia. Camellia sinensis is the most popular and common tea plant. This ever green shrub has many varieties which are basically classified on the geographical basis. Tea is basically produced from its dried leaves. There are basically three major classifications of tea production which include low-grown tea, mid-grown tea and high grown tea. Reason for the popularity of high grown tea is its fabulous flavor and high quality. This category is mostly planted in areas where there is cooler temperature. Due to less temperature crop gets ready slowly and as a result of this final product carries higher quality and better taste. With passing time there has been growing number of tea producing countries however there are still three major classifications of Camellia tea which are Black, Oolong and Green tea. These categories are basically formulated due to a chemical reaction. This chemical recaiton is known as oxidization. This chemical reaction takes place when leaves are left to completely withers and die. In case of green tea, leaves are not allowed to oxidize as they are fried to dry out. As a result of this many minerals survive in the leaves and this is the reason due to which green tea is taken as a positive tonic to the health. While on the other hand, black tea is allowed to oxidize completely which brings out a deep and magnificent flavor. Other than these two categories, there exists the third category which basically comes in between the black and green time. Oolong tea is being oxidized for a period which is greater than that of green tea but less than black tea. In the current era, black tea is the most popular form of tea and most of the major brands operate in this category. Along with these three major types there are multiple other types of herbal teas, which are produced from different leaves and flowers. With the passing time, uncommon types of tea are rapidly gaining popularity. Furthermore different value adding items are also being introduced to attract customers’ e.g. iced tea, foamy tea and different sort of bagging. Through these different aspects, tea sellers try to make use of tea much more lucrative and convenient for the customers leading to higher sales. Production Usual practice of plucking is on ten day basis from zero to two hundred meters. In this regard plucking is basically carried out in two ways. First is known as fine plucking, under this approach two leaves and bud are plucked. Second approach is coarse plucking, where a sprig with more than a couple of leaves is plucked. For black tea various stage of manufacturing includes; withering, rolling, roll breaking, fermentation, drying, sorting and packing. The Intergovernmental group on tea monitors the situation and proceedings in the market and works on providing updates related to potential markets. The most common form i.e. black tea is being graded on four scales of quality. For example whole leaf teas are assumed to be of the finest quality. While broken leaf teas are assumed to be of secondary quality level. Few of the largest sellers of black tea include Unilver, Associated British foods, Tata tea and Teekanne Group of Germany. If we analyze the current production situation of tea worldwide then it can be clearly seen that Asian countries significantly outperform other countries of the world. In 2006 due to bumper crops, global production growth rate was observed to be over 3%. However it is important to note that this healthy growth rate is net of the lowered production in countries like Kenya and Sri Lanka. Export Global export market of tea has experienced a healthy growth in the last decade. If we look over the period from 1996-2006 then it can be seen that in Africa there has been an average growth rate of 2.1 percent. Here maximum growth was in case of tea exported by Uganda as in the under consideration decade, Uganda tea exports grew at a rate of almost 8.1 percent. However in Asia, there was a quite weak growth rate as the exports grew by just 0.7 percent in the under consideration time frame. Main reason for this low average growth rate was negative growth rate of China and Indonesia i.e. -8.4 and -1.2 percent respectively. While highest positive contribution was made by Sri Lanka with a growth rate of 2.9 percent. One of the most important reasons due to which Kenya faced low growth rate was the political and security uncertainty in Pakistan, which is one of the major markets for Kenyan tea. Other than these two continents, Latin America enjoyed an outstanding growth rate of 6.7 percent. While South Africa was the major sufferer in this regard as it ended up with a negative growth rate of 26 percent. After thorough study it has been observed that till 2017, almost all negative growth rates will be recovered and the tea industry will experience a vital boost till 2017. Imports From 1996 to 2006, a decline was observed in the global import of tea. Few of the most important reasons in this regard include lower imports by Pakistan, Russia and Netherlands. Here Pakistan has the lowest tea import growth rate as this rate turned out to be just 0.2 percent. Along with these three major consumers of tea, massive decline in the consumption was also witnessed in Israel and few other European countries. However other than Israel, it is expected that as the conditions of under developed countries like Pakistan, will get stable, imports will again take an uplift. Consumption Imports and exports directly reflect the level of consumption of tea in each region. Although pretty much unstable countries like Pakistan had lower demand for tea. However there was a drastic increase in the demand for tea in countries like China and India. These countries responded to increased demand through local production as well as imported tea while surplus was mostly exported. Future In the upcoming future, global production of black tea is expected to grow at an average rate of about 1.9 percent. Here continent wise, Asia is expected to give out the highest growth rate i.e. 2.2 percent. Whereas if we talk on the country level, then China is expected to grow its black tea production at the fastest average growth rate of about 6.5 percent. If China keeps on moving with this rate of growth then on an average by 2017 it will be producing about 312,000 tones of black tea per year. Whereas the overall biggest producer of tea is going to be India, with an expected growth rate of even just twp percent, it is expected that by 2017, India will be able to produce 1,175,000 tones of black tea per year. While Uganda is expected to sustain its healthy growth rate and continue with the average growth rate of 7.8 percent and by 2017, making it enable to produce 38,000 tons of black tea each year. If we talk about the second most important category of tea i.e. green tea then it is also expected to generate some very interested figures. It is projected that from 2006-2017 green tea will grow at a growth rate of 4.5 percent globally. While India is anticipated to be most dominant producer of black tea by 2017, China is expected to become the biggest producer of green tea by same period. Pricing If we talk about the influence of producers on the prices of tea then it can be confidently said that due to a big number of players, prices are market defined. In other words as no single seller carries the monopoly of producing a specific type of tea so therefore none of the seller has the option to exploit the customers and charge price. In any case if a company tries to earn abnormal profit then it may be possible for a very short period of time but after some time, prices will be again representative of market function. In other words no arbitrage profit exists in the tea industry as prices will very quickly come back to equilibrium level representing demand and supply of the product. If we talk specifically about India then it can be seen that although about a decade ago prices of tea were pretty much stable. However now prices have become volatile and couple of most important reasons in this regard is increased number of suppliers leading to surplus, volatile exchange rates. Another very important market factor is that in contrast to coffee, tea is more of a perishable good so stocks don’t represent the complete supply. Therefore as a result of sluggish demand and massive increase in supply, prices in the last few years have seen consistent fall and volatility. Fair Trade Many years back tea was included in the product series of European fair trade organizations. Under this EFTA members import tea from a certain set of companies which are basically the largest tea producers from each region. As a result of this large tea seller corporation get the opportunity to keep an adequate margin to compensate for inflation and growing costs. So tea prices surely represent the costs of large firms. However an exception in this regard comes with the small tea producers. As tea is not purchased from them on an international scale so they have to sell tea at what ever price is available so in their case, prices don’t represent the actual cost of farmers. References Tea Industry in Crisis http://www.web.net/~bthomson/fairtrade/fair667.html Tea Industry- FAO http://www4.fao.org/ Tea Industry- Forecasts http://www.allbusiness.com/tea-industry/3117242-1.html Tea- Industry Updates http://www.teatrends.com/ Tea Market www.journal.au.edu/au_techno/2009/apr09/journal124_article05.pdf Read More