Introduction
The global tea industry is booming, with production going up in almost all major producing countries. Led by China and India, Kenya and Srilanka, the industry producers have witnessed a stable and consistent increase in the global prices of tea in the international market. The global market for hot beverages is forecasted to be a large one, expected to reach $ 69.77 billion in value and almost 10.6 million tons in volume by 2015.
TOP 5 IMPORTERS OF TEA
Source: International committee on tea (www.inttea.com)
The price dynamics in this industry rely mainly on the global production which is mainly a factor of climatic conditions as well as government policies. For the purpose of this study, we shall concentrate mainly in the production of coffee in Kenya, a low income country situated in the eastern part of Africa. Information available from the Tea Board of Kenya indicates that
Source: Tea board of Kenya.
The price structure of tea both in Kenya and at the global market is mainly influenced by the production levels. Normally, there are no price caps in this industry, as the prices are depended on production. The only regulations that are available in the international markets include trade embargoes as well as trade tariffs depending on the trade ties that the country has with the importing partner. The presence of these tariffs and embargoes go a long way in increasing the prices of this commodity in the international market. This is because; the countries are required to pay some costs for their produce to be sold in the international market.
Most important to note is that Kenya, and many other developing countries normally export mainly the tea leaves that are yet to be processed. This means that the price fetched is rather low. In contrast, the country imports some of the processed tea back into the country at a rather high price.
The world trade organization has been keen to ensure that the trade in this commodity is adequately regulated. This organization normally regulates trade in commodities in the global market and tea is no exception. It ensures that the prices offered in the international market especially in the auction market, are fair as well as the trade practices in the international market are fair to all players.
As explained above, the production of tea in almost all exporting countries is depended mainly on weather. A 2010 survey by the international tea body reveals that the adoption of technology is now widespread amongst the major tea producers and this has been a great shift from the traditional production processes of the previous decades. In the production front for instance, the use of heavy machinery in both cultivation and harvesting of tea has had a significant impact on efficiency and by extension, the price of the commodity.
Tea in developing countries-challenges
The growth of tea as a commercial crop in developing countries like Kenya is a main foreign exchange earner, In Kenya for instance; tea export earns the country not less than $300 million in a year. This is a significant part of the economy, which has an annual GDP of about $150 billion. There are quite a number of successes that have been witnessed in the sale of tea in the domestic economy, key being the flow of foreign exchange in the country, creation of employment and a source of food.
Some of the problems that plague the production and marketing of tea in developing countries include poor infrastructure, inadequate production and processing facilities, erratic weather conditions as well as exposure to foreign exchange risks. Others are poor infrastructure and oppressive trading practices by the trade partners where heavy tariffs and embargoes are levied on their importation of tea yet it’s expected that such trading partners expect to get preferential treatment when they export heavy capital equipment to the country.
Conclusion
References
International committee on tea, Adopted from: www.inttea.com
Bhattaacharyee Monalisha (2004): “Trend in marketing of tea at Guwahati Tea Auction Centre”; MBA thesis submitted to dept of Agricultural Economics and Farm Management; Assam Agriculture University;
Jorhat; Assam.
Chakraborty Chironjib (2008) “Marketing of Tea in Barak Valley with special reference to Rosekandy Tea Estate”, Dissertation of P.G. diploma, Dept of Tea Management, Assam University, Silchar, Assam, India.
The tea board of Kenya. Adopted from www.teaboardofkenya.or.ke
