For this paper, the commodity selected for analysis is tea. The paper will examine the team market on a worldwide basis in terms of supply, demand, price history, market structure, and other relevant economic aspects relating to the commodity. According to World Atlas (1), tea is the second most popular beverage in the world. This implies that there is a huge supply and demand for tea globally. Globally, tea is a major import and export commodity. In most markets such as Kenya, India, and Sri-Lanka, sellers sell their commodity through tea auctions and exchanges. Sellers and buyers organize these tea auctions and exchanges whereby the price is determined based on numerous factors. The main factors include currency exchange rates, quality of tea, demand, and supply just to mention a few.
Suppliers and buyers:
Suppliers,
The five main tea suppliers are Indonesia, India, China, Sri-Lanka, and Kenya. The amount of tea exported by the top five suppliers is as shown in table 1 and chart 1 below. From chart 1, it is clear that Kenya is the leading exporter with 32% of the total tea exported by the five largest exporters. It is also clear that from 2006 to 2014 all countries on the list (with the exception of Indonesia) have increased tea exports during the period.
Source: Statista
Chart 1: Pie chart showing the top five tea exporters
Buyers:
Chart 2: Pie chart showing the top 5 tea importers
Analysis of suppliers and buyers
Factors affecting the tea market:
Tariff and non-trade barriers, price caps, and subsidies do not affect the tea industry. The main reason for this is that the tea market is mainly regulated by tea auctions and exchanges. One excellent example is the Mombasa Tea auction help in Kenya. According to the East African Tea Trade Association, the Mombasa auction provides a middle ground where buyers and sellers meet. The main factor affecting the tea industry is the grade of the tea. Higher-grade tea attracts higher prices as compared to lower grade tea. Therefore, associations divide the tea auctions based on the grade of tea available. For example, the Mombasa tea auction is held twice a week on Monday and Tuesday. On Monday, the highest-grade tea from Kenya, Uganda, Rwanda, Burundi and other developing countries that are part of the East African Tea Trade Association is on sale. On the other hand, the auction held on Tuesday is for lower grade tea. Furthermore, based on current market trends buyers and sellers set prices at the tea auction.
According to FAO (2) demand and supply also affect the growth of the team market. In particular, FAO (2) states that the price elasticity for black tea ranges from -0.32 to -0.80 while for green tea it ranges from -0.69 and 0.98. This indicates that a 1% increase in the price of black tea leads to a 0.32% to 0.8% decline in demand. It is important to note that based on the price elasticity values above, tea (black and green) is a relatively inelastic commodity. This is attributable to the fact that its price elasticity is less than one.
Source: Index Mundi
Chart 3: Chart showing the variation in global tea prices from 1996 to 2016
In conclusion, the analysis above shows that developing nations in the tea market are not significantly affected by factors such as demand, supply, and volumes. The main reason for this is that research indicates that the tea market is relatively inelastic because of the tea auctions held weekly that help set prices. This implies that changes in demand, supply, and volume do not significantly affect the price of the commodity.
Recommendations:
Commodity sellers can improve their positions in the market by joining more tea auctions. The example discussed above of the Mombasa auction has shown that through auctions, developing countries in the tea market can be in a position to influence and ensure steady prices for the commodity.
Works Cited:
East Africa Tea Trade Association. The Mombasa Tea Auction. East Africa Tea Trade Association. N.p., 2016. Web. 23 May 2016. <http://www.eatta.com/the-mombasa-tea-auction>.
FAO. World tea production and trade Current and future development. FAO., 2015. Web. 23 May 2016. <http://www.fao.org/3/a-i4480e.pdf>
Index Mundi. Tea Monthly Price. Index Mundi. N.p., 2016. Web. 23 May 2016. <http://www.indexmundi.com/commodities/?commodity=tea&months=240>
Statista. Main Export countries for tea worldwide. Statista. N.p., 2016. Web. 23 May 2016. <http://www.statista.com/statistics/264189/main-export-countries-for-tea-worldwide/>
Statista. Main import countries for tea worldwide. Statista. N.p., 2016. Web. 23 May 2016. <http://www.statista.com/statistics/258620/main-import-countries-for-tea-worldwide/>
World Atlas. The Worlds Top 10 Tea Producing Nations. World Atlas. N.p., 2016. Web. 23 May 2016. <http://www.worldatlas.com/articles/the-worlds-top-10-tea-producing-nations.html>
