MUMBAI - Lovers of tea are going to pay more for their cup of cheer for some
time to come, with a shortfall in global tea supplies anticipated to rise to
nearly 140 million kilograms this year from 120 million kg in 2009.
Strong tea prices "will be a long-term trend for the next few years", said
Aditya Khaitan, managing director of McLeod Russel, the world's largest tea
plantation company and India's biggest tea exporter. A recent increase in tea
production in Africa "is only
temporary relief" and "might have an effect in prices only for a few months,"
he told Asia Times Online from Kolkata.
Khaitan effectively quashed any optimism, particularly from the Rome-based
United Nations Food and Agriculture Organization (FAO) on January 13 predicting
wholesale tea prices easing in 2010. The FAO based its hopes on the climate not
continuing to affect the important tea-producing regions of Asia and Africa.
Tea prices have dipped by 20% this month, following rains last December in
Kenya, the world's largest tea exporter, after a record price surge of 85% in
2009.
Khaitan, among the world's top tea men, told Asia Times Online on January 14
that the tea price surge would be more long-lasting than any current temporary
dip.
Khaitan's McLeod Russel, with a 172-year history and a market capitalization of
US$717 million, produces 81 million kg of tea annually, employs over 10,000
people and owns 56 tea estates in India and Vietnam - the most by any company.
In December, McLeod Russel bought six tea estates and five factories spread
over 3,300 hectares in Uganda for an initial payment of $25 million. Khaitan
expects the acquisition to boost the company's overall tea output to 96 million
kg annually.
The purchase comes as tea land in India is shrinking, to the extent that the
Ministry of Commerce on January 18 announced the establishment of a Special
Purpose Tea Fund (STPF) for large-scale replanting or rejuvenation of tea
bushes across about 212,000 hectares in what the ministry called "uneconomic
tea areas". The costs of nourishing tea estates will be shared by the
government.
Yet increased output in India or elsewhere won't satisfy demand. "Given the
pattern of tea consumption growth - with an increase not only in India but also
in Pakistan, Egypt, West Asia and mature tea markets like the United Kingdom -
the world's largest producers do not have the capacity to meet the demand,"
Khaitan said. In Britain, with a population of about 61 million people, 165
million cups of tea are drunk daily, according to the London-based UK Tea
Council, a tea-promoting non-profit body. The amount of chai being
enjoyed daily in India could easily be over a billion cups.
With demand fed by population growth, income increases and lifestyle changes,
India and other tea-growing heavyweights China, Sri Lanka and Kenya will
struggle to supply enough of the world's favorite hot brew without prices
rising. Further driving consumers are comments by medical professionals about
tea's antioxidant glories, arguing that three cups daily can help to keep
cancer, bone diseases, heart attacks and dental decay away.
Last year was an unhealthy period for global tea supplies. Unseasonable dry
weather in India, Sri Lanka and Kenya caused havoc on stocks, particularly in
India, the world's second-largest tea producer in 2009 after China.
India accounts for about 930 million kg of tea annually, out of an average
global production of about 3.5 billion kg. China averages more than a 1 billion
kg production annually, while Kenya and Sri Lanka range between 250 million and
300 million kg.
Khaitan expects India, where demand for tea is growing 3.5% annually, to face a
45 million kg tea shortfall to meet domestic demand. "More production of tea
would mean a better cash flow for us," he says, while dismissing media reports
of commodity speculators and black market hoarders plotting the shortfall. "The
current demand for tea and the fact that longer storage affects the tea quality
means that hoarding is not an option. It hasn't happened before and is not
likely to happen in future."
With tea demand increasing, Khaitan and other major tea men have plenty to
cheer, with shares in tea-related companies surging to decade-high prices in
India, riding a year-long upswing. McLeod Russel stock returned 548% in 2009.
Joining the mega-bullish tea party were others like Jay Shree Tea and
Industries (436%) and the south Indian tea major, Harrison Malayalam (357%).
The shares are "buy" recommendations by local analysts for the next year at
least.
Even before last year's share-price surge, McLeod Russel had doubled its
profits before tax for the financial year ending March 31, 2009, to $22.8
million from $11.37 million in 2007-08. Its profits could only continue soaring
this year, with only China, Malawi and Zimbabwe among the world's top 10 tea
exporters showing an increase in exports in 2009 over the previous year.
China, whose history of tea use dates to 2737 BC [1], exported 233.77 million
kg of tea from January to October 2009, behind Kenya (288 million kg) and Sri
Lanka (238 million kg) in the same period. India sold 169.26 million kg
overseas from January to November last year, a 17.6 million kg dip on the same
period in 2008, according to the Kolkata-based regulator, the Tea Board of
India.
The vagaries of tea prices and demand for the leaf have played an important
role in history, with the 1773 tea party in Boston, which set off the American
War of Independence, among the most familiar events - albeit the tea in that
case ended up not in cups but in the harbor. The British East India Company, at
its peak one of the world's most powerful and violent business organizations,
with its own army to protect its trading interests in South Asia, was formed
first in 1600 to trade in spices, tea and other goodies with Asia. It later led
to Britain colonizing the Indian sub-continent.
The Indian government even now considers tea vital enough to directly control
the industry, which has an annual turnover of about $2 billion. As of December
2009, says the Tea Board of India, India has 1,692 registered tea
manufacturers, 2,200 tea exporters, 5,848 tea buyers and nine official tea
auction centers.
Tea men need have no worries of getting customers for the next few years -
particularly if tea production continues depending on increasingly cranky
global climatic patterns, even as chai lovers and specialized tea bars
multiply. Perhaps tea is sadly doomed to becoming as expensive a habit as
coffee.
Note
1. Legend has it that Chinese emperor Shen Nung was relaxing under a tree with
his servant boiling drinking water nearby, when some leaves from the Camellia
Sinensis plant fell into the water. Nung, an established herbal expert, tried
the accidental brew and thus was born the world's favorite hot drink from the
tea plant - Camellia Sinensis. Another legend goes that an Indian ascetic took
the first tea leaves from India to China, where the tea habit was established
5,000 years ago. Historically more specific, tea containers were discovered in
tombs of the Han Dynasty (206 BC-220 AD) and Tang Dynasty (618-906 AD), by
which time green tea was clearly the national drink of China.
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