sector update October 2012

1. Background and key issues 2. Latest developments Tea sector Global tea market developments Tea sector in ACP countries New trends 1. Background and key issues 3. Implications for the ACP Getting to grips with production- While global trends in tea consumption six ACP countries and seven non-ACP related challenges are evolving, China remains the leading countries (see Agritrade article ‘Mombasa Getting on top of consumption trends consumer and producer of tea. China is tea auction threatened?’, 11 March 2012). Meeting growing demand for organic also the leading exporter of , tea and second largest exporter of tea overall. Tea prices almost doubled between 2002 Mobilising resources to meet climate India is the second largest producer of and 2011, rising from an average com- change challenges in the sector tea, and is a major trader in tea (importing posite FAO price of US$1.56/kg in 2001 Dealing with rising input costs and re-exporting blends). to US$2.85/kg in 2011, after a record of US$3.18/kg in September 2009. is the leading ACP tea producer, the third largest tea producer and the “Tea prices almost doubled world’s leading exporter. between 2002 and 2011”

“Kenya is the leading ACP tea These higher prices were mainly attributed producer, the third largest tea to global demand outstripping production; producer and the world’s leading the September 2009 peak was attributed black tea exporter” to political conflict in Kenya and weather- related factors in major producing Kenya not only produces tea, but also countries. auctions tea from across the eastern African region at the weekly Mombasa In recent years, given global economic tea auction. Concerns have recently turmoil, both demand growth and produc- emerged over the potential challenge tion growth have slowed. FAO estimates posed by the rise of the Dubai Tea Trading production growth in 2011 at 1.8% com- Centre, which now auctions from pared to 4.2% in 2010, while growth in http://agritrade.cta.int/ I 1 Tea sector

tea consumption in 2011 is expected teas: by 2010, fair-trade sales repre- this accounts for FAO projections of a to slow sharply following an increase sented 10% of total UK tea sales. world average tea price of around of 5.6% in 2010. On the consumption US$2.75/kg, a level below recent peaks side, strong demand growth in emerg- A key challenge facing ACP tea produc- but above average historical price levels ing markets has been balanced by ers is how to move up the value chain (for more details see Agritrade article slower growth in recession-affected by developing appropriate branding ‘Tea sector prospects for 2012 looking OECD markets. and packaging strategies, as well as good, according to FAO’, 8 April 2012). an appropriate means of product dif- Tea prices are expected to remain sta- ferentiation (e.g. a Kenyan mark of “With demand projected to ble throughout 2012. FAO predicts origin) that realises additional com- exceed supply by 2021, this prices for black tea, which accounts mercial value for producers. Additional accounts for FAO projections for a majority of world production, to challenges relate to a need to diversify of a world average tea price of stabilise around US$2.75/kg over the markets away from the current high around US $ 2.75/kg” coming 10 years, slightly below current dependence on just five main export levels. However, this assumes no over- markets (Egypt, Pakistan, the UK, Production developments in China and reaction from growers in terms of Sudan and Afghanistan). While some India continue to drive tea price devel- expanding production in response to progress is being made, there is a need opments. For example, dry weather in the current higher average tea prices. to consolidate these newly emerging the first 4 months of 2012 affected Such an overexpansion seems unlikely, market opportunities. production in north- eastern Assam, given rising input costs. India’s main tea-producing region, trim- On the production side, getting to grips ming production by over 14% from a In terms of the ACP and the EU, tea with increasingly strict verification pro- year ago. This shortfall should keep trade imports are duty-free. This cedures for minimum residue levels tea prices at a high level in India and includes finished teas, with only food and containing rising inputs costs on world markets. Thus, while prices safety-related standards applied on remain ongoing challenges. at the Mombasa auction were flat issues such as maximum residue levels between February and June 2012, by (MRLs). However, following the Fuku- August 2012 they had risen by 3.6% shima nuclear disaster in Japan, from 2. Latest to within 5.6% of the peak prices 11 March 2011 the EU imposed special attained in December 2009. regulations on imports from Japan. developments These tight control measures have In terms of consumption trends, the increased costs of imports, particularly Global tea market in China is changing. Tra- where companies have introduced their developments ditional courtyard tea houses in large own control mechanisms. cities have given way to high-end tea The FAO predicts world black tea pro- shops selling some of the finest leaves, A handful of multinational companies duction growth at 1.87% annually over with Chinese consumers following play a dominant role in the tea trade the next 10 years (slightly lower than ‘Western’ trends. In this context there (Unilever, Tata Tea, Van Rees and James the 1.99% average annual growth in appears to be a growing preference Finley). In Europe, for example, the top the previous decade) to reach 3.28 for black tea, given the association of three tea traders and packers control million tonnes by 2021. World green black tea with British and American over 60% of the tea markets in the UK, tea production is expected to grow lifestyles. Black tea is increasingly being Germany and Italy. Tea blending, pro- much faster at 7.2% per annum, and bought by houses from cessing and packaging largely take reach 2.6 million tonnes in 2021. This India, therefore taking a market share place in Europe and other developed reflects a significant expected growth from East Africa. country economies. Meanwhile, in in Chinese production to reach 2.3 Europe supermarkets provide the major million tonnes. Meanwhile, Indian domestic annual outlet for big name brands, while spe- tea consumption is rising (a projected cialist retailers cater for the growing Black tea consumption is set to grow 2.5% rise in 2012), surpassing the market in flavoured and speciality teas. at 1.8% per annum and reach 3.36 growth in national production. However, In the UK, however, supermarkets have million tonnes in 2021. With demand the consequences of this rising Indian been increasingly introducing fair-trade projected to exceed supply by 2021, demand may, in the short term, be http://agritrade.cta.int/ Executive brief: Update 2012 I 2 Tea sector

offset by difficulties faced in the Iranian The effects of drought at the end of ers have directly benefited from the market, following the termination in December 2011 and frost at the start strong financial performance of KTDA 2011 of a long-standing payment of 2012 led to a 15% drop in Kenya’s since they are shareholders in KTDA’s arrangement used to settle trade output in the first quarter of 2012 com- 65 tea-processing factories. According accounts, following the imposition of pared with the last quarter of 2011. to press reports, with the final total pay- financial sanctions on Iran. However, subsequent heavy rains are ment amounting to KSh48.40/kg (up expected to cause a turnaround in tea from KSh43.76/kg last year), Kenya’s World demand for tea is projected to production levels. small-scale tea farmers would be the remain strong in 2012. Sri Lankan tea highest paid in the world. exports are holding up despite turmoil Uniquely, the Kenyan tea sector consists in the Middle East and North Africa, a of two distinct components: a planta- In August 2011 a Kenya Tea Mark of traditional market for Sri Lankan teas. tion-based large-scale sector and a Origin was launched (see Agritrade But there is growing competition on smallholder-based sector, with (accord- article, ‘Kenyan smallholders tea farm- black tea markets from China and Viet- ing to Kenya Tea Board data) small- ers enjoy third good year’, 25 October nam where major investments have holder producers accounting for around 2011). This trademark is aimed at raising been made. 58 to 60% of total Kenyan tea produc- tea exports and strengthening market- tion. Smallholder tea production in ing initiatives targeting the Kenyan Tea sector in ACP Kenya has grown over the past decade, diaspora. Initiatives to support the sus- countries rising from 85,511 ha to 115,023 ha tainability of tea supply chains could (+34%). This move to smallholder tea potentially benefit Kenyan smallholder According to FAO, in 2011 Kenya – the production is consistent with trends producers. Unilever, the largest buyer world’s leading black tea exporter – elsewhere (e.g. in China, Vietnam, Sri and seller of packet tea in the world, produced some 8% less tea due to Lanka and India) which have resulted aims to link 500,000 smallholder farm- adverse weather (370,000 tonnes com- from higher world market prices. ers into their supply network by 2020 pared to 403,300 tonnes in 2010). How- through their ‘Sustainable Living Plan’. ever, local currency earnings soared to “In September 2011, the Kenya The company has set up a public–pri- KSh109 billion, due to high prices and Tea Development Agency an- vate partnership project in Kenya with the devaluation of the Kenyan shilling, nounced record payments to KTDA and other partners to train small- which lost more than a quarter of its small-scale tea farmers” holder farmers in sustainable tea cul- value against the US dollar. tivation. To date, some 720 farmers In September 2011, the Kenya Tea have been trained in improving harvest- Volumes marketed through the Mom- Development Agency (KTDA) announced ing efficiency, book-keeping, and health basa tea auction fell by 5% in 2011 to record payments to small-scale tea 247,300 tonnes. Despite a rise in aver- farmers, increasing by 6% compared “Processes of climate change age earnings from $2.75/kg in 2010 to to 2010. KTDA’s chief executive, Leri- threaten the Kenyan small- $2.99/kg in 2011, the devaluation of onka Tiampati, attributes this third year holder tea sector” the Kenyan shilling also led to a sharp of record-breaking returns to: rise in input costs. and safety issues at Farmer Field relatively high and stable tea prices; Schools based at four factories. How- The main export markets for Kenyan ever, processes of climate change tea were Pakistan (26,500 tonnes), an exchange rate which yielded sub- threaten the Kenyan smallholder tea Egypt (24,500 tonnes) and the UK stantially higher returns in Kenyan sector. By 2020 major current areas of (15,900 tonnes). These countries, shillings; tea production in Kenya are expected together with Sudan and Afghanistan, to become less suitable and by 2050 account for about 70% of total Kenyan efficient management of factory pro- are unlikely to be tea-growing zones. tea exports. There are ongoing efforts cesses and effective cost The International Centre for Tropical to diversify markets by penetrating the management. has warned that Chinese market. This is yielding some ‘the current tea growing areas in Kenya success, with a 40% increase in sales The strong financial performance has will change dramatically’. It is in this to China in 2011 compared to 2010, been achieved despite rising input costs, context that the KTDA has started to taking exports to 2,000 tonnes. particularly of electricity and fuel. Farm- work with the German Development http://agritrade.cta.int/ Executive brief: Update 2012 I 3 Tea sector

Agency and the Ethical Tea Partnership expand production which is periodically are grown locally. The company packs on a 3-year programme to prepare the affected by drought (see Agritrade arti- approximately 100 million bags of tea sector on how to respond to climate cle ‘Experts call for out-grower irrigation per annum. change (see Agritrade article ‘Kenyan schemes to boost Tanzanian tea sector’, tea production down amid fears of 5 July 2011). Among the ACP Pacific countries, tea long-term impact of climate change’, production is small. In Papua New Guinea 6 October 2011). Developing a new tea Burundi’s tea export revenues rose by (PNG), the tea industry comprises zone map for Kenya is of critical impor- 22% in 2011 compared to 2010, tance. Developing systems of insurance boosted by high volumes and better "Papua New Guinea exports so that growers can benefit from stable quality. OTB, the country’s state-run high-quality tea that attracts revenues could also assist any climate- tea board, collected US$22.2 million premium prices” related restructuring processes in the from the export of 8,816 tonnes in 2011 Kenyan tea sector. against US$18.2 million for 7,318 tonnes two domestic producers and one manu- facturing company; imported tea is Uganda’s 25,000 ha of tea trees pro- “Burundi's tea export revenues sourced from Australia and Asia. In the duced 56,000 tonnes in 2011, with rose by 22% in 2011 compared mid 2000s, production was over 6,000 export earnings reaching about US$90 to 2010, boosted by high vol- tonnes, of which 10% was for the million. Yet, according to the Ugandan umes and better quality” domestic market. PNG exports high- Tea Association, drought conditions quality tea that attracts premium prices. may lead to an 8% decline in produc- in 2010. Burundi exports 80% of its tea tion in 2012. Changing weather patterns through the Mombasa auction, with New trends may well carry long-term consequences average prices for Burundi tea climbing for Ugandan tea production. This situ- to US$2.80/kg in 2011 from US$2.50 Tea consumption is set to grow at 1.8% ation is being made worse by reduced in 2010. OTB forecasts a decline in a year to reach 3.36 million tonnes by fertiliser application as input costs rise. production in 2012 down to 7,750 2021, according to FAO. Demand is tonnes because of uncertain weather increasing for high-quality, high-value Tanzania’s tea rehabilitation campaign conditions. However, with prices on products, especially in emerging coun- has proven successful. After the 3.6% regional markets increasing in response tries. The World Tea Expo in Las Vegas drop in production between 2009 and to reduced volumes, the income effects in June 2012 highlighted some of these 2010 to 31,464 tonnes, 2011 should may be less pronounced (see Agritrade major new trends: register a 10.6% rise to 35,000 tonnes. article ‘East Africa tea sector faces FAO has forecast a further 2.9% increase variable trends’, 3 April 2011). quality tea; to 36,000 tonnes in 2012. Improved management and targeted investments According to the FAO, Mauritian tea development of tea retail shops; in rehabilitation have been the key to production has been increasing in recent Tanzanian success. But emerging years, with 1,868 tonnes of black tea cold-brew green tea; drought conditions could seriously affect produced in 2011. A further increase in production; rather than the 2.9% production in 2012 is expected if favour- lattes – milk-based drinks increase initially foreseen by FAO, there able weather conditions prevail. made with finely milled green tea; could be a 9% decline (down to 32,000 tonnes) with smallholder tea producers In the Caribbean, Jamaican Teas is other speciality teas and tea-enhancing being the most seriously affected. the largest producer of teas under its wares. own brands as well as under contract “In Tanzania calls have been for different companies. The 44-year- In the US there are more than 25,000 made for increased investment old company started out as Tetley Tea coffeehouses and only approximately in irrigation for out-growers” Company, but was renamed in 2011. 3,500 tea retail locations, which shows Since 1995, the company has been the potential for development of the Calls have been made for increased expanding its product range under the latter. According to a study entitled ‘Tea investment in irrigation for out-growers, brand name Caribbean Dreams, and ready-to-drink tea’ in the US from who produce 50% of the national tea through the introduction of flavoured Packaged Facts, the tea retail market crop. This could serve to stabilise and teas. The spices and flavourings used will grow from approximately 6.6% in http://agritrade.cta.int/ Executive brief: Update 2012 I 4 Tea sector

2012 to 8.7% in 2014, reaching US$8.3 offers an important area for growth in group on MRLs, established in 2003, billion that year. French tea houses such the value of ACP exports, and can be was presented in Mombasa in July as Mariage Frères are seeing a rising seen as particularly relevant in the con- 2011, and side meetings were held at demand for very high-value-added white text of the rising input costs faced in the Pest Management Centre Minor tea, although green tea remains the many ACP countries. Crop meeting in Canada (March 2011) most commonly sold product. and Codex Committee on Pesticide Local markets in other producing coun- Residues (CCPR) in China (April 2011) In addition there is a growing public tries are also developing. In Tanzania, to establish dialogue with agrochemical awareness in the EU of the social and consumption increased by 26.2 % in companies and raise the profile of tea human conditions associated with tea 2010 to reach 5,810 tonnes after the as an internationally traded crop, which cultivation, and consumers are increas- Tea Board of Tanzania, in collaboration requires MRLs to be set globally. MRL ingly seeking to buy certified teas – the with other stakeholders, strengthened submissions are to be made by several major certification schemes being Fair- tea drinking campaigns. In Kenya, local companies in the next year or so. trade, Organic, Rainforest Alliance and consumption of tea has grown steadily UTZ. The market share of certified by more than 16% in the 6 months to ACP producers will need to pay close June 2011, to some 10,000 tonnes, as attention to the issue of residues. The “Consumers in the EU are packers intensified brand promotion debate around MRLs may also prove increasingly seeking to buy activities to meet the expectation of valuable in promoting increased organic certified teas” health-conscious customers and the tea production. Tea Board of Kenya strengthened its teas has grown from just 1% in 2007 promotional strategy. to a projected 13% of global production 3. Implications for by the end of 2011. Most are consumed Looking ahead, within Africa, FAO pro- in the EU, with certification increasingly jects that the highest growth rate in black the ACP becoming the standard on the EU tea tea consumption up to 2021 will be in market. The UK, Germany, Poland, the Tanzania and Rwanda (each projected Getting to grips with Netherlands and France are the leading to grow 4.1% per year), followed production-related markets for sustainable teas in the EU. challenges While tea imports into the UK and the “Tea consumption in African Netherlands decreased in volume, the tea-producing countries should ACP tea-producing countries need to value of imports has increased. Dual increase by an average of 2.9% consider how best to anticipate market certification of Fairtrade and Organic per annum between now and trends. In recent years, the world tea tea is increasingly common, especially 2021” market has registered a greater balance in the UK, with this contributing to the between production and consumption. increased value of tea imports. by Kenya (+3.9%). On average, con- Oversupply has been reduced, leading sumption in African producing countries to price rises and today’s remunerative Between 2006 and 2010, the volume should increase by 2.9% per annum prices. However, if growers overreact of tea imported into the EU increased between now and 2021, compared to to current firm prices and expand pro- by 1.3% (to 353,000 tonnes) while a world average increase in consump- duction too sharply, prices will follow value rose by 6.5% annually to €1 bil- tion of 1.8% per annum. African mar- lion in 2010. kets, therefore, have considerable “The issue of sustainable tea growth potential for African cultivation is a particularly Organic tea consumption is rising, in producers. sensitive issue in smallholder part due to growing consumer interest production systems” in the positive , with On the issue of residue levels, the FAO organic tea being perceived as more Intergovernmental Group on Tea is the cycle and fall. The issue of sustain- healthy. India and China have pioneered working on a plan of action for the able tea cultivation is particularly sensi- organic tea production and are the application of ISO 3720 (black tea and tive in smallholder production systems. world leaders. However, the organic proposed standards for green tea) as The FAO has highlighted ‘an adverse tea sector is also expanding in other a minimum quality standard for the impact on the environment in most producing countries. This potentially global tea trade. A report of the working producing countries due to clearing of http://agritrade.cta.int/ Executive brief: Update 2012 I 5 Tea sector

forests, often illegally, to plant tea and value tea market components. Accord- regional organic tea certification mark by the inefficient use of energy in the ing to Claudia Mingori from the French that would be acceptable on the EU processing units’. This is likely to require tea house Mariage Frères, although market could prove valuable in the cost- ACP governments either to increase quality standards are met for black effective exploitation of this market the effectiveness of the application of teas, there is a need to broaden the trend. An intensification of ACP–EU existing legislation or introduce new variety of teas offered for sale with more legislation, which is then effectively mixed blends being exported. A par- “The development of a com- applied, to halt the conversion of forest ticular area of growth has been sales mon regional organic tea land to unsustainable forms of tea of theine-free Rooibos from South certification mark could prove cultivation. Africa, which is sold in Europe almost valuable” exclusively through blended mixed There is, therefore, a pressing need for flavours. cooperation in this area would appear ACP countries to focus not so much to be appropriate, particularly since it on increasing their volume of tea pro- Joint marketing efforts by East African could develop cost-effective - duction but rather on producing higher producers, in association with strategic nisms for smallholder certification which quality teas which: partners in major markets, could help could be applied in other sectors. develop these and other market compo- address food safety concerns; nents (e.g. by promoting the use of ‘morn- The growing trend towards organic ing’ or breakfast teas from Kenya and teas could also usefully be built into ensure traceability of the product; Malawi as a replacement for ). tea sector restructuring in response to climate change challenges. add value and differentiate the teas Beyond Europe, rising Chinese demand on ‘quality’ grounds. for black tea is good news for ACP Mobilising resources to producers, particularly Kenya, the meet climate change Quality differentiation could range from world’s number one black tea exporter. challenges in the sector the use of Geographical Indications, However, this requires a strengthening through increased production of organic of marketing initiatives targeting the A number of financial mechanisms are teas, to close collaboration on the Chinese market if Kenya and other being set up to assist developing coun- development of premium brand private African suppliers are to compete effec- tries in responding to climate change; labels with private partners which tively with Indian exporters. Partnerships a concerted East African strategy to enable ACP producers to establish with local Chinese importers and tea mobilise assistance for climate change- themselves on evolving premium priced houses will need to be developed, a related tea sector restructuring could tea markets. requirement which closely parallels the potentially yield considerable benefits. situation in the coffee sector. However, Getting on top of for the tea sector, tapping into the “A concerted East African strat- consumption trends know-how of European tea houses is egy to mobilise assistance for likely to be essential, if Kenyan and climate change-related restruc- Ironically, the economic crisis in Europe other East African tea-exporting coun- turing of the tea sector could does not seem to have affected the tries are to compete effectively on the yield benefits” high-value tea market. In this context Chinese market. This would appear to be an important “East African tea producers Meeting growing demand area for the intensification of ACP-EU need to step up their produc- for organic tea development cooperation. tion and marketing activities to increasingly target high-value There is a growing trend towards the components of the tea market” consumption of organic tea, but cer- tification can be a costly and lengthy East African tea producers need to process, despite the natural production step up their production and marketing process applied in many tea-producing activities to increasingly target high- regions. The development of a common

http://agritrade.cta.int/ Executive brief: Update 2012 I 6 Tea sector

Dealing with rising input extra-regional import intensity of tea “The development of regional costs production could well prove a useful strategies to reduce extra- area for joint action to enhance the regional import intensity of tea In East Africa, rising input costs have competitiveness of East Africa tea pro- production could prove useful” been compounded by currency devalu- duction, thus ensuring net benefits to ations. In this context the development producers from higher than average of regional strategies that reduce the tea prices.

Main sources

1. Brokers Plc, website providing tea market data www.ceylonteabrokers.com The Technical Centre for Agricultural and Rural Cooperation 2. FAO Intergovernmental Group on Tea, ‘Twentieth session of the Intergovernmental Group on (CTA) is a joint ACP—EU institution Tea, 30 January – 1 February 2012, Colombo, Sri Lanka’, 2012 active in agricultural and rural http://www.fao.org/economic/est/est-commodities/tea/tea-meetings/en/ development in African, Caribbean and Pacific (ACP) countries. Its 3. Independent Consumer & Competition Commission (Papua New Guinea), ‘Draft report: mission is to advance food and Sundry declared goods price regulation review’, 15 February 2007 nutritional security, increase http://www.iccc.gov.pg/docs/Draft%20Report%20on%20Sundry%20Goods%20Review.pdf prosperity and encourage sound natural resource management. 4. World Tea Expo, ‘World Tea Expo names six leading tea trends for 2012’, 1 March 2012 http://www.worldteaexpo.com/index.php/2012-press-releases/326-world-tea-expo-names- It does this by providing access to six-leading-tea-trends-for-2012- information and knowledge, facilitating policy dialogue and 5. CBI Ministry of Foreign Affairs of the Netherlands, ‘Tea: Trends and segments’, December 2011 strengthening the capacity of http://www.cbi.eu/marketinfo/cbi/?action=showDetails&id=6146 agricultural and rural development institutions and communities in ACP 6. Xinhua, ‘Guizhou expands tea industry’, 13 April 2012 countries. http://chinabevnews.wordpress.com/category/china-tea/ Technical Centre for Agricultural 7. Jamaica Gleaner, ‘Jamaican Teas adds new line of business’, 25 December 2011 and Rural Cooperation (ACP—EU) http://jamaica-gleaner.com/gleaner/20111225/business/business4.html PO Box 380 6700 AJ Wageningen 8. FAO, ‘Firm tea prices set to continue’, 29 February 2012 The Netherlands http://www.fao.org/news/story/en/item/124221/icode/ Tel: +31 (0) 317 467 100 E-mail: [email protected] - www.cta.int 9. The Citizen (Dar es Salaam), ‘Mombasa tea auction faces crash’, 13 December 2011 http://allafrica.com/stories/201112140697.html

10. Indexmundi.com, ‘Tea monthly price’, various dates http://www.indexmundi.com/commodities/?commodity=tea

About this update This brief was updated in October 2012 to reflect developments sinceSeptember 2011. The original executive brief was published in April 2010 and is available on request from [email protected] Other publications in this series and additional resources on ACP—EU agriculture and fisheries trade issues can be found online at http://agritrade.cta.int/

http://agritrade.cta.int/ Executive brief: Update 2012 I 7