Tea prices have stagnated for the past 20 years as buying power ebbs. (Source: International Tea Committee, courtesy Ian Gibbs.)
Tea prices at the world’s tea auction houses, driven to recent highs during the pandemic, are now stagnant or in decline.
International Tea Committee chair Ian Gibbs says consumers are paying much less than they should. “It’s terrifying. The industry is at the limit and has been for far too long,” Gibbs told attendees at the North American Tea Conference in September.
“If you look at prices over the last 20 years, there is no movement. Tea prices, in real terms, are less than what was paid 100 years ago,” said Gibbs.
Based on data from the top three auction houses, a composite of all auction prices averaged $2.85 per kilogram during the past decade, a benchmark that increased to $3 per kilogram year-to-date in 2022. The increase is primarily driven by higher prices in India and Sri Lanka.
Sri Lanka's tea market has been affected by the nation's recent economic and political upheaval and related decline in production. Average prices at the Colombo auction have climbed from $3.51 per kilogram in January to a record $4.49 per kilo in September.
Elsewhere the trend is downward.
Prices at Kenya’s Mombasa auction, the world’s largest by volume, have steadily declined since 2018. In September 2021, Mombasa prices averaged $1.98 per kilogram, well below the cost of production. In 2022 so far, prices have declined by 8% despite a 14% fall in output by the Kenya Tea Development Agency (KTDA), which markets tea on behalf of the smallholders who produce 60% of Kenya’s tea.
Kenya exports 92% of its crop, amounting to 28% of the world’s tea and earning $1.36 billion in sales in 2021. Peris Mudida, director of the Kenya Tea Board, said that tea production is growing by an average of 5.3% annually and that the country’s 620,000 acres (250,000 hectares) under cultivation of tea are expanding by 4% per year. The steady increase in supply is one reason why Kenyan CTC sold for an average of $2.10 per kilogram at auction in 2021.
The downward trend is also visible in the direct sale of tea. “China has really gone for production growth, but they are not exporting it,” said Gibbs. Prices are one reason, as China’s domestic consumers are willing to pay more for tea than consumers in export markets. In China in 2021, green tea prices averaged RMB152 (about $21 per kilogram). According to the China Tea Marketing Association, the price of green tea exported to the United States in August was down 9% to an average of $5.76 per kilogram.
The Economist Intelligence Unit predicts that the average price of auctioned tea will decline by 4.5% to $2.90 in 2023 and remain low in 2024 due to economic downturns around the globe.
Oversupply
Production has more than doubled in the past 20 years to 6 billion kilograms, said Gibbs. Demand is closely tied to population growth, but the two billion people born since 2000 are only now beginning to purchase tea. In an expanding middle class, their parents account for the huge increase in apparent consumption per capita of 50 grams to an average of 800 grams per person.
There is more land under cultivation of tea, and average yields have increased to 1,200-2,000 kilograms per hectare in leading tea-producing countries. Yet export volumes are flat. Gibbs explained that consumers in producing countries drink a lot more tea, making it less available for export. China and India consume 61% of the world’s tea.
Global tea exports totaled $7.3 billion in 2021, down by 9.4% since 2017, when they were at $8.1 billion. Market growth has slowed from 4–5% per year before the pandemic to around 2.5% today. Gibbs said that apparent consumption outpaced production in 2022, leading to a shortfall of approximately 350,000 metric tons. But that’s on paper.
“There’s a lot of stock being held in producing countries,” said Gibbs. “These teas are not being exported, which suggests there is a gap between consumption and production, and as the gap widens, the price of tea comes under huge pressure and goes dark,” he said, citing lows of $0.98 per kilogram in Malawi and Bangladesh. “The more tea available in the market, the more difficult it is for producers to get the prices they want,” he said.