Global Tea Trajectory

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By Dan Bolton

Eighty million people comprise a tea supply chain so massive that "it is inconceivable that COVID would not impact tea," explained procurement consultant John Snell during the first virtual edition of the annual North American Tea Conference.

The two-day event, "The Present Reimagined," was hosted by The Tea & Herbal Association of Canada. The gathering was both a global get-together of long-separated tea professionals eager to chat and a forum to assess damage to the industry while highlighting pandemic-induced trends “both good and bad.”

  • Lockdowns crushed on-premise sales at foodservice venues across North America, but tea remains in high demand. According to Carman Allison, Vice President of Consumer Insights for Nielsen Canada, packaged teas are one of the best performers in dry goods. "Tea has reported an even higher bump in sales in 2020 than FMCG (fast-moving consumer goods) as a category,” he told attendees. In Canada, year-to-date (Aug. 15) sales are up 19.6% compared to 2019, a full seven points greater than FMCG overall. Tea sales peaked earlier than total FMCG and have been consistently growing faster, he explained. This pace is an unprecedented 5.4 times greater than fiscal 2019, reaching $28.8 million. COVID influenced demand contributed 80% of the year-to-date increase in sales, adding $25.5 million for an 89% increase in growth above expected, according to Allison.
  • Green tea is a clear winner, said Snell. “Already recognized as a healthy beverage choice, green tea has been enjoying healthy demand, globally. COVID-19 can only accelerate that support and is likely to promote more production.” US iced tea sales, which normally surge beginning in late March, suffered through early June due to lockdowns that closed restaurants that serve significant tea quantities to lunch-goers.
  • Ian Gibbs, chairman of the International Tea Committee (ITC) and Jem McDowall vice president (Trading) at Universal Commodities, also found a silver lining amid the crisis. “This is an opportunity to increase world tea consumption per head,” said Gibbs. Consumption is rising rapidly in producing countries, especially India, he explained. Gibbs identified a pool of some 54 million tea drinkers in countries that consume an average .75 to .80 kilos of tea per capita (more than one, but less than two cups per day). Two billion people currently drink two or more cups per day which means 3.7 billion people drink less than one cup daily. He said that increasing consumption by one cup per day in developed countries would eliminate a persistent surplus that is depressing prices.

Impact on Tea Production and Transport

Snell, with 35 years of experience in tea procurement and product development, is the founder of NMTeaB Consultancy. He reported that China's tea exports had been affected by COVID, but “overall, the impact is limited.” China is maintaining an upward trend in recent years with “exports overall slightly reduced by 1.65% in 2020,” he said.

The COVID-19 impact in India was much worse. India's lockdown occurred in March and April, following a government-ordered idling of tea processing that began in December 2019. “Some relaxing of restrictions in April enabled some late spring production and preparation for the second flush,” said Snell, “but the first flush was completely eradicated.” The second flush was of “very good quality but lower on volume.” Heavy rains in Assam further reduce yields resulting in "expensive India tea that turned buyers' heads west."

Sri Lanka declared tea work essential, so the harvest continued during the early spring months. Tea packers had limited access to packaging, and exporters experienced complications from logistics, but "the biggest impact was the loss of hard currency from visitors and overseas workers,” according to Snell. Tea production is down 15% year-to-date.

Crops in East Africa were unaffected, setting a record. Tea production in Japan fell by 20%. Many tea companies there invested a lot of money anticipating sales during the runup to the Tokyo 2020 Olympic Games only to see that canceled. Argentina's tea crop "was unspectacular, and by all accounts, the majority of tea produced was sold by the time the pandemic was announced," he said.

According to Snell, the move to e-auctions is a bright spot that began in Indonesia in March, Colombo, Sri Lanka in April, and Mombasa, the world's largest tea auction in August.

Aligning Consumption with Production

Consumption growth is mainly occurring in the tea lands. In Europe and the United States, tea faces a fiercely competitive beverage market. Economics hamper sales in Russia and the surrounding CIS countries. Chile and Japan show 10-year declines. For centuries Ireland and the UK were bastions of tea consumption, both continue to see declines in grams per head in favor of herbal infusions and coffee, says ITC’s Gibbs, citing data from the annual Bulletin of Statistics known in the tea industry as the green book.

Countries showing the most significant increase in consumption per person include Turkey, Morocco, China, Pakistan, India, and Malaysia.

A global average of 750 grams per person suggests that the US and Canada, Australia, and France are markets with untapped capacity, according to Gibbs.

He pointed out that tea growers only prosper during periods when production and consumption align. A balanced supply and demand was common in the early 2000s but has not occurred since 2016-17. The result is flat or falling prices from their 2017 peak.

China is now one of the world's top three black tea producers, the leading green tea producer, and the largest exporter by value. China is also importing significant quantities of black tea. Kenya remains the biggest exporter of black tea at nearly 600,000 metric tons in 2020, far outpacing Indian, Sri Lankan, and other African producers.

It will take some time for transportation and logistics to normalize. Container prices are still high, and it now takes 90 days to transport a shipment. “COVID-19 restrictions on staff and the fact that customs have been slow to process exports in many countries, are troubling. “The flow of vessels and containers has been upset, and they are sitting in the wrong spots,” noted Snell. “Shipping companies have pulled sailing schedules and pooled sailings with other lines in disregard of freight contracts,” he said.

“The likelihood is for some short-term pain with respect to logistics,” said Snell. As the tea industry rebounds, climate change is ultimately a more significant threat than COVID-19 and “the real story,” he concluded.