Table of Contents

I. INTRODUCTION

II. METHODOLOGY

III. BLACK TEA PRODUCTION

IV. BLACK TEA EXPORTS

V. BLACK TEA CONSUMPTION

VI. GREEN TEA MARKET TRENDS

VII. CONCLUSIONS

I. INTRODUCTION

1. At its Thirteenth Session in Ottawa, Canada, the Intergovernmental Group on Tea concluded that continued efforts to enhance the growth of demand for tea were needed to improve longer-term price prospects. The Group recommended that the Secretariat continue to analyze the longer-term trends for individual markets, both for green and black teas.

2. This document has been prepared to assist the Group in its analysis of market prospects to the year 2010. A dynamic time series model was constructed to analyze the world tea economy and provide projections on production and trade. Delegates are invited to comment on the results of the projections, particularly those for their countries and the implication of these trends on the world tea market.

II. METHODOLOGY

3. The production and trade projections presented in this document are derived from a dynamic times series model of the world tea market. This model quantifies key market relationships on the basis of observations on the past behaviour of volumes produced and traded, prices and population and income growth. This projection methodology represents a development of that used to provide projections for previous Intergovernmental Group meetings. By exploiting additional information concerning the economics of market behaviour the revised methodology should provide a sounder basis for projections, and allow a wider range of alternative scenarios to be explored.

4. The projections presented here also include a first attempt at providing separate results for black and green tea. While the differences in demand and price trends make this a useful division, data limitations mean that the analysis of green tea markets is less detailed.

III. BLACK TEA PRODUCTION

5. World black tea production is projected to increase to 2.4 million tonnes in 2010, an annual average growth rate of 1.2 percent from 2.15 million tonnes in 2000 (Table 1). This growth would result largely from the improvement in yields.

6. Most African producers are likely to see significant production growth as tea bushes reach optimum production age and production skills of small growers improve. For example, production in Kenya would grow by 2.3 percent a year from 236 300 tonnes in 2000 to 304 000 tonnes in 2010, while in Tanzania and Uganda growth rates of 1.7 percent and 2.7 percent, respectively, are expected¹.

7. Most producers in Asia would experience a steady growth in production. Indonesia is expected to achieve an annual growth of 1.1 percent, from 130 600 tonnes in 2000 to 147 000 tonnes in 2010. Over the same period, production in India, the world's largest black tea producing country, is projected to grow by 2.5 percent to 1.07 million tonnes, accounting for nearly 44 percent of global production, compared to 38 percent in 2000. Tea production in Sri Lanka is projected to reach 329 000 tonnes by 2010, an annual average growth rate of 0.7 percent. Black tea production in China is expected to continue to decline to 54 000 tonnes as the balance of production shift to other teas with stronger market prospects.

8. The three largest black tea producing countries, India, Kenya and Sri Lanka, are expected to account for 70 percent of the world tea production in 2010, compared to 63 percent in 2000.

IV. BLACK TEA EXPORTS

9. World black tea exports in 2010 are projected at 1.12 million tonnes, reflecting an average annual increase of 1.5 percent from 1 million tonnes in 2000 (Table 2).

10. Most of this increase would take place in Africa, where production is likely to continue to grow while domestic consumption remains small. Exports from Kenya would increase by 2.6 percent annually from 208 200 tonnes in 2000 to 275 000 tonnes in 2010, giving Kenya 32 percent of global exports. Over the same period, export availability in Malawi would remain unchanged at 38 000 tonnes.

11. Most major tea exporting countries in Asia are expected to experience slight declines in exports in line with expected growth in income and population that would foster domestic consumption. For example, exports from India and Indonesia would decrease by 2.4 percent to 150 890 tonnes and by 1.1 percent to 87 000 tonnes, respectively. Conversely, exports from Sri Lanka would increase from 281 000 tonnes to 293 400 tonnes, an annual average growth rate of 0.4 percent.

V. BLACK TEA CONSUMPTION

12. In 2010 world net imports of black tea, a proxy for consumption would amount to 1.17 million tonnes, reflecting an average annual increase of 0.8 percent from 1.08 million tonnes in 2000 (Table 3). Net imports in the countries of the former Soviet Union would increase from 223 600 tonnes to 315 200 tonnes, an annual average growth rate of 3 percent. Pakistan would increase its net imports by 2.9 percent per year from 109 400 tonnes to 150 000 tonnes. The United States is expected to increase net imports by 1.4 percent a year to 94 300 tonnes, while Japan would increase its net imports from 18 000 to 22 000 tonnes, an annual average growth rate of 1.8 percent. On the contrary, net imports by the United Kingdom are expected to decrease by 0.6 percent annually to 125 500 tonnes. These major importers together would account for about 60 percent of global net imports.

13. The model does not take into account stock levels. Hence, the difference between production and exports is treated as a proxy for domestic consumption in producing countries. In 2010, the quantity of black tea production that would be consumed in these countries is expected to reach 1.32 million tonnes, or 54 percent of global black tea production, compared to 1.14 million tonnes in 2000. Domestic consumption of black tea in India is expected to increase by an average annual rate of 3.7 percent to 919 300 tonnes by 2010, or 86 percent of the black tea produced in the country. During the same period, Indonesia is expected to increase its domestic consumption at an average annual rate of 5.6 percent from 33 100 tonnes to 60 000 tonnes. Domestic consumption in Bangladesh and Sri Lanka would grow by 2.0 percent and 3.8 percent to reach 45 000 tonnes and 36 000 tonnes, respectively.

VI. GREEN TEA MARKET TRENDS

14. Projections for green tea are provided only for production and exports due to data limitations. World green tea production is forecast to increase from 680 700 tonnes in 2000 to 900 000 tonnes in 2010, reflecting an annual average growth rate of 2.6 percent (Table 4). During this period, production in China would grow by 2.7 percent per annum from 500 000 tonnes to 671 000 tonnes, accounting for 75 percent of global green tea production in 2010, compared to 73.5 percent in 2000. Production in Japan would grow by an average rate of 0.1 percent to 90 800 tonnes, while production in Viet Nam is expected to increase by an average rate of 2.5 percent to 50 000 tonnes. Output in Indonesia would grow by 2.3 percent annually to reach 49 000 tonnes.

15. Green tea exports are expected to exhibit a significant upward trend, in line with production. Total exports would increase by 6.1 percent annually from 186 800 tonnes in 2000 to 254 000 tonnes in 2010. China would continue to be the world's dominant green tea exporter, with shipments reaching 210 000 tonnes by 2010, reflecting an annual average growth rate of 2.7 percent. During the same period, exports from Indonesia are expected to increase by 3.8 percent per annum to 12 000 tonnes, while exports from Viet Nam would increase by 2.5 percent a year to 25 000 tonnes. Japan would consume most of its domestic production.

16. Morocco, the world's leading green tea importer, is expected to increase imports from 35 200 tonnes in 2000 to 57 100 tonnes in 2010, an annual average growth rate of 4.5 percent.

VII. CONCLUSIONS

17. The projections indicate that over the next decade exports of black tea would increase at an annual growth rate of a little over one percent, mirroring a similar growth in production. However, the world market is expected to remain broadly in balance. In consequence, price levels should be maintained.

18. In contrast, with consumption outstripping the production of green tea, an upward trend would persist in the medium-term.

19. Several actions can be taken to enhance returns from black tea production. On the supply side by reducing unit costs through productivity gains, capacity building of small growers, streamlining marketing channels and improving infrastructure may also lead to improved returns to growers.

20. On the demand side, consumption can be raised through effective marketing. Variations in demand among countries suggest that marketing activities need to be tailored to individual markets. Successful market specific activities require in-depth knowledge and understanding of the target market, including consumers' preference and market structures. In addition, worldwide marketing efforts, such as the generic promotion of tea using the Tea Mark, could have a significant impact, if planned and implemented appropriately.

21. It is important that any action taken is done in a holistic manner in improving longer-term price prospects. Forming such a strategy requires better understanding of markets. Exchanging information and views between producers and consumers, as well as public and private sectors could promote greater market transparency.

22. Therefore, the Group may wish to consider encouraging the following actions:

1. a continuation in monitoring demand and supply trends of major markets;
2. an exchange of market information between producers and consumers within and between countries;
3. reviewing market regulations and quantification of the impact of sector policies at the country level;
4. formulating sector strategies both at the country and global levels;
5. cooperation in market promotion, through the use of the Tea Mark at the global level; and
6. employing country specific marketing activities, where desirable.

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1 Some downward revision in production growth rates may be necessary for countries of East Africa in the light of potential labour shortage arising from the current HIV/AIDS epidemic.