COMMITTEE ON COMMODITY PROBLEMS
Rome, 11 – 13 April 2005
REPORT OF THE FIFTEENTH SESSION OF THE INTERGOVERNMENTAL GROUP ON TEA
APPENDIX – LIST OF DOCUMENTS
1. The Intergovernmental Group on Tea held its Fifteenth Session at the Bandaranaike Memorial International Conference Hall (BMICH) from 18 – 20 August 2003 in Colombo, Sri Lanka. It was attended by 63 delegates from the following member countries: Burundi, Canada, Germany, India, Indonesia, the Islamic Republic of Iran, Italy, Kenya, Malawi, Rwanda, South Africa, Sri Lanka, Pakistan, Tanzania, the United Kingdom and the United States of America. Observers from the Common Fund for Commodities and the International Tea Committee also attended. A list of participants was distributed as document CCP:TE 01/Inf. 3.
2. The Session was formally inaugurated by the Honourable Lakshman Kiriella, Minister of Plantation Industries, Government of Sri Lanka. The statement of the Director-General, Mr Jacques Diouf, was delivered on his behalf by Mr M.M. Jusoh, FAO Representative in Sri Lanka and Maldives, and the Session was opened by Mr H. Streichert (Germany), First Vice-chairperson of the 14th Session.
3. The Group expressed warm appreciation to the Government of Sri Lanka and particularly to the Sri Lanka Tea Board for the hospitality provided to delegates and for the opportunity to meet and strengthen international cooperation and interaction among major tea exporting and importing countries.
4. The Group elected Mr George Pelpola (Sri Lanka) as Chairperson. During the elections of the Vice-chairpersons, the Group amended its Terms of Reference to elect three instead of the usual two Vice-chairpersons. The Group felt that this would best represent the interests of the delegates attending the Session. The Group agreed to elect three Vice-chairpersons. Mr Hagen Streichert (Germany) was elected as First Vice-Chairperson and Mr Rachmat Badruddin (Indonesia) and Mr Joseph Kinyua (Kenya) as Second Vice-Chairpersons. The Group also elected Messrs Lallith Ramanayake (Sri Lanka) and Joseph Simrany (USA) to act as Rapporteurs.
5. The Provisional Agenda (CCP:TE 03/1) and Provisional Timetable (CCP:TE 03/Inf.2) were adopted.
6. The Group considered this agenda item with the assistance of document CCP:TE 03/2. The document reviewed the current market situation in 2002, and provided a medium term outlook to 2010, which incorporated revisions given to the Secretariat after its last session in New Delhi in 2001, where the medium term projections to 2010 were first considered.
7. The Group noted that preliminary returns indicated that world tea production would reach 3 million tonnes, slightly more than the record reached in 2001, while world international trade would reach 1.4 million tonnes, valued at US$ 2.9 billion. The growth in trade reflected strong gains by consuming developing countries as they took advantage of lower tea prices.
8. Finally, the Group noted that the composite price trend had been downwards from the peak of 1997 but with periodic upturns due to weather induced supply reductions.
9. In the medium term, the Group noted that world black tea production was projected to grow by 1.9 percent annually to reach 2.7 million tonnes in 2010, mainly due to improvements in yield rates rather than an expansion in area. World green tea production was expected to grow at a faster rate of 2.6 percent per annum, but in total quantities would be much smaller than black tea to reach a projected total of 900 000 tonnes by 2010. In terms of international trade, the Group noted that world net imports of black tea were projected to be in balance with exports at 1.3 million tonnes in 2010, while green tea trade was projected to grow by 2.8 percent annually to reach 254 000 tonnes.
10. Several countries provided updates of their production and trade data for inclusion in the Secretariat’s revision of both the current market situation and medium term outlook. Delegates from several major producing countries, in acknowledging that the projections were more realistic with the revisions included, indicated that much would depend on weather conditions.
11. The Group recognized that the most immediate issue facing the market was the current uncertainty and low prices. Erosion of market shares coupled with stagnant consumption contributed to the reduced prices. New strategies particularly aimed at enhancing consumption, increasing value-added and further reducing production and marketing costs were urgently required.
12. The Group also recognized that in the medium to longer term, supply-demand imbalance was likely to persist and prices remain depressed. The Group acknowledged that measures to expand demand were the most feasible means of restoring market balance. However, several delegates also argued the case for controlling supplies entering the market and suggested various means of achieving this, some technical (plucking techniques) and some through the imposition of minimum quality standards for marketed teas.
13. The Group also noted the widening gap between retail and producer prices and requested that the Secretariat undertake an analysis of price spreads along the marketing chain. However, delegates from importing countries stressed that retail prices had remained stable.
14. In response to the current uncertainty in the market place, delegates established a working group to put together a plan of action on strategic studies and measures to address the problem of market imbalance and its implications. This action plan appears under section IV. Intergovernmental Action.
15. The Group considered this agenda item with the assistance of documents CCP:TE 03/3 and CCP:TE 03/CRS 3. In considering the market case study for China, the Group recognized that China was the second largest tea producing and consuming country in the world, and a net exporter of tea. While previously imports had been discouraged by prohibitive tariffs, import tariffs would be reduced significantly as part of China’s accession to the World Trade Organization (WTO). This presented a trade opportunity, particularly for black tea. However, because of the complexities of the internal distribution system in China, forming a strategic alliance with credible partners was advisable.
16. In considering the market case study for India the Group recognized that India was the largest tea producing and consuming country in the world. In recent years, however, the industry had suffered significant setbacks. Production had continued to increase, consumption had remained stagnant, while exports had actually declined. Hence, auction prices have been depressed.
17. The Group noted that domestic demand grew in line with the country’s economic growth rate although among the younger population, income growth shifted consumption to other beverages, mainly soft drinks and bottled water. This development has necessitated the repositioning of tea in the market.
18. The Group noted that from a dominant position in international markets, India had lost market shares to Sri Lanka and Kenya, the two countries which currently dominate international trade. Its biggest loss occurred in the area of the former USSR.
19. With liberalization in March 2001 and its Free Trade Agreement (FTA) with Sri Lanka, import quantities could increase. The Group requested that the Secretariat prepare a study of the impact of trading blocs on tea trade and monitors and reports on tariffs and other trade policies more generally.
20. In considering the market case study for the Commonwealth of Independent States (CIS), the Group noted that internal supply had now ceased to be a relevant factor but the availability of a wide array of brands coupled with socio-economic changes had made the consumer more sophisticated.
21. Government intervention was likely to change distribution channels in the hypermarkets and cash and carry stores. Greater consumer awareness of quality means that poorer quality teas are likely to disappear from the market, leaving less scope for counterfeit brands. However, initiatives taken by the local industry to develop domestic processing and intense lobbying of government to increase import duty for packed teas, mean that bulk tea would dominate imports into the region.
22. The Group welcomed the market studies and suggested that the Secretariat conduct further studies, particularly on the markets of the Near East and Pakistan.
23. The Group reviewed the concept of fair trade and the current market situation for fair trade teas with assistance of document CCP:TE 03/4. Tea was the only product for which the Fairtrade Labelling Organizations International (FLO) did not include a minimum price in its standards. However, the fair trade premium of Euro 0.50 or Euro 1.00 per kilogram could be attractive. Although fair trade tea sales grew by 15-20 percent a year, market volumes remained small at 1 266 tonnes per year in 2002, or 0.3 percent of the total combined tea market of Western Europe, North America and Japan. The Group concluded that the slow progress in building the fair trade market suggested that this would remain a small niche market and would not solve the structural imbalance in the world tea market, although it might offer a lucrative outlet for certain producers.
24. Several delegates noted the confusion caused by the proliferation of initiatives using terms usually associated with fair trade. Clarifications were asked on the organizations behind the fair trade initiatives, which were mainly NGOs involved in development cooperation activities. Within the FLO system, costs were covered by different segments of the trade, including license fees paid by importers and wholesalers. The attention of the meeting was drawn to the “ tea sourcing partnership” which shares some characteristics of fair trade channels.
25. The Group examined the extent of price transmission between export and producer levels and its implications with the assistance of document CCP:TE 03/5. The Group welcomed the Secretariat’s first attempt at examining this issue, requesting that the Secretariat continue to analyze this issue and suggesting a wide range of possible future studies including those on different types of tea such as value-added tea as well as price transmission between different market levels including up to retail level. The Secretariat agreed to pursue such studies provided that the necessary data were forthcoming and sought the assistance of the delegations in obtaining these data.
26. The Group noted the variations in price transmission among tea markets and delegates suggested a number of reasons associated inter alia with differences in the organization of marketing, or the division of sales between domestic and export markets, why such variations might arise. The Group recognized that such analysis might prove useful to the definition of efficient marketing systems. The Group considered it important that further analysis be undertaken to investigate the reasons for this variation and to identify the specific reasons hindering perfect and speedy price transmission.
27. The Group noted the contribution of the tea auction system to price transmission through the price discovery mechanism. In this connection, prospects for development of electronic auction systems and exploitation of new information technology to widen the market were discussed.
28. The Group considered this agenda item with the assistance of documents CCP:TE 03/6 and CCP:TE 03/CRS 4. It welcomed the comprehensive and detailed report from the Working Group, and suggested a number of helpful corrigenda to be incorporated in a final draft. The Sri Lankan delegation tabled document CCP:TE 03/CRS 4 (Corrigendum) setting out the factual steps taken to control pesticides. The Group also heard a presentation on the Impact of EU Pesticide Policy on the Tea Market. It was recognized that there was a lack of global harmonization in fixing the MRLs in tea, which could constitute a barrier to trade and imposed significant costs of compliance on tea exporters. Therefore, the Group decided that further actions were required in addressing this issue. These included:
29. After considering the report of the Expert Consultation on Tea Market Issues (document CCP:TE 03/CRS 1) and given the current uncertainty in the world market for tea and the consequent low prices experienced, the Group recommended that a plan of action be drawn up to address these problems. A working group was appointed to identify and prioritize relevant studies and actions (see paragraph 14).
30. The Group considered the current status of the Tea Mark with the assistance of document CCP:TE 03/CRS 2. In recognizing the need to arrive at a decision on the future of the Mark, the Group decided that member countries who were interested in using it may do so for a period of one year, subject to review at the end of that period, gratis. In the meantime, the Secretariat would prepare various options that the Group may consider for the use of the Mark, including an exit strategy. The representative from the CFC restated its position.
31. No new proposals were presented to the Group for consideration at this Session. However, the Group was informed by the representative of the Common Fund for Commodities of the status of proposals that had been submitted for consideration. The project proposal submitted by Bangladesh at the last session, Tea field and factory development project in Bangladesh was declined by the Consultative Committee. In regard to the second proposal from Sri Lanka on Agroclimatically different properties of tea initial comments had been sent to the sponsors and a revised version would be considered at the next meeting of the Project Appraisal Committee. Regarding the organic tea project, the Group once again emphasized the great importance of the project proposal Development, production and trade of organic tea which was approved at its 13th Session in Ottawa, Canada, September 1999 and expressed concern at the slow progress in its approval. The proposal addressed the issue of niche markets and the possibility of expanding demand particularly given the current supply-demand imbalance. The Group was informed that phase 1 of the project which included the conduct of studies had been approved and that phase 2 which includes the other components would be resubmitted to the CFC Executive Board for approval after the successful completion of phase 1. In thanking the CFC, the Group confirmed the importance of the project to the tea economy and requested that the CFC consider the project as a matter of priority. The Group was also informed by the representative of the CFC that there was a project proposal from Pakistan, Productivity enhancement of tea in Hazara and Swat, that was submitted to the CFC for consideration. However, the CFC advised Pakistan that the proposal had to be submitted through the IGG on Tea which was the International Commodity Body for tea.
32. There were no other items of “other business”.
33. The Group was informed that the date and place of the Sixteenth Session would be determined by the Director-General in consultation with the Chairperson. It noted with appreciation the offer of the delegate of Indonesia to host this Session.
|CCP:TE 03/1||Provisional agenda and timetable|
|CCP:TE 03/2||Current market situation and outlook|
|CCP:TE 03/3||Selected market studies|
|CCP:TE 03/4||Potential for fair trade and organic teas|
|CCP:TE 03/5||Examination of the transmission of world tea prices|
|CCP:TE 03/6||Maximum residue levels (MRLs)|
|CCP:TE 03/Inf.1||Information note on arrangements|
|CCP:TE 03/Inf.2||Provisional timetable and list of documents|
|CCP:TE 03/Inf.3||List of delegates and observers|
Conference Room Series
|CCP:TE 03/CRS 1||Report of the Expert Consultation on Tea Market Issues|
|CCP:TE 03/CRS 2||Tea Mark Status|
|CCP:TE 03/CRS 3||Market Developments in the Russian Federation and the Commonwealth of Independent States (CIS)|
|CCP:TE 03/CRS 4||Report of the Working Group on Maximum Residue Levels (MRLs)|
|CCP:TE 03/CRS 4||(Corrigendum) Report of the
Working Group on Maximum
Residue Levels (MRLs) Corrigendum
|CCP:TE 03/CRS 5||Resolution on Maximum Residue Levels (MRLs)|
|CCP:TE 03/CRS 5||(Corrigendum) Resolution on Maximum Residue Levels (MRLs) Corrigendum|
|CCP:TE 03/CRS 6||Report of the Working Group on the Intergovernmental Group Action Plan|
|CCP:TE 03/CRS 7||The Changing Regulatory Environment in the EU and Its Implication for Market Partners|