Table of Contents

I. INTRODUCTION

II. PRODUCTION

III. EXPORTS

IV. IMPORTS

V. PRICES

VI. PROSPECTS FOR 1999

I. INTRODUCTION

1. The Intergovernmental Group on Tea, at its last Session stressed the importance of continued market situation studies as a means of providing a framework for guiding measures aimed at achieving sustainable growth in the tea economy and contributing to lasting price improvement. Following suggestions made at the Group's 11^th Session, three-year averages have been included to reveal the trend of changes in production, imports and exports through the smoothing of year-to-year fluctuations. Delegates are invited to comment on the document and present information regarding the latest developments in production, exports, imports and prices relative to their countries.

II. PRODUCTION

2. Preliminary returns indicate that world tea production continued to expand in 1998 reaching an estimated record 2.9 million tonnes. All major producing countries had larger harvests, particularly Kenya where a record output was obtained. Production in that country expanded by 33.3 percent more than its drought-affected 1997 crop to reach 294 200 tonnes. Similarly, the tea crop in Indonesia recovered from the drought of 1997 with an output of 166 100 tonnes, an increase of 8.1 percent. An increase of 7.4 percent was recorded by India, the largest producer at 870 400 tonnes, and a 1.2 percent and 1.7 percent gains were achieved by Sri Lanka and China, respectively with outputs of 280 700 tonnes and 648 100 tonnes. Tea output grew by 1 800 tonnes in Tanzania to reach 24 300 tonnes, but remained unchanged in Argentina. Adverse weather resulted in production falling by 8 percent in Malawi to 40 400 tonnes.

III. EXPORTS

3. Provisional data for 1998, indicate a more than 6 percent increase in world tea exports totalling 1.25 million tonnes for the year, mainly due to the 33 percent increase in exports by Kenya. All major exporting countries maintained significant export volumes previously achieved in 1997. For instance the large exports achieved in 1997 by India, China and Sri Lanka were further increased by 1.3 percent, 7 percent and 3 percent, respectively. Exports from India and Sri Lanka continued to expand through growth in consignments to the Russian Federation. Following smaller shipments to its major markets (the United States and Germany) in 1997, exports from China recovered in these markets in 1998. Significant volumes were also shipped to the Russian Federation and the Netherlands.

4. Final data for 1997 indicate a 6 percent increase in world tea exports to 1.18 million tonnes, as all major exporting countries except Kenya and Indonesia showed significant growth. Particularly strong increases occurred in India (27 percent increase over 1996 shipments), China (19 percent) and Sri Lanka (10 percent). The increases registered by India and Sri Lanka were mostly accounted for by larger shipments to the Russian Federation, which became the single largest importer of tea from both countries in 1997. As for China, smaller shipments to the United States and Germany, were offset by a significant expansion in exports to the Russian Federation (20 percent) and the Netherlands (33 percent) as well as smaller increases to the United Kingdom, France, Italy, Denmark, Finland and Austria. The decline in exports from Kenya (19 percent) and Indonesia (34 percent) was mostly due to a decline in export availabilities as crops in both countries were affected by adverse weather.

IV. IMPORTS

5. Preliminary import data for 1998 indicate levels to be about the same as they were in 1997, with most of the growth occurring in developing countries (mainly Pakistan) offsetting declines in tea imports into developed countries.

6. In 1997 the rise in world tea imports was due mainly to the continued expansion in the CIS countries, particularly the Russian Federation, which accounted for 71 percent of the market in that area. Among the major net importing regions, the CIS countries accounted for 18 percent of global net imports of tea in 1997; Europe for 22 percent; the Near East for 24 percent; and the Far East for 12 percent. The United Kingdom and the Russian Federation are by far the largest single tea importing countries. Per caput consumption in the United Kingdom has been declining since 1961 when consumption per head was 4.5 kg, and reached its lowest point of 2.4 kg in 1995. Per caput consumption has since stabilized and rose to 2.49 kg in 1996 and 2.58 kg in 1997. This is reflected in consecutive increases in net imports of these years which reached 150 600 tonnes in 1997. Per caput consumption by the Russian Federation, on the other hand, fell dramatically in the early 1990s after the break-up of the USSR, but rapidly increased since 1995. Net imports into the country rose dramatically from some 91 800 tonnes in 1994 to about 151 500 tonnes in 1997 with corresponding per caput consumption rising from 0.56 kg to 1.01 kg. A marked trend towards the import of quality teas has been apparent, not only in the United Kingdom and the Russian Federation but in the rest of Europe as well.

V. PRICES

7. Although auction prices of black tea rose significantly during the first quarter of 1998, they failed to maintain this vigour during the remainder of the year. Tea prices were boosted in 1997 and early 1998 by reports of drought-induced damage to the crops in Kenya and Indonesia, as well as strong import demand in the former USSR, particularly the Russian Federation. The FAO composite price trend for tea (a weighted average price of tea traded in the major auction markets of Kenya, India, and Sri Lanka) indicates a sustained rise in tea prices for more than 12 months since January 1997, as shortfalls in supplies from Kenya and Indonesia were much more serious then initially perceived by the market. Tea prices rose from 164.5 US cents per kg in January 1997 (also the average for the whole 1996) to peak at a 20 years high of 256 US cents per kg in February 1998. However, following the production recovery in Kenya, and to a lesser extent in Indonesia coupled with a sharp drop in import demand from the Russian Federation, due to the deterioration of economic conditions prices weakened significantly during 1998 though remaining higher than 1996 levels. Tea prices remained stable in the first 6 months of 1999, although somewhat uncertain. The year opened with the FAO composite price of 176.3 US cents per kg in January falling to 165 US cents per kg the following month and then strengthening to 186.3 US cents per kg in March. After falling again in April, the price stabilized at around 173 US cents per kg in May and June.

VI. PROSPECTS FOR 1999

8. Data on production and exports for the first few months of 1999 indicate possible reductions in India and Kenya, while Sri Lanka seems to be heading for another record. Price expectations remain uncertain although there is some optimism that the reduction in the Russian import duty on food items could boost tea trade. However, because of the current financial difficulties, a greater volume of lower priced teas from China and Viet Nam could substitute imports of the more expensive higher quality teas in order to maintain the quantities consumed. Secondly, positive signs of growth in imports had emerged in the markets of the United Kingdom, the United States, Japan and Ireland towards the end of 1998. Similar trends were also observed in Saudi Arabia, Iraq and the United Arab Emirates, but the continuation of market growth would depend on the continued recovery in oil prices with its consequence for foreign exchange earnings and consumer incomes. Lastly, there appears to be continued activity by buyers to replenish stocks. If this continued it could help contribute to firmer prices.

Table 1: Tea production and exports, 1993 to 1998 and latest available period of 1999 with comparable 1998 data

1/ Provisional   2/ Forecast

Table 2: Net-imports of tea, 1993-98 and latest available period of 1999 with comparable 1998 data.

1/ Provisional 2/ Forecast

TABLE 3 : Developments in major auction markets for 1997-1999

* Composite auction price of four markets: Calcutta, Cochin, Colombo, Mombasa (Kenya)