The price of a cuppa to return to normal

Tea prices, which hit record highs in 2009 due to droughts in India, Sri Lanka and Kenya, should stabilise in 2010 as weather has returned to normal in the main producing regions in Asia and Africa, the UN food agency said.

The Food and Agriculture Organisation (FAO) said its Tea Composite price, the indicative world price for black tea, hit a high of $3.18 ($NZ4.52)  a kg in September, driven by the droughts and higher demand, up from an average price of $2.38 per kg in 2008.

``The return of normal weather patterns in the main producing regions indicates that the tight global market situation should begin to ease, alleviating the pressure on world tea prices in the New Year,'' Kaison Chang, Secretary of FAO's Intergovernmental Group on Tea, said in a statement.

A supply response to high tea prices has been delayed because it requires long-term investment decisions. It takes at least three years before a tea bush can be harvested, FAO said.

There was also a concern about future oversupply if tea producers overreacted to the current high prices and planted more crops.

``Some producing countries, such as India, have acted responsibly and announced that they would not be expanding current tea areas beyond what is required for replanting and rehabilitating existing tea gardens'' Chang said.

Some price rises were passed along the value chain to consumers as retail prices rose by five percent across supermarkets in Europe, FAO said. 

Tea consumption growth outpaced production between 2005 and 2009, with the gap between consumption and output growth being largest between 2007 and 2009, when it reached 3.4 percentage points, coinciding with the surge in prices, FAO said.

Tea demand remained robust despite the global recession, showing that tea consumption is relatively price inelastic for most blends except higher priced quality teas, FAO said. 

The share of household income spent on tea purchases is relatively small, it added. 

Higher tea prices have not affected the consumer much in developed countries because of strong competition in the beverages market. 

But in developing countries, manufacturers are likely to pass a larger share of the price rise to consumers because tea procurement costs account for a significant share of the final retail price, FAO said.

In India, for example, average retail tea prices were quoted about 15 percent higher in September 2009 than in the same month in 2008. In Pakistan, retail prices rose by 12 percent in September 2009 from September 2008, it said.