The Global Scenario of Tea Market:
Tea is considered as one of the most popular beverages. It is the second most consumed liquid after water. Between 2014 to 2018, the global tea production has increased at a CAGR of 2.97%. China has always been in top position for its wide-ranging capacity of tea production. Globally, the share of China which used to be 40.23% in 2014 increased to 44.67% in 2018 in tea production. India comes in the 2nd position after China for a significant capacity of tea production. The share of India which used to 23.18% in 2014 decreased to 22.4% in 2018. Besides, the tea production rate of Kenya, Sri Lanka, Vietnam, Indonesia has also been significant in the last few years from the global perspective.
Current global tea market status:
- Global Tea Market is forecasted to grow at a CAGR of 2.65% between 2019-2024. The overall tea market is segmented through different types of tea.
Segmentation of Global Tea Market by Type:
- The global market of tea which used to be majorly occupied by the black tea segment has now been experiencing the expansion of green & herbal/flavoured tea in recent times.
- Consumer awareness about the health benefits of herbal and green tea can further drive the growth of the global tea market.
- Rapid growth of per capita income and increasing urban youth population specially in the Asia Pacific region are also making the absorption of comparatively higher priced green tea possible.
- The Tea Market in India
What is the status of tea production across the country?
As mentioned earlier, India accounts for a significant portion in the global tea production. Between 2010 to 2018, the tea production and consumption rate have increased at a CAGR of 4.17% and 2.94% respectively in India. Still compared to the previous year, the industry has experienced a slight falling trend in 2018 and 2019. Based on its Y-o-Y (Year – on – Year) growth, the rate of production which was 8.28% in 2011 has fallen to 1.29% in 2018. The fall has also been witnessed in tea consumption section too.
- By comparing the first 6 months of 2018 and 2019, it can be seen that major parts of North and North-East India have witnessed a huge growth of tea production. The Terai, Dooars and Darjeeling of West Bengal have experienced the Y-o-Y growth of 11.4%, 13.89% and 8% respectively. Whereas, the Cachar area of Assam and Tamilnadu, Kerala and Karnataka faced Y-o-Y fall of 3.68%, 4.05%, 1.55% and 12.33% respectively in 2018.
- Rainfall and Sunshine, both are equally important for tea production. Absence or greater/lower flow of any of these during plantation period can seriously affect the growth of the plants.
- This year, the devastating floodwaters have submerged 30 districts of Assam and has caused a crop loss of close to 8%. Besides, in overall Southern India, the tea production has reduced by 4% compared to the previous year. Absence of suitable climatic condition in the required time frame, delay of rainy reason actually increased the difficulty.
- Hence, overall the production has increased but many key areas also faced downturn due to adverse weather condition.
Has it affected the revenue of the tea market?
Between 2010 to 2018, the revenue earned by the Indian tea industry has increased at a CAGR of 12.6%. However, the Year -on -Year (Y-o-Y) growth rate of the industry has reduced significantly over the years. The Y-o-Y revenue growth which was 15.85% in 2011 declined to 6.17% in 2018.
Why the revenue earning rate has reduced in the recent years?
- Higher Production Cost: Tea is a cost-intensive industry where the labour costs account for around 60% of the total expenditure of production. Few years back, wage rates used to be fixed for a three-year time period, with a fixed annual escalation rate. Apart from daily wages, tea plantation workers receive other benefits also, which include the facilities of housing, medical facilities, ration, firewood and many more. However, instead of these all facilities, their wage rates are considered lowest across the industries. In 2018, wage rates in many tea gardens were below INR 200/day. A mere rise of 30 rupees in the daily wages of the workers can increase the overall production cost up to 16%.
Protests have already been seen in almost all the major tea producing states like Assam, West Bengal with the demand of rising the wages. In April 2018, the Supreme Court of India granted some relief to the tea garden workers in Assam, Kerala, Tamil Nadu and West Bengal but despite the court orders, the workers seem to remain in confusion.
Apart from these all costs, the expenses on fertilisers, gas, coal etc have also grown in the last few years, leading the overall production cost of the tea industry.
- Lower Consumption of Tea:
Tea has always been the most preferred drink for Indian households since ages. About 81% of the produced tea in India is consumed domestically. However, in recent times, along with the growing production, the consumption does not seem to have risen at all. According to a recent study, it has been recorded that the current per capita consumption is 786 gram/person/annum compared to the 1 kg/person/annum at global level. In recent times, the consumers seem to prefer the different varieties of tea like Green tea, lemon tea etc. along with all-time favourite black tea and milk tea. Still it is believed increasing numbers of coffee drinkers specially between the age group of 15 – 35 years can be slightly responsible for the reducing preference towards tea.
- Stagnated price of Tea:
In India, tea is sold through auction centres where the buyers are generally the private stockists who sell loose tea or large players who further process the tea and sell it in the branded packaged form. The auction prices of tea are said to be stagnated for some time now in India. Between, Sept’14 to Sept’19, the average price of tea has increased at a CAGR of only 3.02%. the average auction price seems to roam majorly around INR 130/Kg to INR 160/Kg. In a few cases, price also fell below INR 90/Kg in that mentioned time period.
While production of tea has been growing over the years, both the consumption and exports have not grown in that pace. It has resulted oversupply of tea in the market and stocks causing the price to be pulled down. In the first six months of 2019, the tea production, in the overall North India seemed to be up nearly by 9% compared to the same time period of the previous year. Hence, the reduced price of tea seems inevitable. However, the lower tea production rate in South India, has helped to keep the tea prices firm during the first quarter of FY20 and increased by around ₹10 a kg during the period.
- Emergence of Small tea businessman: Tea production from the small tea businesses has risen significantly over the years. 10 years back, the Small Tea Growers (STG) only accounted 20% to 25% in the overall production. However, in the first few months of FY20, that share of STGs has increased to 49% in the overall tea production leading to a marginal difference with the share of Big Tea Growers (BTG). Such growth of STGs are very much encouraging but the cost of the tea produced from them is nearly INR 80 to 90 Kg lower than the big and organised tea industries. Hence, it can easily affect the business structure of the large players in the tea industry.
Which types of tea generally dominate the Indian market?
The whole leaf teas are known as Orthodox teas. The CTC teas are manufactured through the Crush, Tear and Curl process which transform the whole leaf tea into the granular leaf particle. The dusts from the CTC manufacturing procedure are also sold in the market. This orthodox type of tea is generally found to be expensive compared to the CTC ones. The orthodox tea from Assam can be priced as INR 500/kg which is almost twice the price of CTC tea. In recent times, the increasing tenacity towards a healthy lifestyle, has made the Green tea highly desirable especially among the urban mass.
What is the performance of tea trade at the global platform?
The Indian tea industry is more than 150 years old. India is one of the top ten tea exporters in the world. Due to its finest quality, Indian tea is globally recognized and preferred by the significant numbers of people worldwide.
Which types of tea are generally exported by India?
Fine quality and lower price have made the Indian tea highly desirable among the versatile consumer groups worldwide. The supreme quality of Orthodox black tea has always worked as a game changer in the Indian export activities.
In India, between 2010 to 2018, the import and export value of tea have increased at a CAGR of 11.56% and 5.74% respectively. Instead of having a huge production, the export of tea has fallen slightly recently. The tea export quantity which was 251.91 Kg in 2017 fell to 249.11 Kg in 2018 in India. When the internal market is already suffering from various issues, then the increases in export can act as a relief to the tea producers. However, in the global market, India is facing tough competition from the African Tea.
The expansion of these teas in United Kingdom, Pakistan and European Union have been quite significant in recent times. The falling tea prices of Kenya and Uganda by 22% and 36% respectively have made the prices of their teas in the international market much lower than India. Now, when Indian tea market is already suffering from high production cost, then putting their tea prices lower than African teas will broaden the loss figures. Due to increasing exports of African tea, export of Indian teas has declined in United Kingdom, Pakistan and European Union by 35.43%, 31.16% and 5% respectively.
The tea exporting countries to India are the ones which export varieties of teas to India.
- Between 2010 to 2018, India’s import values for exporting tea from Madagascar, Afghanistan, Vietnam, Nigeria and Indonesia have increased at a CAGR of 60.93%, 34.68%, 15.08%, 13.72%, 10.95% respectively.
- However, exports from China and Nepal have declined at a CAGR of 4.37% and 0.41% respectively between the same time period.
The tea importing countries are the ones to which India exports their teas.
- Between 2010 to 2018, India’s export values for supplying teas in Vietnam, Thailand and Iran have increased at a CAGR of 42.89%, 36.01% and 8.71% respectively.
- However, export values of supplying teas to United Kingdom has decreased at a CAGR of 1.18%.
- Based on the current level of global production, it can be estimated that between 2019 to 2025, the global tea production will be increased at a CAGR of 2.65%.
- In case of India, it can be estimated that between 2019 to 2025 the tea production and consumption level will be increased at a CAGR of 2.88% and 2.25% respectively. the production and consumption level expect to touch the value of 1665.57 Million Kg and 1275.86 Kg respectively by 2025.
- Besides, the current revenue earning of the tea industry also indicates about the growth of it at a CAGR of 6.23% between 2019 to 2025. It is estimated that the revenue can become US$ 23797 Million by 2025.
The growth of Indian tea industry has always been remarkable and based on its current performance, the market is expected to grow further in near future. However, increasing disturbance and anxiety among the workers for the wage related issues in the recent years have affected the production and revenue generation in many parts of the country. Under such circumstances, the Indian Tea Association has been seen to be requesting to the government to handle the rising costs, stagnated prices, take over the Provident Fund (PF) contribution of workers for three years. They believe, these are the few things which can provide relief to the industry if taken over by the state governments.