The Tea Market in India and Tea Prices

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The influence of individual growers on the price of tea

The individual growers do not have much influence on the price of tea. The major influence on the price of tea comes from the forces of demand on the market. In the case where the supply is much far more than the demand for the tea, the price is brought down. On the other hand, in the case where demand is above the quantity supplied, the price will go up as well. In some cases, the individual growers make attempts to influence the price, but then they do not succeed.

The dictation of the tea prices is carried out by auction and this implies that the cost of production is not considered in determining the price of tea on the market. It is not the producers to determine the price but rather, it is the buyers who determine the price at which the tea has to be sold (Anonymous, Never so good for British tea drinkers, 2007).

Role of transnational corporations in the tea market

Taking the case of India as a tea-producing country and also as a major tea consumer, in this country two major transnational corporations deal in the tea market. These corporations are Unilever and Tata Tea. The corporations are dominant in the tea market and had a market share of 60 percent in 2005 of the branded tea sales. The corporations have played a major role in being significant employers in the tea sector. They have been employing thousands of people to work in the plantation for the corporations have been engaging in tea growing.

However, there has been a shift in regard to the operations these corporations have been in engaging in. Beginning from the year 2007, these corporations have opted to shift the operations from tea production to concentrate on purchasing the tea. The companies have realized that by engaging in buying and selling branded and processed tea products; they would bring up the level of their profits as compared to concentration on the tea production on the plantations. Between the years 2006 and 2005 Unilever was able to divest itself of the accountability of over ten thousand permanent employees.

Effects in changes in tea prices on the economies of the producing countries

According to Anonymous (TED case studies: India Tea and environment, 1997), India being the largest producer of tea is encountering stiff competition in the tea market. This problem is also faced with the other producer and powerful competitors of India in the industry. The tea prices have been going down the world over for the reason of having excess supply on the market. In addition, the major tea buyers such as Iraq, Russia and Iran have turned out not to be active following political reasons. The variations in the consumption trends have as well led to the falling in the prices. Despite the concerns Sri Lanka has regarding the tea market, it has acquired momentum over India in this market (Ali, Choudhry, and Lister,1997).

According to Anonymous (Never so good for British tea drinkers, 2007), taking the case in Uganda as a tea producing country, in this Country tea is the third biggest export earner. There has been the demonstration that failure of tea prices to move in line with inflation is a calamity for the economy of the nation and the growers as well as tea workers.

The increase in the prices in the shops of the manufactured tea does not necessarily translate into increased prices for the growers and the wages of the workers. Tea prices on the market are determined by way of auction and this implies that production cost is not very much taken into account in determining the prices of tea on the market.

This implies that there is need for the government concerned with tea production to intervene in offering better prices to the tea farmers as well as better wages for those people who work on the tea plantations. In the case where there are higher prices on the market, efforts should be made to ensure this translates into higher wages to workers and higher prices to the farmers. In the case where the prices go down, the farmer and the worker should be protected against low prices and wages respectively (Anonymous, Forecast for tea prices, 2009).

Demand factors that led to the rise in tea prices since 1995 and tea price volatility

According to Anonymous (Price of tea, 2009), tea prices were predicted to go over four dollars. This price increase was two times the price that was realized in the year 2005. This is due to the demand factors. There has been a stable strong demand even if there is an economic downturn. This implies that, even if there is a falling level of income among the consumers, these people have to still consume tea as it is an essential commodity.

Another reason for the rise in prices is the demand from China that is increasing, which is building up a taste for consuming more and more tea. More so, demand does not price elastic. Consumers are not prevented from consuming tea due to a price increase. Few substitutes for tea do exist and it only takes a very small portion of one’s income (Anonymous: forecasts of tea prices, 2009).

Tea is different from other agricultural products such as cocoa and coffee in that it did not use to be vulnerable to price volatility. The tea prices remained stable in relative terms in comparison to the rest of the commodities in the course of the 1980s (Singh, S., et al., 1977). However, in the cause of the 1990s, there were fluctuations. Taking the case in India, as the level of uncertainty regarding agricultural operations, with higher reliance of tea production on the environment, the effectiveness, as well as efficiency of its manufacturing, is determined by the weather conditions (Anonymous, TED case studies: India Tea and environment, 1997). The price of the made tea is volatile and it is very difficult to forecast this price. This volatility in the price of tea results from such factors as international supply and demand (Roy, 2007). Price volatility can also result from other factors such as the fluctuations in the exchange rate and changeable demand. An example of changeable demand can be given by the collapse of the former Soviet Union’s economy and this nation was a major buyer of the tea from India (Anonymous: Tea market – a background study, 2002).

Reference

Ali R., Choudhry Y., and Lister D. W., 1997. Sri Lanka’s tea industry: succeeding in the global market, Parts 63-368. Washington: World Bank Publications.

Anonymous, 2009. Forecast for tea prices. Web.

Anonymous, 2007. Never so good for British tea drinkers. Web.

Anonymous, 2007. Unilever and Tata Tea: pruning workers, reaping profits. Web.

Anonymous, 2002. Tea market – a background study. Web.

Anonymous, 1997. TED case studies: India Tea and environment. Web.

Roy R. A., 2007. An Overview of Indian Tea India with special reference to its cost accounting system, limitations and suggestion for betterment. Web.

Singh, S., et al. (1977). Coffee, Tea, and Cocoa Market Prospects and Development. Baltimore: John Hopkins University Press.

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The Tea Market in India and Tea Prices

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