boring tea is beautiful now

8/13/2019 Boring Tea is Beautiful Now

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Boring tea is beautiful now

Global bottled tea and coffee market is expected to grow at a compounded annual rate of over 10%. A report published by

MarketsandMarkets, a research and consulting firm, predicts that global ready-to-drink tea and coffee industry will be worth $125 billion in

five years. The global market for hot beverages (coffee and tea) is forecast to reach US$69.77 billion in value and 10.57 million tons in

volume terms by the year 2015. Asia-Pacific is expected to remain the largest market, although North America should experience solid

growth on the back of increasing health awareness among shoppers. Rising levels of income, fast and busy lifestyles, for health

reasons, consumer awareness and greater per capita consumption particularly in developing economies should accelerate future growthmomentum and demand for tea further. Numerous health benefits have been attributed to tea since time immemorial. In folk medicine, the

health benefits of tea were already recognized 5000 years ago and it was used as a treatment for infectious diseases, colds, and also as an

aid to the digestive and nervous systems.Medical studies indicates that tea lowers the risk of coronary artery disease, heart attack and some

cancers. It is a completely natural product, without any added flavourings, colours or preservatives. Tea serves as a crucial component for

maintaining the balance of body liquids. Tea is becoming popular due to widespread awareness of heath benefits associated with it.

Currently we are having bull market for tea globally due to short supply and strong demand for tea. The shortfall in production in Kenya, Sri

Lanka and India at present exceeds 43 m kgs compared to the previous year, according to J Thomas & Company Private Ltd, the worlds

largest tea auctioneers. The adverse weather conditions across the globe especially in India, Sri-Lanka and Kenya have affected the supply

of tea in the world market. Really erratic weather has affected production in Asia and Africa. Tea prices have gone up almost all

tea producing countries both in Asia and Africa. Further price strengthening in tea can be seen in the combining months and quarters as

results of production drop in Assam region in India, the second largest tea producers in the world. In September, some districts lost 30-35 per

cent, compared with the year before due to the very unpredictable weather in Assam. The first 10 days of October seem to be following the

same pattern. As of today, its the worst ever hit for Assam according toInterview with Managing director, McLeod Russel India. There will be

huge shortage as India enters the winter months. This year, they are likely to see a shortfall of 25 million kg. The supply of quality Assam

teas for the rest of the year will be limited as the production season gradually draws to a close due to cold weather In North India. Factories

close down by end of December, and resume operations only towards end March. In Kenya the 2011 the output was 377 million while in

2012 it was expected to fall to 360 million kilograms, due to lower production in the first half of the year. During first six months of this year; in

India tea production was down 24.16 percent, in Kenya, 21.21 percent, Uganda 8.86 percent and in Sri Lanka was down 6.39 percent. Still

we dont find developed commodity market for tea. The only way to play the tea market is buying stocks in well managed tea plantations

companies globally after doing home work. In short continuing shortfall in production, increased demand and low stocks at buyers

destinations all indicate that tea prices are clearly poised for a further strengthening. Experts predict that this rise in tea prices may continue,

as production shortfalls squeeze the market and demand rises quickly in India and China. Finally Tea Should score over coffee in the long

run in volume terms, on account of factors such as economical pricing, new flavors and healthy brand value, as new teadrinkers join the

brigade.


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Tea Export and Transp ortat ion :Global Trends

BY RANDY ALTMAN

Transport ing teais more dangerous than consumers realize. Challenges include pirates and gangs ofhighway robbers. Yet, advancement is in the wind, with global positioning satellites (GPS) on ships andtrucks, plus expansion of WTO and labeling requirements. Transport remains a costly worry to teaindustry leaders. Planning is difficult, and most nations have no reliable data on tea export tonnage. Theindustry faces stress, although long-term progress looks likely.

The tea trade is gradually orienting export to the value-added sector. Hasitha de Alwis, Sri Lanka TeaBoard director, reports, an increase of over 13,000 tons compared with last year on packet exports.Listed price for this export increased by almost one-third over last year. The teabag export format alsoincreased, by nearly 8% in weight, and almost one-third in listed price.

Export statistics do not reveal a complete analysis of tea type sold internationally to consumers. A widetrend is more average tea retailing in attractive, branded packaging. Such tea can be exported in bulkfor budget transportation, but then repackaged for point-of-purchase branding. A different market is there-export trade, which is often premium tea. This extra transportation step is generally hidden fromconsumers (and complicates quantitative analysis, as the same tea has been exported at least twice).


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Tata. The Tata tea business is run by Homi R Khusrokhan, managing director, and Percy T Siganporia,deputy managing director.

Tata Tea refers to itself as the worlds largest integrated tea operation. Under Siganporias authority,subordinate executives were authorized for the first time to collect and release certain export data. Onesingle shipment was 2,000 metric tons, large enough to dwarf many tea companies total annual output.

This shipment was to Iraq under the United Nations aid program known as Food for Oil. For the U.S.,Tata has shipped up to 123 container-loads of instant tea in a single year.

The Tata system possesses an admirable reputation earned over generations: well-managed, concernedwith ethics, and highly focused on quality control. The headquarters office is in Calcutta, the northeastexport hub where the Kolkata Port Trust runs the world-class docks there and in nearby Haldia,comprising Indias only super-port.

The federal government has oversight forKolkata ports, under the Ministry of Shippingand Transportation. The tea exporters tradegroup is Calcutta Tea Traders Association,the CTTA, not to be confused with another

nations CTTA, the Colombo Tea TradersAssociation (nor with Colombos acronymicTEA, Tea Exporters Association).

The Colombo Port goes by the call letters,CMB. The entire island nation relies on thisone port, and virtually all Sri Lankan tea is

exported. A trend here is stronger security, utilizing Sri Lankas Navy. The Navy budget is relatively highbecause of a rebel flotilla, the Sea Tigers. The Western world too often ignores the existence of this rarestform of separatist-extremist organization, a sea force. Sri Lankas Navy now purchases fast-attackvessels from Israel, a shipping transaction delayed by ethno-religious factions. Sri Lanka did notpreviously recognize the existence of Israel, but now maintains diplomatic ties. The islands main ethno-religious minority is Hindu, brought from India long ago to work the tea fields. Muslims are a smaller

minority, but with political clout as a Parliament coalition partner. Sri Lanka is majority TheravadicBuddhist. In this nations case, the tea trade is not a mere passive bystander in the new global ethno -religious conflict, rather a geopolitical player whose international role is underpublicized in the Westernpress.

New corporate structures are emerging out of Sri Lanka to handle export. As of the beginning of this year,John Keells Holdings, the largest capitalized company on the Colombo stock exchange, removes fromdormancy Gordon Frazier Ltd, a company acquired with the buyout of Whittalls. Gordon Frazier becomesthe vehicle for tea export, and will co-exist under the JKH umbrella with tea brokerages and joint venturesin plantation management. To prevent appearance of violation of self-dealing laws, two directors resignedfrom the holding company. The new amalgamation moves beyond Asian-style intertwined corporatestructure, and the importance of this unique export entity is demonstrated by the selection of Michael DeZoysa as managing director. De Zoysa has over 30 years tea experience, including several top

directorships with Unilever Ceylon Ltd.This newborn export enterprise brings De Zoysa back into the tea trade, which he left to head atelecommunications company. The challenge to transparency regulations is uncommon for the teaindustry, not typical of Asian enterprise, because brokering tea must appear at arms length from profit-making caused by managing or exporting the product. And, John Keells Ltd brokerage recently becameCeylons leading broker. The complexity is vast, involving almost 30 separate companies. Entering theera of export globalization, historically socialist nations are moving toward impartially pro-businessgovernment oversight and accounting-firm independence. De Zoysa will likely oversee an eventuallyhighly profitable business, able to strategize faster and longer-term than much of the competition.


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A new generation of governmental leadership is forming, with recent elections in Sri Lanka and freshappointments from India. For the first time, India posts a Tea Board Branch Director, K. Sanjay Kumar,IAS, who combines expertise in multiple indigenous language, politico-military affairs (as a formerMagistrate) and tea (as former managing director of Assam Tea Co). The Sri Lankan elections are alsoimportant progress. Colombo may now permanently shake off one transport obstacle, the insurance warpremium levied on ships docked in corporate-designated war zones. This insurance fee is a wastefulpayment to wealthy nations for the right to export tea to them.

In New York and New Jersey, The Port Authority is surviving, although its base in the World Trade Centeris depressingly destroyed. Some staff bravely relocated to the port at Elizabeth, New Jersey, butcountless records are lost forever.

At New Orleans, a port long known as a coffee hub, tea imports are quietly gaining marketshare. Beforemy phone call, New Orleans had not specifically analyzed tea imports, and their first best estimate wasseveral orders of magnitude lower than the final calculation. From January to September of 2001, themost recent period available, New Orleans was port of entry to a surprisingly hefty 8,280 tons of tea. Thisupward trend has several components. The largest component is low-cost tea from Argentina. This typeof tea transport, totally within the Western Hemisphere, is also gaining from Brazil. New Orleans slogan isAmericas MostIntermodal Port.

A second type of tea arriving at New Orleans is trans-Atlantic, from Germany, Netherlands and the U.K.Such re-export is generally superior quality. James Finlay & Co (US) Inc. took the U.K. shipment. A thirdtype of tea import, a new development for Port of New Orleans, is the container-size shipment. Apioneering container-load of tea from South Africa was taken by Universal Commodities of Bronxville,New York.

The largest transported size is the 40-foot container. Within the container, the largest individual packingsize is now one metric ton, via the trademarked Super Sack. Super Sacks are expensive, but uniquelyspouted, seamed, looped, flexible and re-usable.

Complexities still occur in transportation at the seemingly simplest domestic levels, such as truck-driving,with hazards and expense hidden from the public. In India, tea truckers in Assam are held up at gun-

point, perhaps several times in one trip. This extortion is worsening. Many of the extortionary groups areseparatist-extremist organizations, supported indirectly by Pakistan and by corrupt Assam officials whoreceive kickbacks. These militant separatists operate in Assam, but encamp across the border in Bhutan,where the Indian army historically does not tread. These extremists cost the tea companies dearly, andlast year kidnapped a tea managers seven-year-old daughter. With the new global War on Terrorism,such activities, gradually, will undergo elimination.

The future of tea export requires proactive, creative thinking, with long-term, objective balance andstrong-willed strategizing. This scenario necessitates a nurturing, formal establishment, one withgovernment connections, but relatively independent, pro-business and aware of the reality of exportglobalization. Such a future-oriented establishment has finally come into existence. The Indian Institute ofPlantation Management (IIPM) is now, after a long wait, operating as master of its own campus. The IIPMmerits this permanent self-standing existence, under the guidance of Dr. Subhash Sharma, author of

numerous internationally distinguished business books. IIPM goals include improvement in productquality and increased branding.

Competitive advantage is todays rule, in the harshly profitable world of export globalization. The trendtoward value-added product will continue, whether shipped directly from nation-of-origin or re-exported.Transportation does expose the industry to extremists organized violence, but here, too, progress isnewly possible. The recent elections in Sri Lanka yield pro-business outcomes, including probablenegotiations with the LTTE militants, which should allow socioeconomic progress in a nation dependenton tea export. Progress, whether waged from the War Room or the Boardroom, is not inevitable, but


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looks likely. Tea remains the worlds highest-consumption purchased drink, relied upon by billions ofpeople for hydration and cultural tradition, and by tens of millions of people for employment. With properleadership in the nascent convergence of political, military, social and economic sectors, gross revenuewill rise and more tea than ever will be shipped

Resources

Organizations

International Coffee Organization22 Berners StreetLondon W1T 3DDTel: (44) (0) 20 7580 8591 / 7612 0613Fax: (44) (0) 20 7580 6129E-mail:[email protected] Site:www.ico.orgThe International Coffee Organization is comprised of almost every coffee consuming andproducing nation. Its intent is to promote coffee consumption as it has a full schedule ofprograms designed to increase consumption as well as aid the coffee producer.

National Coffee Association of USA, Inc.15 Maiden Lane, Suite 1405New York, NY 10038Tel.: (212) 766-4007Fax: (212) 766-5815E-mail:[email protected] Site:www.ncausa.orgNCA is the only coffee trade association serving all segments of the US coffee industry, fromspecialty to traditional companies. Its membership includes growers, exporters, importers androasters, retailers, wholesaler/distributors and allied industry businesses. NCA provides memberswith national and international government affairs representation, market research, scientificresearch, educational resources, and public relations. Please feel free to browse NCA'sinformative Web sites at:www.ncausa.org,and atwww.coffeescience.org.

National Association for the Specialty Food Trade120 Wall Street, 27th floorNew York, NY 10005Tel: (212) 482-6440Fax: (212) 482-6459Web Sites:www.specialtyfood.comwww.nasft.orgwww.fancyfoodshows.com
mailto:[email protected]:[email protected]:[email protected]://www.ico.org/http://www.ico.org/http://www.ico.org/mailto:[email protected]:[email protected]:[email protected]://www.ncausa.org/http://www.ncausa.org/http://www.ncausa.org/http://www.ncausa.org/http://www.ncausa.org/http://www.ncausa.org/http://www.coffeescience.org/http://www.coffeescience.org/http://www.coffeescience.org/http://www.specialtyfood.com/http://www.specialtyfood.com/http://www.specialtyfood.com/http://www.nasft.org/http://www.nasft.org/http://www.fancyfoodshows.com/http://www.fancyfoodshows.com/http://www.fancyfoodshows.com/http://www.nasft.org/http://www.specialtyfood.com/http://www.coffeescience.org/http://www.ncausa.org/http://www.ncausa.org/mailto:[email protected]://www.ico.org/mailto:[email protected]


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www.specialtyfoodmagazine.comwww.specialtyfoodmarket.comThe National Association for the Specialty Food Trade holds three food shows in the U.S. andpublishes a newsletter for the specialty food industry.

Specialty Coffee Association of America

330 Golden ShoreSuite 50Long Beach, CA 90802Tel: (562) 624-4100Fax: (562) 624-4101Email:[email protected] Site:www.scaa.orgThe Specialty Coffee Association of America is an organization aimed at helping the coffeeretailers. Its membership, comprised of coffee growers, manufacturers, traders and ancillaryequipment manufacturers and retailers, is considered to be the largest in the world. They hold anannual exhibition/conference and many educational seminars throughout the year. Its intent is toeducate the retailer on coffee and serving the best possible cup.

Tea Association of the USATea Council of the USASpecialty Tea Institute (STI)420 Lexington AvenueNew York, NY 10170Tel: (212) 986-9415Fax: (212) 697-8658E-mail:[email protected] Site:www.teausa.comAll three organizations are housed and staffed at the New York office. The Tea Association of theUSA serves the tea industry members and holds an annual convention, The Tea Council promotestea consumption in the U.S. The Specialty Tea Registry avails tea information and assistance toretailers.

The Tea Council Ltd.9, The CourtyardGowan AvenueFulham, London SW6 6RHTel: 020 7371 7787E-mail:[email protected] Site:www.tea.co.ukThe U.K. Tea Council is comprised of Britain's tea industry and is responsible for the promotion oftea. Its many projects keep tea consistently in the media.

European Coffee FederationTourniairestraat 3P.O. Box 904451006 BK AmsterdamThe NetherlandsTel: (31) (20) 511 38 15Fax: (31) (20) 511 38 92E-mail:[email protected] Site:www.ecf-coffee.orgThe European Coffee Federation is the umbrella-organization representing the European solublecoffee manufacturing industry (AFCASOLE), the green coffee trade (CECA) and the coffeeroasting industry (EUCA).
http://www.specialtyfoodmagazine.com/http://www.specialtyfoodmagazine.com/http://www.specialtyfoodmarket.com/http://www.specialtyfoodmarket.com/http://[email protected]/http://[email protected]/http://[email protected]/http://www.scaa.org/http://www.scaa.org/http://www.scaa.org/http://[email protected]/http://[email protected]/http://[email protected]/http://www.teausa.com/http://www.teausa.com/http://www.teausa.com/mailto:[email protected]:[email protected]:[email protected]://www.teaandcoffee.net/resources/www.tea.co.ukhttp://www.teaandcoffee.net/resources/www.tea.co.ukhttp://www.teaandcoffee.net/resources/www.tea.co.ukmailto:[email protected]:[email protected]:[email protected]://www.ecf-coffee.org/http://www.ecf-coffee.org/http://www.ecf-coffee.org/http://www.ecf-coffee.org/mailto:[email protected]://www.teaandcoffee.net/resources/www.tea.co.ukmailto:[email protected]://www.teausa.com/http://[email protected]/http://www.scaa.org/http://[email protected]/http://www.specialtyfoodmarket.com/http://www.specialtyfoodmagazine.com/


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.

After staying hot in 2012,shares of tea and coffee companiesare not expected to do well in 2013. Experts point at

rising input costs and unfavourable weather in countries that are big producers of these two commodities.

The stock of CCL Products, which returned over 175% in 2012, has fallen over 32% to Rs 259 this year till March 28.

B&A Ltd, Bombay Burmah Trading Corporation and Tata Global Beverages returned over 75% in 2012. On March 28,

they were 33%, 11% and 20% lower, respectively, than the December 31 levels. Bombay Stock Exchange Midcap

and Smallcap indices fell 13.6% and 21%, respectively, during the period. Most tea and coffee stocks belong to

midcap and smallcap categories.

"Some profit-booking and correction was expected. That has coincided with the negative market sentiment since the

start of the year. It will be a year of slow and steady returns," says Sudip Bandyopadhyay, managing director and

chief executive officer, Destimoney Securities.

Alex Mathews, head of research, Geojit BNP Paribas Financial Services, says rising wages, shortage of workers

andhigher fuel & fertiliser pricesmay hit the sector in 2013.

CURRENT SCENARIO

The average price of tea rose 17% to Rs 121.81 a kg in 2012 from Rs 104 per kg in 2011. The country produced

1,059 million kg tea between April 2012 and January 2013 as against 1,040 million kg in the year-ago period. "We

expect production to remain flat this financial year, which could lead to a 5-10% increase in prices. We believe this

will expand margins of tea growers," says Sanjay Manyal, research analyst, ICICI Securities.

Coffee production rose to 3,15,500 million tonnes (mt) in 2012-13 from 2,89,600 mt in 2009-10. "The postmonsoon

crop estimate for 2012-13 is 3,15,500 mt. Since harvesting is still on, the final estimate will be available by May," says

a commerce ministry press release.

India's coffee consumption is increasing at 6% a year. According to the government, the country's consumption in

2009-10, 2010-11 and 2011-12 was 1,02,000 mt, 1,08,000 mt and 1,15,000 mt, respectively. About 75% coffee

produced in India is exported, which is why returns depend to a large extent on global price trends.

Coffee prices rose for five straight years till 2011 but have been falling in 2012, especially of the Arabica variety. In

the international market, the price of Arabica coffee has fallen 25% to 163.46 cents per pound in the 12 months to

March 2013.

FACTORS TO WATCHTea and coffee prices are decided by output and inventory levels, the former depending upon rain in east and north-

east India, mainly West Bengal and Assam. Before investing, one must also look at fundamentals of the company,the track record of the management and debt levels. Runjhun Jain and Kavita Vempalli, analysts, Nirmal BangSecurities, say, "Investors should look at production in big exporters such as Kenya, Sri Lanka and China, plusweather-related factors such as droughts and floods."

INVESTMENT OPTIONS
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A total of 25 stocks from the tea sector and twofrom the coffee sector trade on the Bombay StockExchange. The biggest ones, on the basis ofmarket capitalisation, are Tata Global Beverages,Mcleod Russel India and Tata Coffee. Experts sayout of these 27 stocks, Mcleod Russel India, TataGlobal Beverages and CCL Products can give

positive returns in 2013.

Mcleod Russel India:The world's largest tea maker produces nearly 100million kg tea a year from its estates in Assam,West Bengal, Vietnam, Uganda and Rwanda.

In the year to April 3, the stock rose 23% to Rs340.30. On 31 March 2012, the company'sconsolidated gross debt stood at Rs 263 crore ascompared to Rs 316 crore on 31 March 2011.Figures for 2012-13 were not available at the timeof writing the article.

"One can invest in Mcleod Russel. With tea

production expected to remain flat or post slowgrowth, we have modelled a 5-6% rise inrealisations in our 2013-14 earnings estimate. Thecompany has a strong balance sheet. This helps itincrease capacity by acquiring tea gardens abroadand in India," says Manyal of ICICI Securities.

"One can buy McLeod Russell India on declines ina phased manner for the medium term," saysMathews of Geojit BNP Paribas FinancialServices.

For the current year, the company has already sold95% inventory. It expects prices to be higher by Rs15-20 in March. It also expects to increase

production by five-six million kg. Thus, with higherrecovery of crop and increase in the proportion ofbought leaves, the company intends to increase itstotal tea production by 10 million kg. At Rs 343, thestock is trading at a price to earnings, or P/E, ratioof 9.7 times 2013-14 estimated earnings per shareof Rs 35.2. "We advise investors to hold the stockwith a target price of Rs 387, a 12.8% upside fromthe current levels," says Vikram Dhawan, director,Equentis Capital.

Tata Global Beverages:Thecompany gets 65% revenuefrom overseasoperations and is one of the biggest tea players inthe markets where it operates.

6 per cent is the annual increase in India's coffee

consumption, according to a government survey

According to a report by Equentis Capital issued in

March, acquisitions and strategic tie-ups with

global beverage giants like PepsiCo and Starbucks

offer a huge potential for Tata Global Beverages.

These, it says, will help it develop and market
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products in local as well as global markets. In the quarter ended December 2012, the company posted a net profit of

Rs 92.96 crore, up 14.05% from Rs 81.51 crore in the year-ago quarter.

"At the current market price of Rs 128 (on April 5), the stock is trading at a P/E ratio of 16.4 times expected 2013-14

earnings per share of Rs 7.8. We have a 'buy' call on the stock with a target of Rs 175, which gives an upside

potential of 30.6%," says Dhawan of Equentis Capital. The stock has risen 10% in the last one year and was at Rs

130 on April 3.

CCL Products:

CCL makes soluble instant spray dried coffee powder, spray dried agglomerated or granulated coffee, freeze dried

coffee as well as freeze concentrated liquid coffee.

The company posted consolidated revenue of Rs 207 crore in the quarter ended December 2012 as its Vietnam plant

went on stream. This was 51% higher on a year-on-year basis and 64% on a quarter-onquarter basis. The Vietnam

plant has a capacity of 10,000 mt per annum. The company plans to add another 5,000 mt in 2013-14.

In the one year till April 3, the stock has risen 80% to Rs 272. Experts are bullish for 2013 as well. Jain and Vempalli

of Nirmal Bang Securities say, "The stock can touch Rs 400 in the next few quarters. We believe that the company

can register 34.8%, 20.3% and 8.4% growth in net sales, Ebitda margin and net profit, respectively, in 2013-14."

Ebitda, also called operating profit, stands for earnings before interest, tax, depreciation and amortisation.

Farmers hopes dashed as world tea and coffeeprices tumble

At the same time, latest data from the International Coffee Organisation (ICO) shows that reduced prices internationally have pushed the ICO composite

indicator which tracks the prices of coffee down by 7.4 per cent, the lowest level since September 2009.

Coffee and tea regulators in the region also say poor weather conditions could significantly change the fortunes of the agriculture sector that employs more

than 60 per cent of the regions workforce.

The organisation said that given current price trends, there is a diminishing incentive for farmers to invest in their crops, and the use of inputs such as

fertilisers and labour will likely be reduced.

Coffee and tea farmers in East Africa will see a sharp reduction in earnings in the remaining months of this year, following a

drop in world prices of the two commodities and the continued political turmoil in Egypt, one of the top buyers of the region s

tea.

At the same time, latest data from the International Coffee Organisation (ICO) shows that reduced prices internationally have

pushed the ICO composite indicatorwhich tracks the prices of coffeedown by 7.4 per cent, the lowest level since

September 2009.


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Tea and coffee exports make up the bulk of foreign currency inflows to the governments of Kenya, Uganda, Rwanda,

Tanzania and Burundi.

Kenyas Central Bank (CBK) warned on Tuesday that the unrest in Egypt and the Syrian conflict which is threatening to

draw in the larger Middle Eastas well as the Eurozone crisis, posed a threat to agriculture exports from the region.

Negative incentive

Coffee and tea regulators in the region also say poor weather conditions could significantly change the fortunes of the

agriculture sector that employs more than 60 per cent of the regions workforce.

READ:Poor rainfall in Kenya to affect earnings from agricultural sector

Kenyas coffee prices fellto a low of $2.73 per kilogramme in May from $3.96 per kilogramme in January, and the ICO said

that commodity prices in general have been on a downward trend mostly due to negative economic news from China and the

US.

The organisation said that given current price trends, there is a diminishing incentive for farmers to invest in their crops, and

the use of inputs such as fertilisers and labour will likely be reduced.

This could potentially have a negative impact on production volumes and quality over the next couple of years, resulting in

increased price volatility and a less sustainable agricultural value chain, said the ICO.

Rwanda earned $69.5 million from coffee in the year ended June 2013, against the target of $74 million, while tea earnings

were $63 million against the projected $69 million, reflecting the fluctuating prices internationally.

Coffee, tea farmers hit by fall inprices to seven-year low

Millions of coffee and tea farmers are set to be hit after prices of the two commodities dropped to a seven-year low even as input costs surged

The East Africa Tea Trade Association (EATTA) on Monday raised the alarm saying the livelihoods of up to two million farmers in the region are at risk as

prices at the Mombasa auction have fallen below the production costs

Tea prices have plummeted to lows last seen in 2008 according to EATTA, while coffee prices have plunged to levels last recorded in 2007, according to the

International Coffee Organisation (ICO)

Millions of coffee and tea farmers are set to be hit after prices of the two commodities dropped to a seven-year

low even as input costs surged following the recent scrapping of value added tax remissions.
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The East Africa Tea Trade Association (EATTA) on Monday raised the alarm saying the livelihoods of up to two

million farmers in the region are at risk as prices at the Mombasa auction have fallen below the production

costs.

Tea prices have plummeted to lows last seen in 2008 according to EATTA, while coffee prices have plunged to

levels last recorded in 2007, according to the International Coffee Organisation (ICO).

There can be no doubt that in many countries the prices received by coffee growers fail to cover the unit costs

of production, while at the same time the prices of basic goods, such as food and energy, are rising. Indeed,

coffee is the worst performing agricultural commodity of the last two years, with a downward trend that has so

far shown no sign of improving, said ICO in its report covering up to November.

Coffee prices averaged 107.03 US cents per half a kilogramme in October as per the ICO composite indicator

price, a 4.3 per cent decrease on September levels and its lowest level since March 2009.

The drop in coffee prices has been attributed to increased global supplies.

The price at which we sell our commodity at is dictated by international prices, said Mr Daniel Mbithi, chief

executive officer of the Nairobi Coffee Exchange (NCE).

The ICO report came as Lerionka Tiampati, the EATTA chairman and MD of the Kenya Tea Development

Authority (KTDA), issued a statement appealing to the government to reduce taxes in the tea industry to save

farmers from further losses.

The whole industry is facing serious cash flow problems as teas are selling below their cost of production, said

Mr Tiampati who estimated that more than two million people directly earn their livelihoods from tea growing,

while 10 million benefit indirectly from the sector.

EATTA runs the Mombasa Tea Auction , which is the largest black tea auction centre in the world.

Tea farmers received a record bonus of Sh69 billion this year helped by a higher output, but this growth in

production volume is also dealing the industry a blow as it has depressed international auction prices.

Edward Mudibo, managing director of EATTA said yesterday the group has engaged the government on several

occasions over the high cost of production and on levies that are charged on tea but so far they are yet to get

any feedback.

The cost of tea production in the country is high compared to other regional countries and when the world

price falls, we are hit the most because our tea becomes uncompetitive at the market, said Mr Mudibo.


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Just like coffee, 95 per cent of the locally made tea is exported while the remaining five per cent is consumed

in the country.

Mr Mudibo said that tea should be put under the category of food as opposed to beverage, where it has been

classified currently, a move that will exempt the commodity from the 16 percent VAT levy.

Declining tea and coffee exportprices set off alarm bells

Tea and coffee prices have been declining in the last few years, hitting a new low and setting off

warning bells over the future of the two commodities that are the livelihood of about 3 millionKenyans.

Experts say the trend is likely to continue into this year if conditions on the international market

remain the same, or even worsen. The prices of the two commodities are susceptible to price

volatility in the international market.

Production levels of the two crops in other countries, the strength of the shilling, and political crises

in target markets are expected to influence price movements.

Tea prices dropped by a massive 38.6 per cent between January and October last year, triggering a

call by stakeholders for government intervention through a review of levies to cushion farmers

earnings.

The prices were the lowest in eight years. But sector experts say the prices have begun to stabilise,

sparking hope in farmers that there might not be any further drop.

The prices have started stabilising at the Mombasa tea auction. We expect that they have already hit

their lowest level and anticipate no further decline, said Mr Peter Kamanga.

East African Tea Traders Association (EATTA), which manages the Mombasa Tea Auction, had

projected about Sh3 billion on lower export volumes based on a traditional trend in past few years

where earnings have been rising.

But the prices declined rapidly on account of increased production from countries in the region and

volumes in the international market.

Farmers earnings last year reached Sh69 billion from Sh61 billion in 2011, but the price per kilo

declined by 10 per cent due to what the Kenya Tea Development Agency described as a depressed

global market for the Black CTC teas for which Kenya is known.


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This was driven by high volumes and volatile market dynamics, KTDA managing director Lerionka

Tiampati said in September 2013.

Green tea delivered to factories in the past year stood at 1.1 billion kilos, compared to 907 million

kilogrammes over the same period in 2012.

The exchange rates, though stable at a mean rate of about Sh85 (compared with a mean of Sh89 in

2012) to the dollar, also impacted negatively on the total revenues earned. A weak shilling is always a

boon to farmers earnings.

The political crisis in Egypt that saw the overthrow of President Mohamed Morsy, and the

subsequent uncertainty led to a decline in Kenyas exports to the country. Egypt is among the top

three key destinations for Kenya tea exports.

The situation was made worse by the recent political crisis in South Sudan, which is among the

fastest-rising destinations for tea exports.

Coffee prices have also experienced a steady drop, recording the lowest prices in the last six years

and threatening to stifle growth in the sector that has only recently recovered from the 1990s slump.

The quantity of coffee auctioned at the Nairobi Coffee Exchange dropped by 38 per cent to 2,442.26

metric tonnes in September 2013 from 3,938 metric tonnes in January.

The average price also fell by 16.8 per cent to Sh286.46 per kilogramme compared to Sh344.3 in the

same period.

OVERSUPPLY

Oversupply in the last 10 months depressed international prices, resulting in lower farmers earnings.Earnings for last year are projected to fall below Sh17 billion, down from Sh19 billion earned in 2012,

and a further drop from the Sh22 billion earned in 2011.

According to the International Coffee Organisation (ICO), prices hit a six-and-half-year low in

November last year, with the composite index averaging 100.99 US cents per pound 5.6 per cent

lower than that recorded in October.

Experts say market conditions point to a market struggling to gain stability as production outstrips

consumption. Countries like Brazil have responded by debt waivers, while Colombia has announced

it will continue to provide subsidies to its farmers.

In Vietnam there have been calls for government funds to stock coffee beans to support domestic

prices.

Pricing of coffee at the international market is subject to many factors. However, there are

indications that they are likely to stabilise this year, said Mr Kennedy Gitonga, head of agri-business

at the Coffee Research Foundation.

Exports in October amounted to 8.5 million bags, 9.6 per cent lower than October 2012.


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boring tea is beautiful now

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