March 31, 2009 - Tea prices are set to jump to an all-time high after damage to production in the world's key exporting countries from simultaneous droughts, the United Nations' Food and Agriculture Organisation and industry executives have forecast.
Kaison Chang, a tea specialist at the FAO in Rome, said dry weather had led to low yields in India, Kenya and Sri Lanka. The output fall in the three countries, which account for half the world's exports, will exacerbate last year's market deficit.
"Prices should go up," he said. The weakness of sterling against the US dollar, in which wholesale tea is priced, will translate into higher prices for UK consumers. Britain is the world's second-largest tea importer, after being overtaken by Russia in 2004.
The FAO's preliminary estimates for 2008, seen by the Financial Times, indicate that consumption rose to 3.85m tonnes, up 4.8 per cent on the year, while production lagged behind at 3.78m tonnes, up 1.2 per cent. The market was in surplus in 2007.
The lower production comes amid relatively robust demand, even though some emerging countries' wholesale buyers have reduced the size of their purchases amid restrictions on credit, industry executives said.
The main supply problem, the industry says, lies in Sri Lanka, traditionally the world's largest exporter. Production on the Indian Ocean island is set to drop to at least a seven-year low after the drought. Output will also suffer from farmers cutting the use of expensive fertiliser.
In Kenya, the tea-rich region of the Rift Valley has also been hit by a drought, and prices at the weekly auctions in the port city of Mombasa - the global benchmark for the industry - have risen to $3.40 a kilogram, up 15 per cent since December.
Kenya's so-called "long rains" season, which runs from March to May, has yet to arrive in key growing areas. The Tea Board of Kenya, the industry regulator, forecast that the dry weather would restrict the country's production to 328m kilograms, down 5 per cent from 2008.
Wholesale black tea prices in Mombasa surged last year to an average of $3.10 a kilogram, almost 11 per cent higher than in 2007, and the highest annual average since at least 1993.
India's tea output has also been hit by droughts in the key states of Tamil Nadu, Kerala and Karnataka.
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