Business Daily (Nairobi)
Allan Odhiambo
13 May 2008
Kenya and other black tea exporting nations are now caught in a race against time to boost their domestic consumption as a new international survey showed saturation in key target markets.
Imports of black tea by non-producing nations had almost stagnated, meaning exporting nations must open up new slots within their domestic markets to stay afloat, says the Intergovernmental Group on Tea (IGT) in its latest review.
"World net imports of black tea, a proxy for consumption in importing countries, are projected to increase annually by 0.5 per cent, reflecting the near saturation in traditional tea markets," the group said in a medium-term outlook report ahead of a two-day 18th session biannual meeting to be held in Hangzhou, China.
The meeting starts today.
According to IGT, the global consumption of black tea is expected to grow by 1.7 per cent annually to reach 2.8 million tonnes within the next nine years but warned that not even stronger growth in consumption in producing countries is likely to offset declines in traditional markets.
"The largest growth is expected in the Russian Federation, where imports are expected to grow by 2.6 per cent annually compared to four per cent over the last decade to reach 328,200 tonnes, followed by Pakistan, albeit at a marginal rate of 0.3 per cent, to reach 119,100 tonnes," the group said.
Kenya's domestic consumption of tea is anticipated to grow by 1.8 per annum, given the fact that just some 53 million kilogrammes of the commodity is consumed locally against an annual production of about 352 million kilogrammes. This translates into a per capita consumption of just 0.4kg in Kenya compared to major importing countries, such as the Russian Federation with a consumption per capita of 1.26 kg, the United Kingdom's 2.2 kg.
Another key producer of black tea, India, also fares badly in terms of per capita consumption and realises 0.65 kg.
Apart from the poor domestic consumption records, Kenya also has direct threats in its traditional main Pakistani market where several rival producers of tea, with which the Asian nation has signed bilateral free trade pacts, are eating into her export share.
Analysts said the Tea Board of Kenya (TBK) and other players in the industry must now come up with urgent measures to boost consumption of the beverage locally.
"Strategies must be devised to continue the improvement in demand. Opportunities for an expansion in consumption and improvement in prices exist in producing countries themselves as per capita consumption levels are relatively low," the IGT said.
Several efforts are already on going locally such as the introduction of flavoured and herbal teas by several companies such as Melvins Marsh, Sasini Limited and the Kenya Tea Development Agency ( KTDA).
The Kenya Tea Packers Limited (KETEPA) has also introduced special ice tea into the market to try and win the youthful consumers who form the bulk of the population.
But on the bright front for tea producers, IGT said a review of the world tea market indicated an improvement in the fundamental oversupply which has persisted in recent years.
"Prices were firmer in 2006 and continued their upward trend in 2007. In 2008, prices are expected to reach even higher, and possibly record levels, underpinned by the 10 per cent shortfall in availability forecast by the Tea Board Kenya," the group said.
It further argued: "The simulation also indicates that, given current demand elasticities of the major players in the tea market, it will take three years for the market to adjust to this price shock. Obviously if the decrease in availability is more than 10 per cent then a greater price hike will be evident."
The drop in production in Kenya is linked to the violence that hit the country early in the year.
The group added that in the medium term although supply will continue to outstrip demand, the gap will be narrower than it has been to equilibrium. IGT said if consumption improved in traditional import markets and declines are arrested, equilibrium may be achieved.
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