Price of Tea

“The United Nations Food and Agriculture Organization (FAO) says that demand for tea is exceeding supply, driving up the cost of tea.

Tea consumption reached 3.85m tonnes last year (2008), up 4.8% from 2007. But production was only 3.78m tonnes, according to the FAO’s preliminary estimates.” (BBC tea prices)

Forecast for Tea Prices.

Tea prices are forecast to reach over $4. Naveed Ariff, general manager of Global Tea & Commodities in Mombasa forecast prices could rise to $4.5. This is over double the price of tea during 2005. (tea prices at FT)

Why Are Tea Prices Rising?

  • Demand has remained strong, despite economic downturn. Even if incomes fall, consumers see tea as an essential item. We can say demand for tea is income inelastic. Tea may even be an inferior good (as incomes fall people may buy more tea, rather than more expensive drinks)
  • Growing demand from China, which is developing a taste for drinking more tea.
  • Draughts in the major areas of production such as India, Sri Lanka and Kenya. These draughts are leading to lower supply. The nature of growing tea is that producers can’t easily increase supply in the short term.
  • Demand is price inelastic. A rise in the price of tea doesn’t deter consumers from buying it. – There are few alternatives to tea, and it is a small % of income anyway. Therefore, the higher prices aren’t reducing demand.

By on September 2nd, 2009

3 thoughts on “Price of Tea

  1. Well I agree that tea has an inelastic demand because it is a daily required consumable. Hence demand doesn’t depend on price. And hence tea prices rise.

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