Table of Contents

I. INTRODUCTION

II. PRODUCTION

III. EXPORTS

IV. IMPORTS

V. PRICES

VI. PROSPECTS FOR 2001

I. INTRODUCTION

1. As part of its efforts to improve market transparency and contribute to a better understanding of the factors influencing the global tea market, the Group regularly monitors market conditions. This document focuses on recent developments in 2000. Delegates are invited to review the market situation during 1999/2000, evaluate the short term outlook for 2000/01, and provide information on the latest developments in production and trade relative to their countries to supplement the information in this document.

II. PRODUCTION

2. World tea production in 2000 reached 2.95 million tonnes, a growth of nearly 2 percent from the 1999 level. Most major tea producing countries, except Kenya and Indonesia, had larger harvests. Output in India, the world's largest tea producing country, increased by 2 percent to an estimated 823 000 tonnes, while in Sri Lanka, the world's largest tea exporting country, output increased by 8 percent to a record of 307 800 tonnes. On the contrary, drought and frosts early in the year reduced output in Kenya, by a further 5 percent in 2000, following the 15 percent fall in 1999, while adverse weather also reduced output in Indonesia by 4 percent.

III. EXPORTS

3. World tea exports reached 1.3 million tonnes in 2000, up almost 2 percent compared to 1999. Most major exporting countries in the Far East, except India, had larger shipments, but those in Africa generally exported less. Exports from Sri Lanka increased by 7 percent in 2000 to 281 400 tonnes, reflecting strong demand from the Russian Federation. Shipments from Indonesia were larger by 8 percent to reach 105 600 tonnes, as increased consignments destined to Iraq under the United Nations Oil for Food programme. Exports from China, the bulk of which was green tea (black tea exports continued to decline in 2000), increased by nearly 14 percent to 230 700 tonnes. Domestic demand in India grew more rapidly than production, resulting in a 4 percent decline in export availability. In Kenya, export availability was also reduced while weak demand in this country's traditional markets of the United Kingdom and Egypt resulted in an overall 10 percent decline.

IV. IMPORTS

4. World net tea imports increased by more than 1 percent in 2000, reaching 1.2 million tonnes. This trend reflected the 5 percent gain in developing countries, as most countries in this grouping registered increased tea imports. Most of the growth appears to be directly influenced by improved economic conditions in these countries as evidenced by the GDP figures for the period. Imports by all the major developed tea importing countries, except Japan, declined significantly in 2000. Imports into the United States, the fourth largest importing country, fell by 11 percent, while the EC recorded an overall decline of 2 percent. In the EC, the 7 percent increase in the Netherlands and 13 percent rise in France were insufficient to offset the smaller shipments to the United Kingdom and Germany, which recorded falls of 3 and 25 percent, respectively. Although imports by the Russian Federation, the world's largest tea importing country, were slightly less than in 1999 at 158 300 tonnes, the volume of imports was still indicative of relatively strong demand. In 1999 imports surged to compensate the shortages in the previous year, as the economic downturn in the Russian Federation accompanied by the devaluation of the Rouble constrained imports. Shipments in 2000 better reflected current consumption levels. The only notable increase among developed countries occurred in Japan, where tea import volumes increased by more than 18 percent.

V. PRICES

5. The FAO composite price for tea¹ strengthened in the latter part of 1999 as the Russian Federation and countries in the Near East entered the market. This trend continued into 2000. The composite price averaged US$1.83/kg during the first quarter of 2000, weakened to US$1.75/kg in the second quarter according to seasonal demand trends, then reached its highest level of US$1.85/kg in the third quarter as orders from the Russian Federation were placed, and exports of tea destined for Near Eastern markets increased with oil prices. By the final quarter of 2000 prices had begun to weaken. However, the composite price for the year averaged US$1.80/kg, 3 percent higher than the average 1999 price of US$1.75/kg, when weak demand kept prices lower. The weakening of prices in the final quarter of 2000 continued during the first four months of 2001. The composite price averaged US$ 1.70/kg, 7 percent lower than the same period last year.

VI. PROSPECTS FOR 2001

6. Preliminary returns from major producing countries in the first quarter of 2000 indicate that an increase in output of more than 2 percent could be expected for 2001. Production in Kenya is expected to recover by 14 percent. Output in India should increase by 4 percent, Indonesia by 6 percent and Sri Lanka by 1 percent.

7. This increase in production is likely to weaken tea prices in 2001. Import demand from countries of the Near East (the main market for exports from East Africa) where economies continue to strengthen with higher oil prices could moderate the price fall. It is also expected that auction prices in India and Sri Lanka could strengthen if demand for high quality teas picks up again in the Russian Federation as it did in the latter part of 1999. Other factors that may influence the world tea prices include the implementation of the bilateral free trade agreement between India and Sri Lanka, which was reached in March 2000. Under this agreement Sri Lanka would qualify for a 50 percent fixed tariff concession for tea exports to India on a preferential basis subject to an annual maximum quota. Import data indicate a more than doubling of exports to India since 1998. Another development has been the offer made by the Government of China to lift price controls on tea sales, as part of its bid to join the World Trade Organization. Little impact is expected in the short term if China grants this concession. However, in the longer term the impact could be significant.

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1 A weighted average of tea prices in the major auction markets of Kenya, India and Sri Lanka.