Surge in world tea prices not to affect UAE

A sharp increase in the prices of tea in the global market due to production problems in Sri Lanka, Kenya and India will not cause immediate changes in the UAE tea market, according to traders.

Local dealers said they are sitting on unsold stock, which is a result of a drop in demand. Also, the high price that tea touched in the previous year is yet to come down, they said.

Crop failures in Kenya, India and Sri Lanka due to drought in tea growing areas have caused an increase in global tea prices by 35 per cent in the past 12 months.

Local traders said tea companies could use this as a justification to further increase prices. Recently, many new premium brands and companies have entered the market because the segment enjoys a whopping profit margin of 300 to 400 per cent.

Commodity traders said there has been a steep fall in demand as a large number of construction workers have reportedly left the country. Traders expect demand to pick up during the forthcoming month of Ramadan.

Speaking to Emirates Business, Jalal Balala, Executive Director, Al Azizah Foodstuff Co for Tea and Coffee, a leading Kenyan tea trader in the UAE, said: "Kenya is the largest tea exporter in the world, while India and Sri Lanka are the largest producers. Bad weather conditions and drought in tea production areas caused the total output to come down in all three countries, while the demand continued to increase. Tea is the number one beverage in the world after water and whenever there is a production problem, prices are bound to go up."

Balala said the local market may not see an immediate price increase as traders are sitting on surplus stock and competition is intense. The wholesale price of the best Kenyan black tea (BP1) rose last week to $3.69 (Dh13.55) a kilogram at the weekly auctions in Mombasa, Kenya – above the previous record of $3.63/kg last year. Wholesale prices of the highest quality black tea have more than doubled from a decade's low of $1.75/kg in December 2001. Prices averaged $3.07 last year.

Balala said the price of a tonne of the best quality Kenyan tea in Dubai is between $2,200 to $3,000 per tonne. The average price of high-quality Kenyan tea is $2,500 per tonne.

RP Sudhir, Consultant, Pearl & Waters Dubai, who works with many tea companies in the emirate, said: "International tea prices are going up, but there is no major impact on the UAE's domestic market. There is no shortage here. Some traders have surplus stocks now. Many new brands that entered the UAE market, such as Good Morning Tea, Golden Tea, Neltea, High Tea, East Tea, Lovely Tea, Tasty Tea and Golden Leaf, are doing well and many of them have good volumes."

These companies are offering a variety of teas, including premium products, at considerably less prices and offer many gifts and incentives to lure buyers, he said.

The price increase in the international market could cause a corresponding price increase in the UAE, but only in the future.

Balala said as the wholesalers and retailers are now competing among themselves, there is no immediate pressure on tea prices in the UAE market. "The price is not likely to go up immediately because the prices, which went up during the high inflation period before the current economic crisis along with other food prices, are yet to come down."

He said demand for tea has been affected in the region by the economic slowdown and the reported shrinkage in the population of expatriate workers.

"I believe about 60,000 Asian expatriates, mainly construction workers, have left during this crisis period. All these workers drank tea three to four times a day and that market is not there anymore," he added.

Reports from the Food and Agriculture Organisation said simultaneous drought in key tea production centres has led to low yields in India, Kenya and Sri Lanka. The fall in output in the three countries, which account for more than half of the world's exports, will exacerbate last year's market deficit.

Keep up with the latest business news from the region with the daily Emirates Business 24|7 newsletter. To subscribe to the newsletter, please click here.