Red sea attacks disrupts tea/coffee supply chain

Coffee and tea shipments are being rerouted to avoid the Red Sea following repeated drone and missile attacks. Shippers are heeding warnings to avoid the Bab el Mandeb strait at the southern entrance to the Red Sea where there have been 30-plus attacks on merchant vessels. Rerouting is inconvenient and costly but unlikely to seriously disrupt global supply chains.

Since December, a passage from the Gulf of Aden through the Suez Canal has become 1,200 treacherous nautical miles. Shipping companies rerouting to avoid the dangerous straits face higher labor and fuel expenses and costly war risk insurance premiums.

War risk premiums spike

The cost of insuring ships had increased significantly compared to October when shippers paid APs (additional premiums) based on 0.05% of the vessel’s hull value.

There are growing fears the conflict between Israel and Gaza-based Hamas will spread to Yemen and possibly include Iran, making a Suez passage too dangerous to consider.

Source: STiR Coffee & Tea (Extracts), Courtesy: Tea Exporters’ Association Sri Lanka

alUnicodeMS;mso-bidi-font-family:ArialUnicodeMS;color:#1F4E79'>The United States market leads the organic tea market in terms of market share in North America.

ØUnited Kingdom’s organic tea market is another significant market in the European region.

Source: Future Market Insights (Extracts), Courtesy: Tea Exporters’ Association Sri Lanka

Organic Tea Market Forecast: US$2.69 Billion by 2033

The organic tea market is expected to grow at 8.0% CAGR in next ten-year period. The market was expected to generate US$ 1.24 billion in revenue in 2023, with a value of US$ 2.69 billion by 2033.

With a rising awareness of the potential health benefits and environmental advantages of organic tea, the market is expanding to meet the growing demand for premium and ethically sourced tea products as follows:

ØRising demand for organic products, as well as an increase in the consumption of organic beverages such as matcha, herbal tea, and organic tea.

ØHigher consumption of organic back tea in India and organic and herbal tea in China. 

ØThe growing popularity of herbal, green, and organic tea for weight loss, and anti-cancer properties.

ØThe United States market leads the organic tea market in terms of market share in North America.

ØUnited Kingdom’s organic tea market is another significant market in the European region.

Source: Future Market Insights (Extracts), Courtesy: Tea Exporters’ Association Sri Lanka

China tea exports fell in 2023

The value of Chinese tea exports fell by 16.3% to $1.74 billion year over year (y/y) in 2023 compared to $2.1 billion in sales recorded in 2022, according to China Customs. The decline is the second consecutive annual drop in exports by value. Export volume also declined by 2% to 367.5 million kilos.

Green tea experienced the biggest drop in value, declining from $1.4 billion in 2022 to $1.2 billion in 2023.

Sri Lanka, the number two producer by value, saw export value increase to $1.31 billion on a lower volume of tea than in 2022. Tea production, overall, increased by 1.7% to 256 million kilos. Sri Lanka maintained an average export price of $5.41 per kilo, up from $5.03 in 2022. Export volume declined by 8.2 million kilos to 242 million kilos in 2023. 

Kenya tea exports from January through November were valued at $1.05 billion and are likely to surpass the 2022 total of $1.4 billion. The 11-month volume was 511 million kilos. The harvest is 50 million kilos ahead of 2022 for the same period.

India and China accounted for 64% of global demand in 2023. A substantial glut of tea remains in Africa, where Kenya and surrounding East African tea-producing countries continue to expand production despite an oversupply of as much as 175,000 metric tons.

European tea suppliers no longer ship to Russia. Prompt payments for tea purchased from India and Sri Lanka are hampered by Western sanctions imposed on Russia and Iran following the February 2022 invasion of Ukraine. The conflict between Israel and Hamas in Gaza further destabilized tea markets in Jordan, Syria, Egypt, Turkey, and Iraq.

Source: STiR Coffee & Tea (Extracts), Courtesy: Tea Exporters’ Association Sri Lanka

India worried of sluggish domestic consumption

The Indian tea industry faced the double whammy of sluggish domestic consumption and low export demand in 2023, which dampened the overall price realization. And what’s more, subdued prices and increase in costs led to significant pressure on profit margins for tea manufacturers.

India’s tea production is likely to remain the same as that of last year with minor variations, according to industry experts. In 2022, the country’s total tea output stood at 1,366 million kgs.

The industry is, however, deeply concerned about poor domestic consumption growth. Although tea consumption has been growing with the population growth, the per capita consumption is still around 800 gm a year, remaining below 1 kg per person which is what the per capita consumption in most tea consuming countries.

Source: Hindu Business Online (Extracts), Courtesy: Tea Exporters’ Association Sri Lanka

Opportunities & Challenges in beverage sector in 2024

Opportunities and challenges that are likely to influence the food and beverage sectors in 2024. Sustainable and ethical sourcing, brand transparency and accountability, private label brand growth, the continued rise of regenerative, and investment in living incomes and wages to be major drivers of shoppers’ and businesses decisions over the next year.

Predicted trends in 2024:

1. Commitment to sustainability with integrity will outperform competitors.

2. ‘Regenerative’ will be the leading buzzword.

3. Transparency and data integrity.

4. Prioritize living incomes and living wages.

5. Private label brands will continue growth

Businesses, governments and other industry leaders must step up when it comes to creating a viable future for farmers and workers around the world.

Source: Fairtrade America (Extracts), Courtesy: Tea Exporters’ Association Sri Lanka

India to Regenerate Agriculture

Regenerative Agriculture describes farming and grazing practices that, among other benefits, reverse climate change by rebuilding soil organic matter and restoring degraded soil biodiversity – resulting in both carbon drawdown and improving the water cycle.

Regenerative agriculture guidance will enable tea growers to generate income through the sale of carbon credits. This innovative approach aligns with the global movement towards sustainable agriculture and provides a unique economic incentive for tea farmers to contribute to environmental conservation.

Source: India News (Extracts), Courtesy: Tea Exporters’ Association Sri Lanka

TBK to provide incentives for value addition

In a scheme to establish unlocking the potential of Kenya tea, the government’s decision to suspend VAT (value-added tax) on tea processed incountry along with several National Treasury-approved incentives is budgeted to expand value-addition in the new year.

Tea factories are to leverage on the incentives to upscale their manufacture of

orthodox teas and value addition at factory level instead of continuing to do bulk tea sales. Orthodox teas, which is currently not saturated compared to the CTC market would enhance earnings for the smallholder tea farmers.

Source: The Star (Extracts), Courtesy: Tea Exporters’ Association Sri Lanka

CTTA Circular No 02 of 2024 dated 02nd January 2024 on VAT

COLOMBO INTERNATIONAL TEA CONVENTION 2024

Hard iced tea surges

Ready-to-drink tea that is spiked with 5-8% alcohol by volume is now the top-selling segment in the US Flavored Malt Beverage (FMB) category, displacing popular hard ciders and lemonade.

The global market for hard tea, estimated at $2 billion last year, will grow to almost $20 billion by 2032.

There are now 150 hard tea brands in the market, an increase of 80% since 2020. The number of stock keeping units — one is assigned for each hard tea flavor and package — has increased from 161 in 2020 to 216 in 2023.

Source: STiR Coffee & Tea (Extracts), Courtesy: Tea Exporters’ Association Sri Lanka