THE ECONOMIC WEEKLY

Price of Tea K M u r t i

February 19, 1955

T H E dizzy heights reached i n the M i n c i n g Lane auctions i n

recent months has drawn the atten­t i on of even the Br i t i sh Parl iament to the h i g h prices of tea. T h e Min is te r for Food was asked if efforts were be ing made to purchase the crops early this year on a long-term bulk buy ing contract to forestall the excessive prices now being charged by the growers. T h o u g h his reply was in the negative, and the M i n i s ­ter reiterated the Government ' s policy of relying upon the efforts of private importers to meet the coun­try's demand, the abnormally h i g h price of tea cannot be a matter of indifference to the governments of both tea producing and tea consum­ing countries.

Indeed, the change that has come over the wor ld tea si tuation is as spectacular as it is sudden- It was only in 1952, that the I n d i a n tea industry was in the gr ip of a vicious s lump: ' in 1953, the pendu lum had swung almost to the other extreme. It should be said to the credit of the Raja Ramrao C o m m i t t e e that i ts assessment of the situation was cor­rect. T h e s lump in prices was a passing phase and when the heavy stocks in the U n i t e d K i n g d o m were depleted, prices d i d go up- N o t ­wi ths tanding the voluntary restric­t ion of product ion adopted by the industry in Ind ia in 1953, growers could not imp lemen t their pol icy owing to adverse weather condi t ions in that year. I n d i a n produc t ion in 1953 was less than that in the pre­vious year. The re was, however, a marked improvement in the qual i ty of I n d i a n tea. T h e wor ld supply, w h i c h upto 1951 had lagged beh ind demand, had in 1952 outstr ipped demand to the extent of 64-100 m i l l i o n lbs. However, d u r i n g 1953 the wor ld ' s tea supply was estimated to be 14 per cent short of demand and was met ou t of carry-over. D u r ­

ing 1954, demand for tea cont inued to go up,

INDONESIA OUT FROM WORLD MARKET

Indonesia used to be an impor­tant marginal supplier of tea to the wor ld market in the pre-war period when her annual product ion was be tween 160 and 184 m i l l i o n lbs. D u r i n g 1942-45, Indonesian tea dis­appeared f rom the w o r l d market . Tea plantations s u f f e r e d enor­mous war damages, estimated at 25 per cent in Java and 35 per cent in Sumatra, w i t h the result that out-put dwind led f rom 194 m i l l i o n lbs in 1941 to 10 m i l l i o n lbs in 1944 W h e n tea cul t iva t ion was resumed in Java in 1947 and in Sumatra a year later, it was expected that I n d o ­nesian tea wou ld soon reappear on the wor ld market. However, facts belied such anticipations. As late as 1953, Indonesia produced only 81 m i l l i o n lbs of tea, w h i c h is only one-half of the pre-war ou tpu t . There was on ly a small rise in 1954 over 1953.

The combined ou tpu t of I nd i a , Pakistan and Ceylon in 1953 exceed­ed the pre-war p roduc t ion of these countries by over 40 per cent. T h e Indonesian produc t ion declined dur­ing the same period by about 56 per cent. T h e increase in produc­t i on in other tea producing coun­tries of the wor ld dur ing the above period was no t appreciable. No doubt , Ind ia and Ceylon have taken advantage of Indonesia's disappear­ance f rom the w o r l d o f tea. W i t h the increase in w o r l d popula t ion and a general rise in l i v i n g standards, the consumpt ion of tea has been going up. This w o u l d mean, even w i t h the present increased produc t ion , the current supply of Ind ian and Ceylonese teas to the wor ld market w o u l d fall beh ind wor ld de m a n d .

LONDON STOCKS THE KEY

T h e - t r e n d in w o r l d demand and supply is reflected in the stocks of tea held in L o n d o n , since the U n i t ­ed K i n g d o m is not only the world 's best customer, it is also the world 's clearing house for tea. Stocks in L o n d o n dur ing the last few months were at a dangerously low level. Last year's floods in N o r t h Ind ia and the L o n d o n dock strike further depleted stocks in L o n d o n .

As compared w i t h current sup­plies, consumption has been increas­i n g not only in the U n i t e d K i n g ­d o m and Western Europe bu t also in the producing countries. F r o m 441.6 m i l l i o n lbs in 1933, consump­t i o n of tea in the U n i t e d K i n g d o m declined to 347.8 m i l l i o n lbs in 1946. D u r i n g the post-war per iod; however, there has been a rise in consumpt ion wh ich rose in 1953 to 464 m i l l i o n lbs. A survey carried out by the Tea Bureau among B r i ­t ish housewives suggests tha t the average weekly consumpt ion per head in 1954 has risen to 3.3 ozs f rom 3.1 ozs at the t ime of the 1953 survey.

T h e cumulat ive effects of lower o u t p u t in Ind ia owing to f ine r p luck­ing , low stocks and rising wor ld consumpt ion sent tea prices sky­rocketing towards the end of 1954. T h e rise was not confined to I n d i a n teas, of course; all the pr inc ipa l tea p r o d u c i n g countries experienced boom conditions in 1954. T h e com­parative prices of tea at the L o n d o n

T H E E C O N O M I C W E E K L Y February 19, 1955

auctions given in Tab le I I are illus­trat ive.

I t w i l l be seen f rom Table I I tha t wh i l e the prices of Ind i an teas i n ­creased sixfold, prices of Ceylon and Indonesian teas rose only fivefold at t he November 1954 auctions, as compared w i t h the 1938 prices. Be­sides the increase in demand, m o u n t ­i n g produc t ion costs in a l l tea-grow­ing areas were the pr incipal factors c o n t r i b u t i n g to the general rising t rend in prices.

T h e prices at the Calcut ta auctions show a similar tendency. W h i l e the average price of tea w i t h export rights at Calcutta was r u l i n g at Re o-II-5 per lb in 1939, i t rose steadily, to Rs 2-1-0 per lb in 1950. A l t h o u g h prices began to decline afterwards, they have recovered since 1953. T h e rising price trend in the L o n d o n auctions together w i t h the dislocation of the transport system in the plantat ion areas in N o r t h Ind ia , gave a fillip to Ind ian tea prices which started a t ta ining new levels in 1954 .

REGULATION OF EXPORTS

U n d e r the In terna t ional Tea Re

gula t ion Scheme, the four leading producers, viz, India , Pakistan, Cey­l o n and Indonesia, have agreed to l i m i t their exports as also the expan­sion of their acreage under tea. The Agreement has provided for what are called " standard export figures" for the four countries as fo l lows: India 348.2 m i l l i o n lbs, Pakistan 35.0 m i l ­l i o n lbs, Cey lon 251.6 m i l l i o n lbs, and Indonesia 173.6 m i l l i o n lbs. For the season, 1954-55, the countries have agreed to l i m i t their exports to 135 per cent of the standard export f igure w h i c h in the case of Ind ia would amount to nearly 470 m i l l i o n lbs.

Apar t f rom the over-all cei l ing factor fixed on exports, there is an­other factor w h i c h tends to have a restrictive effect on exports f rom India , viz, the Government 's anxiety to keep the domestic market suppli­ed w i t h its f u l l requirements of tea, so that sufficient tea m i g h t be avail­able to the Ind ian consumer at a fair price. 'The annual consumption of tea in Ind ia is l ike ly to be be­tween 170 and 200 m i l l i o n lbs, and if the f u l l quota of 470 m i l l i o n lbs of tea was to be allowed for export

w i thou t , at the same t ime , overlook ing the domestic market, Ind ian product ion should be of the order of 640-670 m i l l i o n lbs. A l t h o u g h in 1954 the Indian crop is bigger than that of the previous year, it is qui te unlikely that it has s t i l l a l ong way to go before it reaches the level of 670 m i l l i o n lbs. Increasing foreign demand together w i t h the fear that exports migh t be restricted- in case of a fa l l in the to ta l ou t tu rn in India recently sent tea prices, as wel l as the prices of export quota rights, sky­rocketing. Table I I I gives the t rend in the prices of N o r t h Indian and South Indian teas since 193 3-

EXPORT QUOTA RIGHTS

T h e question of tea prices is also related to the recent wave of specu­la t ion for acquir ing export quota rights. Under the Ind ian Tea C o n ­trol Act , even* producer of tea re-ceives an a l lotment of export quota, calculated on the best crop year basis of the estate, and these rights are transferable. It appears that whi le a large number of producers have utilised their export quotas and their export shipments are held up