Question 2

The Market for Tea and Goffee

Extract4: Coffeeprice rise is just a hill of beans. Afterfouryearsof pricesso low that manygrowers abandoned the crop,coffeeperkedup strongly in the first quarterof this year. But the recovery is still fragile, warn experts.Excessive production caused the priceto fallto 41 centsa pound in September ZOOI, the lowest in realterms tor iOOyears, andlessthanhalf.the pricein January 2000. eui higrrer prices haveslowly filtered through, "nd'h"u" this year showedsigns of gathering pace. The lnternational Coffee Organization lfiOy which oversees tradebetween exporting and importing countries is now signalling a shortfall of coffee for export. The cause?lt seemsthere's an aMul lot lesscoffee in Brazii. After-producing a record 4g.b millionbags in 2002-2003, Brazil's outputhas fallendramatically in the current crop year to 2g.5 million bags- a dropof over 40%.The levelof Brazilian production will createa situation in which worldproduction willbe below worldconsumption for thefirsttimesincel gg7-199g. Prospects for the 200412005-crop year are modest:officialestimates put the figureat around3S.g million bags. Output in Vietnam, the wodd's second producer, largest is alsodecliiing as farmers lose enthusiasm for the crop.outputdeclined from14.77 miilion bagsin 2001to 11.25 miilion in 2003. The risein pricesis verysignificant eventhoughit doesnot signal the end of the crisiscaused by a period lengthy of lowprices. Around 25 million iarmingfamilies in some80 developing grow countries coffee, manyon small.plo_ts alongside food crops.F6r someof them,coffeeis irreiionly source of income and as a resultof prices low manyare heavily in debt.The upward trendin pricesis Jhe welcome butprices arestillbelow the costof production for many. Lackof knowledge about pricesalso meansthat traderswho buy the crop at the farm gate before trading it on can exploit growers. Coffeecan changehandsabout 150 timesbeforeit reaches the consumer. The fall in prices badlyaffected the exportearnings of coffeeproducing countries. In the 'a early 1990sthe exp^ort earnings of thesecountries were gio-12 billion year,and retailsalesof coffeewere about$30 billion.Now retailsalesexceed$70 billionbut coiTee-producing countries 'Market receive only$5.5billion. Theexecutive director of the ICOis optimistic. fundamentals seemto favour the upward trendin prices, whichwouldimplybetter incomes for producing countries., Source:Obseruer, 4 April2004 Extract5: Indiantea: overflowing cup of woes lndia's 13,000 tea gardens witha workforcg of 2 million people havemadeIndian tea the prideof the world'Yet most of the legendary namesin the tea industry are in trouble. The industry saysthat multinational beverage companies like Coca-Cola and Pepsi are drawing away Indian tea drinkers. 'lndianyouth wouldrathergraba bottleof Cokethan a cup of tea,' saiJ a tei planter adding that, 'suddenly tea drinking is not fashionable anymore.' In addition, exporters fromSri Lanka, Keny:a and othertea-producing countries areaggressively goingafterIndia's traditional export markets, as India,s tea exporters remain complacent. Indeed nothing seemsto be goingwellfor the Indian tea industry, theworld's largest, g64millionlitojrams. withannual production exceed-ing Withyearsof increasing costsand declining revenues, the Indian tea industry's growers are pushed to the limit. Worlddemand for tea is growing, but India;s exports are fallint in-tnJtace of competition fromnewcomers likelndonesia and vietnam, as wellas old rivals likesri ianka and Kenya. Allthese factors are leading profitlevelsand a largeaccumulation to sliding of stocksfor the industry. In fact salesof lndian tea in worldmarkets havebeendeciining at 1.5o/o a yearfor the pastfiveyears.In the domestic market too Indian tea is facing challenges frori cheap imports fromcountries suth as Nepal, Vietnam and Indonesia, encourageO Uy"the rem;valof quantitative restrictions on imports in 2e01.

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