Tea Industry Research Paper

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Modern tea comes from Camellia sinensis, a tree native to China and India. In today’s commercial tea trade there are three main varieties of Camellia sinensis: China, Assam (northeastern India), and Cambodia, each named for the area in which it was first grown commercially. The China variety is a hardy, 3-meter-high bush with a useful lifespan of one hundred years. The Assam and Cambodia varieties are tall single-stem trees with a commercial life of forty years. Typically, tea trees are kept short through frequent trimming for easy plucking (i.e., the picking of tea leaves).

Although tea can be grown in a variety of agroclimatic conditions, the best teas are grown at altitudes between 1,000 and 2,000 meters.

Green leaf, the farm product, is sent for processing at tea factories and becomes made tea—sometimes called black tea or dry tea—the internationally traded commodity. Tea companies then blend tea from various origins to make what is often called packed tea, the beverage that consumers drink. The ratio of green leaf to made tea is about five to one, that is 5 kilograms of green leaf are required to make 1 kilogram of made tea. Three processing methods are used to convert green leaf to three types of made tea: black, green, and oolong (Forrest 1985).

To make black tea, tea leaves are spread on racks to dry and then put through a machine that breaks up the leaf cells, frees the oils, and ejects a twisted lump of leaves. These are sent to a fermenting room, where they are spread thinly and left to absorb oxygen. The leaves are then exposed to a continuous blast of hot dry air for fifteen to thirty minutes, which turns them black. Black tea accounts for three-quarters of global tea output and is supplied mostly by East African and South Asian countries.

Green tea has a less processed flavor than black tea. The leaves are steamed and heated immediately after plucking. Because the leaves are dried without going through fermentation, they remain green. After being separated by grade, the leaves are packed in chests lined with aluminum foil. Green tea, which accounts for a quarter of global tea output, is supplied primarily by China and to a lesser degree by Japan, Vietnam, and Indonesia.

Oolong tea is traditionally prepared in South China and Taiwan from a special form of the China tea plant— the chesima. It has large leaves and a distinct flavor. Preparation is similar to black tea but with a much shorter fermentation process. Oolong teas, which account for only a small fraction of the global market, are often scented with flowers.

While people often refer to almost anything steeped in hot water as “tea,” only Camellia sinensis is properly given this designation. Teas made with herbs and berries are more properly called tisanes or infusions. Leaves from several other plants are consumed like tea. For example, Paraguay tea, often called yerba mate, is made from the leaves of a species of holly found primarily in Argentina, Brazil, and Paraguay. The Indians of North Carolina used to prepare a tea called yaupon from the leaves of another holly-like tree. Trinidad tea is made from the leaves of the pimento or allspice tree.

Production and Trade

Tea is produced in both tropical and temperate zones. Because it grows at high altitudes, it typically does not compete with food or other cash crops. Asia accounts for about three-quarters of global production, Africa for half the remainder, and several Middle Eastern and Latin American countries for the rest. During 2002-2005 China and India produced more than half of the world’s tea (26 and 27 percent, respectively), followed by Sri Lanka (10 percent) and Kenya (9 percent). Global tea production during this period was 3.25 million tons.

Tea is produced by both smallholders and estates. Tea estates are owned by large companies producing large quantities of tea, normally exceeding 1,000 tons of made tea (sometimes as much as 10,000 tons). Tea estates employ both permanent and seasonal laborers. Often, the permanent laborers reside in living quarters within the estate and receive other benefits, such as basic health care and schooling for their children. The conditions for employment on tea estates are considered very good, and permanent workers are often considered to be “privileged” compared to their seasonal counterparts. Although wages are low compared to Western standards (about $2 per day), they are considered high enough for, say, Africa, where two working adults at this wage rate are able to lift a family of four to five above the poverty level. Conditions of employment are also considered good because estates, often owned by multinational companies, must adhere to international standards and scrutiny concerning wages, hours, and conditions of employment. In addition to the International Labor Organization which sets labor standards, numerous international and local non-governmental organizations and advocacy groups (such as the International Labor Rights Fund) monitor employment conditions.

Global tea production from 2000 to 2004 exceeded three million tons, valued between $4 and $5 billion annually. Growth in tea production, as high as 4 percent in the 1970s and 3 percent in the 1980s, slowed to 1.6 percent in the 1990s. Almost half of global tea production is traded internationally. Sri Lanka (22 percent), China (18 percent), Kenya (16 percent), and India (16 percent) account for almost three-quarters of world exports. The United Kingdom used to be the largest tea importer (during the 1960s it accounted for almost 40 percent of world imports, but by the early 2000s it accounted for only about 10 percent). The dominant tea importer is Russia, which accounted for 12 percent of world imports in 2005.

Tea Prices

Unlike most primary commodities whose prices are determined in futures exchanges, tea prices are established at auctions (located in tea-producing countries), which trade about one-third of global tea output. India has six auctions, but the two largest are in Colombo, Sri Lanka; and Mombasa, Kenya. Other producer-country auctions are held in Chittagong, Bangladesh; Jakarta, Indonesia; and Limbe, Malawi. The Colombo and Mombasa auctions trade tea mostly for export, and their prices (especially Mombasa’s) are considered the world price indicators.

Auctions in consumer countries, which operated during the 1970s and 1980s, have been less successful, with the exception of the London auction, once the world’s most influential. Until the early 1970s, London held the world’s dominant tea auction. London’s last auction took place on June 29, 1998, bringing to a close a 319-year-old tradition. Tea auctions had been held in London since the East India Company’s first auction in 1679. Aside from brief interruptions during the war years, auctions had been held at least once a week since 1864.

Kenya’s tea auction system began in November 1956 in Nairobi under the auspices of the East African Tea Trade Association. It initially traded small quantities of secondary-grade teas, but following increased interest from producers and buyers the auction moved to Mombasa in 1969 and started trading main grades of tea. A turning point for the Mombasa auction came on October 26, 1992, when, following relaxation of foreign-exchange controls, transactions began taking place in U.S. dollars. With other major tea auctions trading in local currency (including the one in London), this change probably accounts for Mombasa’s position as the world’s dominant tea auction.

The global tea market is not subject to the types of trade impediments faced by other commodity markets (e.g., cotton). Furthermore, unlike the markets for commodities such as cocoa, coffee, and rubber, there has been no United Nations-backed international price stabilization scheme in the tea market in the post-World War II (1939-1945) period. There have been two voluntary supply-restriction schemes (Wickizer 1951). The first, running from 1920 to 1921, grew out of the sharp price decline of 1920 and was led by India and Sri Lanka (then Ceylon). A second restriction went into effect in 1930, led by the same countries and for the same reason. A five-year International Tea Agreement was launched in April 1933 to support tea prices through export quotas, backed by India, Indonesia, and Sri Lanka. The agreement occurred in response to the collapse of tea prices during the Great Depression—they declined by 70 percent between 1927 and 1932 (Sarkar 1972).

The Outlook

Because most tea is consumed in low- and middle-income countries, the long-term outlook for tea depends mostly on income growth in these countries. The UN Food and Agriculture Organization (FAO 2001), for example, estimated that the growth in global tea demand for the 2000-2010 decade is unlikely to exceed 1 percent, which is close to the rate of demand growth during the 1990s. Most demand growth is expected to come from increased imports by countries of the former Soviet Union. On the supply side, the FAO expects China, Kenya, and Vietnam to increase their exports. Because tea competes with coffee, as well as soft drinks such as Coca-Cola, tea consumption depends on the growth of these industries. Some growth is also expected to take place in niche markets, such as organic tea and iced tea, both of which are mostly consumed in high-income countries. Another dimension of tea is its perceived health benefits, implying that as consumers become more health conscious, they are more likely to drink more tea. This may be especially the case for green tea, which undergoes less processing at tea factories, and is hence considered a more “natural” drink.


  1. Food and Agriculture Organization: Committee on Commodity Problems. 2001. Medium-Term Outlook for Tea. Fourteenth Session of the Intergovernmental Group on Tea, New Delhi, India, October 10–11.
  2. Forrest, Denys. 1985. The World Tea Trade: A Survey of the Production, Distribution, and Consumption of Tea. Cambridge, U.K.: Woodhead-Faulkner.
  3. Sarkar, Goutam K. 1972. The World Tea Economy. Delhi: Oxford University Press.
  4. Wickizer, Vernon D. 1951. Tea under International Regulation 2nd ed. Stanford, CA: Food Research Institute.

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