India is the second largest producer of tea in the world and contributes 26% to the global production.
Tea, coffee and cocoa prices are estimated to revive in 2020 after a protracted decline this year due to oversupply, according to the World Bank Commodity Markets Outlook for October 2019. The World Bank’s Beverage Price Index, which includes tea, coffee and cocoa is expected to increase 2% in 2020, following a projected 5% decline in 2019.
The report notes that trade tensions and weakness in global trade, manufacturing, and output growth are weighing on commodity demand. In line with subdued global growth prospects, most price forecasts have been revised down. Agricultural prices are expected to stabilise in 2020 following a projected fall in 2019, on reduced crop plantings.
Tea prices, which declined 1% in Q32019, are nearly 6% lower than a year ago, mostly in response to a plunge in prices at the Colombo and Mombasa auctions, which are down 11% each from a year ago. India is the second-largest producer of tea in the world and contributes 26% to the global production.
According to the commodity outlook, prices in both tea auctions reached multi-year lows. The weakness in tea prices reflects a surge in global tea production due to favourable weather in key producing countries, including India and some East African producers, and weakening demand by several countries in the Middle East. Tea prices (the average of three auction markets) are expected to gain 2% in 2020 following an estimated decline of 11 % in 2019, the bank reports.
In the global coffee market, Arabica and Robusta prices have followed diverse paths during the past several months. Arabica prices gained nearly 4% in the quarter (July-September) and stand more than 5% higher than a year ago.
The commodity outlook adds that three key fundamentals are responsible for the increase. “First, supply is expected to be 8% lower for the 12 months ending September 2019 compared to the same period of last year.
Second, excessive rains in Brazil, the world’s largest coffee producer, may hamper next season’s crop. Third, Brazil’s currency weakness against the US dollar, which increased coffee prices in domestic currency terms, has directly impacted Arabica price movements,”the report mentions. Brazil is the world’s dominant Arabica producer and exporter.
In contrast, Robusta prices, which declined marginally in Q32019 and are down 11% since Q32018, are mostly driven by increasing supply, up more than 4% this season.
Arabica and Robusta prices are expected to increase 2% and 3%, respectively, in 2020 (in response to reduced supplies), following projected declines of 4% and 13% in 2019.
Regarding cocoa, the report states that prices are projected to remain at current levels in 2019 and make a modest gain of 2% in 2020. Cocoa prices, which declined 2% in the third quarter, have been relatively stable during the past 16 months as last year’s large crop in Ivory Coast was partly offset by a smaller crop in Ghana.
These countries account for two-thirds of global cocoa supplies. The global crop is expected to grow by 2% this season.