Supply issues with tea and sugar have prompted price hikes that are likely to make their way down to consumers, reports Mintec's Liliana Gonzalez


Pity the sweet-toothed British construction worker and all fans of builders' tea as hikes in the commodity prices of tea and sugar are expected to hit once again.

The UK drinks more tea than any other nation approximately 2.3kg per capita a year and while it may take a lot to pour cold water on our passion for a brew, the commodity price hikes look likely be felt by retailers and shoppers alike.

International tea markets have been hit by a succession of events adversely affecting supply from the world's leading exporters. Drought has reduced output from Kenya's tea-growing regions and in July pushed India's production down by 16 million kg.

Now strike action by unions may reduce the amount of Sri Lankan tea that is available for export by about 50%.

Sri Lanka was the number one exporter to the world tea market last year, and it is likely prices will continue to rise if a resolution to the strikes is not found quickly.

The market price of tea on the Mombasa Auction rose to $3.90 per kg by early September and has carried on to more than $4.10 per kg. Stock levels for most of the large tea traders are at very low levels and price rises are likely to be transferred through the supply chain quickly.

Meanwhile, sugar prices in the world market have surged by more than 50% in the past 12 months, as global supply appears to be lower than previously forecast.

Production across the globe is forecast to be down about 9% on previous expectations this year, primarily due to weather conditions and a fundamental change of land use in India.

Although countries such as Brazil and Australia have increased their sugar production, this has not been enough to make up for the shortfall.

The Indian authorities have blamed rains for ruining the yield in sugar-producing areas, but Indian farmers have found that growing rice offers greater financial security than growing sugar. There is a high minimum price for rice and many farmers can earn 50% more by growing it rather than sugar.

This has prompted the land used for sugar in some regions to fall by more than 40%. However, with world raw sugar prices now reaching the $0.25/lb mark, it is possible this trend will reverse.

There is also concern that the surge in prices has been driven by speculative activity as well as these fundamental supply and demand factors.

However, speculation-inflated prices are not likely to last for long as speculators will close their positions in order to make their profits.

So, next time you stir a few spoonfuls of sugar into your cup of tea, bear in mind that prices are rising and may stay up in the short term unless the speculators lose interest and switch to coffee instead, of course.

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