The picture above was taken in January of 2013 in Sri Lanka. The people pictured hail from India, Indonesia, Kenya, Malawi, and Rwanda, as well as Sri Lanka itself. As you can figure out by the caption, each of these nations produces a lot of tea. A whole lot, in fact. Of the estimated 4.5 million metric tons of tea produced worldwide in 2010, more than half came from these nations. These nations are now part of a cartel of tea exporters known as the International Tea Producers Forum (as the caption states), with two other nations – China and Iran — joining the Forum informally as “observers.” The formal members of the Forum agreed to collectively discuss ways to work together in their own interests. But for now, there are no concrete details as to how they’ll accomplish that. In November, the group will meet to decide on possible price controls and/or production quotas.
This agreement-to-agree may not be much, yet, but historically, it’s significant. As Reuters reports, eighty years ago, a group of tea producing countries entered into another, similar cartel, and were able to raise the price of tea significantly in only about six months. Sri Lanka has been working toward re-instituting that cartel (or a similar one), proposing a cartel in 1994 (per the BBC), but the group failed to come to terms.
If you’re a tea drinker, don’t worry too much about the price of tea rising. While the cartel will likely try to manipulate markets, it’s an uphill battle. First off, tea isn’t like oil. As Reuters notes, tea can’t be stored for very long; any unsold tea, therefore, quickly becomes lost profit. And unlike other perishable commodities such as sugar, tea isn’t graded based on its quality — the quality of tea is too subjective to place an objective standard across all types. This makes price differentiation difficult. And finally, while China is an observer to the Federation, it is not a party to any of its agreements. And China may be imperative to any price fixing, as it produces as much as 30% of the world’s tea output all by itself.
From the Archives: Not a Bright Idea: A cartel to control light.
Image via the Tea Research Association