Tea Totallers

May 21, 2013 Dan Lewis Uncategorized 0

The Organization of Petroleum Exporting Countries, better known as OPEC, has twelve current members, each of which agrees to collectively limit the amount of oil produced per day. The cartel began in 1960 and its control of a large part of the oil supply has caused a number of financial/energy crises, most notably one in 1973 in the United States. In general, though, the point of OPEC and other such cartels is not to cause panics, but to maximize income to the member companies or countries. Many nations have anti-trust regulations to prevent the formation of such cartels domestically (such as the Sherman Antitrust Act in the United States), but internationally, OPEC and others exist.Like the one which controls a vast amount of the world’s tea.

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.

Bonus fact: The United Kingdom is widely regarded as a major consumer of tea, and while it is — 1.9 kg per person, per year — it’s not in the top ten. Paraguay tops the list, at 11 kg of tea per person, annually, followed by Uruguay (9.3 kg) and Argentina (6.7 kg). The UK is 13th on the list, surrounded by the archipelago nation of Seychelles at #12 and Azerbaijan at #14. The reason may be a semantic technicality: the three listed countries count their consumption of yerba mate as “tea.”

From the Archives: Not a Bright Idea: A cartel to control light.

Related: Tea, in bulk, in case you want to stock up.

Image via the Tea Research Association