The classical economics (Part I)

According to classical economics, prices are the result of the interaction between the quantities of a good supplied by the producers and those demanded by customers.

However for tea, the process is a little different as it involves auctions.

But in spite of this, I decided to stick with the classical economics and to try to describe the market with a first focus on the production side.

 

For this and other similar posts, I will use the world data provided by the FAO, the Food and Agriculture Organization of the United Nations, which goes back to the year 1961.

Here are a few findings (probably quite obvious but who knows?).

 

The world production averaged in these 47 years to nearly 2.2 millions of tonnes per year with only 983,825 tons being produced in 1961 against nearly 3,896 millions in 2008.

As can be seen below, the growth rate is quite impressive and almost constant.


But there is more to it.

 

I looked at the 7 (why 7? only because this number is more or less 20% of the total number of countries and together they produce more than 80% of the world tea production, another illustration of the Pareto Principle) biggest tea producing countries in 2008 (China, India, Indonesia, Kenya, Sri Lanka and Turkey) and the growth of their average production is more important than the growth of the average world production (*4 vs. *3).

Over the same period of time, the number of tea producing countries increased by nearly 30% (and this is without counting the new Republics from the former USSR) but almost a third of the producers have a yearly averaged production below 1 000 t (I checked and this ratio was the same in 1961 and in 2008).

Along the years, the weight of the 7 biggest tea producing countries in 2008 is slightly increasing (from 77.3% to 84% of the world production with a low point at 73.2%) with an important increase from mid 1980s on (linked to an increase of the Chinese production).


What can we learn from this?

Tea production is clearly fragmented with a “high” number of countries involved but with only a few “big fishes” and with one becoming the n°1 producer country and yes, it is China, which sees its share of the world production from 9.9% to 32.7%.

For those interested, the Indian share decreased over the same period of time from 36% to 20.7% (China became n°1 in 2005).

 

The real questions start from now:

  • Why did the Indian production grow less than the Chinese one?

  • Why was there an increase in the number of producers?

  • Why was there an increase in production?

Xavier

My name is Xavier.

I live on the other side of the pond but you had probably found this out thanks to my “strange” English.

I am a tea addict and I studied several (and I do mean several) years ago marketing, hence this blog, which will try to combine both worlds.

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