Global Tea Trade in Indian Ocean

Global Tea Trade in Indian Ocean

Table of Contents

  1. I. Introduction
  2. II. Industry Background- Tea Trade in the Indian Ocean
  3. III. Present State of the Tea Trade in the Indian Ocean
  4. IV. Future of the Tea Trade
  5. References

I. Introduction

This paper explores the global tea trade in the Indian Ocean. It includes a sweep of the historical background of the tea trade, followed by a discussion of the present state of the tea industry and the trade in tea. The third part details future prospects for the tea trade and tea industry in the Indian Ocean, basing the discussion on the relevant literature. The trading ecosystem that thrives in the Indian Ocean does so because of the strategic location of the Indian Ocean, whose size makes it comprise about 20 percent of the total ocean surface of the earth, and whose location makes it ideal for all kinds of business activities, spanning Iran, Bangladesh, Pakistan and India to the north, Indonesia, Australia and the Malaysian Peninsula to the east, the Arabian Peninsula and Africa to the west, and Antarctica to the South. In the southwestern portion of the Indian Ocean the body of water shares its boundaries with the Atlantic Ocean. Here it meets the southern end of the African Continent. The Indian Ocean also joins the Pacific Ocean meanwhile on its southeastern portion (Encyclopaedia Britannica, 2013). Even in ancient days, the Indian Ocean had been a common centre of commerce, going back to the slave trade, when the trade of slavery combined with mass migrations of populations throughout the three continents of Africa, Europe, and Asia. In modern times, trade in the Indian Ocean has become concentrated on a few main commodities, such as crude, which is the most traded commodity in the area, as well as tea, rubber, steel, and iron, with seafood becoming a minor commodity among key states along the Ocean and in key European and Asian destinations. In the Indian Ocean, tourism has been a major part of commerce. The tea trade is the topic of this article. Hatcher, 2013; Asia Society 2013; UNESCO, 2013; The Economist, 2013; Boston University, 2013; Encyclopaedia Britannica, 2013b; Hatcher, 2013; Asia Society 2013; UNESCO, 2013).

II. Industry Background- Tea Trade in the Indian Ocean

According to the literature, the history of general exchange in the Indian Ocean goes back to the early migrations of cultures around the continents’ coasts, and involves not just the trading of commodities but also the trade of slaves. Slaves were an important part of the ancient Indian Ocean trade, which lasted until the European wave of colonization began in the 16th century. As mentioned in the Introduction, the exchange will come to depend on a few main commodities in more modern contexts, and tea is one of those key commodities. Meanwhile, the tea trade in the Indian Ocean, which is the subject of this section, has a long and illustrious history. Hatcher, 2013; Asia Society 2013; UNESCO, 2013; The Economist, 2013; Boston University, 2013; Encyclopaedia Britannica, 2013b; Hatcher, 2013; Asia Society 2013; UNESCO, 2013). When one talks of the modern tea trade one goes back to the roots of tea production and consumption in this part of the world, and here the references to the consumption of tea in Europe extend all the way back to the 16th century, with the consumption being attributed first to Portuguese traders and adventurers to the sea, with the tea being originated in the East, in China in particular, and finding their way via the  ancient Indian Ocean trade routes to select members of the trading classes in Europe. That said, the formal attribution to tea being used as a key item of trade was given to the Dutch, who by the waning years of the 16th century had all but usurped the Portuguese role in being the facilitators of trade and the primary proponents of the routes of trade from Europe to the Far East and vice versa. The establishment of a Dutch trading post in Java in 1606 paved the way for the initiation of the trade of tea between Holland and the Chinese. Thus is the historical root of the tea trade in the Indian Ocean traced (The United Kingdom Tea Council Ltd., 2013).  One of the primary proponents of the early tea trade between China and Japan, China in the main, and Europe is the company called The Dutch United East India Company, also called the VOC after the initials of its Dutch name Verenigde Oostindische Compagnie. This trade was brought about by the rapid increase in the number of Europeans who fell in love with tea as a beverage, and who constituted a growing market that the VOC saw as a profitable opportunity that can be served by a vitalized trade in tea between itself and China, acting as mediator. This resulted in the transmutation of tea in Europe from a beverage for the rich to one that had the following of the masses. On the other hand, much of the early trade went through route that would become more and more inefficient and unwieldy as the trading volumes and the demand and urgency of the demand grew, so that the VOC had to go direct to China after 1729 to be able to reap better deals and to make the logistics and economics of the transport of tea from China to Europe more efficient in general (Yong, 1974, pp. 1-6).

The termination of the exclusive monopoly of the East India Company when it came to trading with China in 1834 resulted in a major shift in the sourcing of tea from China to alternative agricultural centers elsewhere along the Indian Ocean environs, to India, and over time the viability of India as a source of tea signaled the usurpation of the role of the East India Company as the facilitator of the tea trade with India by the British government, which wrestled control over that trade from the company in 1858. The initial success of tea cultivation in the Indian region of Assam led to the further growth of the tea industry in India and the trade in tea between Europe and India, so that by 1888 that trade had surpassed European/British trade in tea with the Chinese.  Prior to this, the increased demand for tea in Europe from China led to the growth of third party ships outside of the administration of the East India Company, who operated so-called tea clipper ships, which competed and raced with each other for shares of the trade in tea. The escalation of that trade eventually led to more and more trading ships plying their trade between China and India, ending with the opening of the Suez Canal that hastened the use of steam ships to ship tea from China to Europe. The growth of the Indian tea trade with Europe also did much to reduce European reliance on Chinese tea via the Indian Ocean trade routes (Yong, 1974; The United Kingdom Tea Council Ltd., 2013).

The literature tells us that the flow of trade from the Chinese and from India in the early part of the 17th century was vital to understanding what the lever of trade was for the entire Indian Ocean. Those two economies together held the key to commercial success for enterprises plying the Indian Ocean routes. The commercial operations that leveraged the Indian economic enterprises were seen as crucial economic engines that enabled the Dutch and the British to seek economic opportunities that translated to profits and increased levels of trade between India and the economic powerhouses in Europe. The two representative trade companies, the VOC and the British East India Company, sought business endeavors that made use of Indian economic enterprises, such as textiles, and made those part of the goods of trade across the Indian Ocean. On the other hand, the tea trade with China, as already discussed above, paved the way for China powering a large part of the trade activities through the Indian Ocean, via the shipment of tea from the East to Britain and to other key economies in Europe as discussed above (Chaudhuri, 1985, pp. 88-92).

The recent history of the tea trade in the Indian Ocean is characterized by decades where the market forces favored low prices, owing to the existence of a condition where there is more supply than demand for tea, which had in those decades had the effect of lowering prices for the commodity. The past ten years is characterized by this dynamic, as reflected in this plot, where consumption and demand were in lockstep owing to countries racing with each other to get market share via expanded output of tea for export (Groosman, 2011, p. 8):

Global Tea Trade in Indian Ocean

Graph Source: Groosman, 2011, p. 8

The chart does not factor in the effects of inflation on prices, which when included points to a reality where the prices of tea in the world market, owing to market forces, have currently declined by close to 50% from previous decades’ peaks, so that tea prices during the past decade are actually lower than the prices for tea two decades before, after adjusting for the effects of inflation (Groosman, 2011).

III. Present State of the Tea Trade in the Indian Ocean

That the biggest auctions by volume still occur along the boundaries of the Indian Ocean, in Kenya at present, attest to the centrality of the Indian Ocean as far as the global tea trade in concerned (Hatcher, 2013). Beyond this anecdotal evidence, the literature presents us with a picture of the Indian Ocean itself remaining very central to trade for all kinds of commodities and products and remaining very vital to the economies of the major powers across the world. To put some context to these statements, the statistics state that half of all the traffic in trade containers around the world pass through the Indian Ocean at present. More than 70 percent of all the oil that is shipped around the world passes through the Indian Ocean as well. By 2050, global energy demand is projected to rise by 45 percent, with most of the growth fuelled by increased demand from China and India, which would depend on Indian Ocean trading routes to fulfill their oil and power needs in the future. In the narrow sense of the tea sector, on the other side, recent studies on the current condition of the global tea trade reveal that many of the top suppliers of tea consumed in the rest of the world, such as India, Kenya, Indonesia, and Sri Lanka, are situated inside the Indian Ocean’s borders (Mungai and Onyango-Obbo, 2013; IDH, 2013).

In terms of the geography of the global tea trade in the modern era, on the other hand, the graphic below demonstrates the overwhelming concentration of the global trade in tea in the Indian Ocean, with many of the top producers located within the Indian Ocean boundaries, and the consumers likewise located around the geographies near the Indian Ocean (IDH, 2013):

Global Tea Trade in Indian Ocean

Map Source: IDH, 2013

The centrality of the Indian Ocean in the present time in the global tea trade is further reinforced by data that show that just a small number of countries, many of them around the perimeter of the Indian Ocean, account for most of the tea produced in the world. Kenya, for instance, while just a small country along the Indian Ocean, accounts for more than a fifth of all tea exported around the world. In terms of total production, on the other hand, Kenya accounted for just 8 percent, behind China which had 35 percent of the production of tea on earth in 2009, and India which had 25 percent of all production in 2009. It is interesting too, that in Kenya more than half of all production is accounted for by small farmers rather than by large conglomerates. Meanwhile, it is also noteworthy that the large production of China and India for tea is offset by the fact that the two countries also account for a large share of total consumption of tea in the world, at 24 percent and 21 percent of all consumption in 2009 respectively. This makes Kenya’s 22 percent share of all exports feasible, even though it just accounts for only 8 percent of all production, and is dwarfed by the larger production of India and China (Groosman, 2011).

The chart below details modern consumption and production of tea in the world by the top producers, noting how the top five producers and exporters account for almost all of the production and exports for tea in the world, and noting too that as discussed above, many of the countries in the list are located along the perimeter of the Indian Ocean. What the chart indicates too is that for many of the countries along the Indian Ocean, there is some mismatch between levels of production and levels of export, with the understanding that some of the production goes into local consumption rather than for exports, as is the case for the top two producing and consuming countries in India and China. It is worth noting that these two countries also figure among the countries that initiated the entire tea trade between them and Europe in the historical narratives earlier in this paper (Groosman, 2011, p. 6; Chaudhuri, 1985):

Global Tea Trade in Indian Ocean

Graph Source: Groosman, 2011

IV. Future of the Tea Trade

Some global trends are pointing to sustained increased demand for tea, which starting in 2009 has resulted in the reversal of decades-long trends of suppressed tea prices owing to  oversupply, and to future trends pointing to sustained increases in prices as demand increases and the gap between demand and supply narrows. This reality of rising prices has been tracked as being in existence at least from 2009 all the way to 2011, and is reflected in the rise in prices in this chart (Groosman, 2011, p. 8):

Global Tea Trade in Indian Ocean

Graph Source: Groosman, 2011, p. 8

The medium term future of the tea trade sees the prices for black tea coming to a point of stabilization in the year 2019, at which point the prices will stabilize at points that are higher than the historical averages, but are lower than the prices reached in 2011. There are caveats to these projections, because the market forces effects of sustained increases in prices may be that the producers may aim for higher production goals, to the point where the supply and demand equation will change to a point where the observed increases in global demand will be met by a glut of supply from overeager producers (Groosman, 2011, p. 8).

Meanwhile, future concerns for the tea trade include the plight of the workers in the producing countries as well as the environmental impact of the tea trade especially in regions of production, where forests are destroyed in favor of converting those forests into tea plantations in order to increase production and profits. The impact of such conversion is evident in the loss of habitat diversity and the emergence of monoculture that has an impact on the overall soundness of the Indian Ocean habitats. On the other hand, concerns on worker welfare translate to the social impact of the tea trade on the trading and producing nations along the Indian Ocean (Groosman, 2011).

Data exists with regard to the medium-term prospects of the tea trade in general, and that data suggests the continued centrality of the Indian Ocean tea trade as a large component of the overall global trade in tea. This is owing to the large production share of tea by states along the Indian Ocean, and the continued brisk exports of tea from those countries. The data below indicates that exports will continue to grow at rates that match historical rates of growth through 2017. This set of data is for black tea (Hicks, 2009):

Global Tea Trade in Indian Ocean

Table Source: Hicks, 2009, p. 263

On the other hand, data also exists for global actual and projection exports for green tea, and it is noteworthy that green tea production and export growth is expected to outpace black tea production and export growth, attesting to the sustainability of recent trends in this direction (Hicks, 2009):

Global Tea Trade in Indian Ocean

Table Source: Hicks, 2009, p. 263

Tying the data together, the picture for the tea trade in the Indian Ocean is characterized by a steadying of exports and production along historical average rates of growth through 2017, but with a trend towards a sustained increase in consumption and exports of green tea. On the other hand, the price spikes in tea from 2009 through 2011 represent a condition that will not proceed moving forward, as projected demand comes to eventually get in line with increases in production and exports, leading also to more stable prices in the medium term (Hicks, 2009; Groosman, 2011).

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