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Tea Prices Are Heating Up

Demand For Tea is Rising

Tea is the most popular beverage in the world after water. Each day, about 3.7 billion cups of tea are consumed worldwide. On any given day, roughly half of people in the US drink the beverage either hot or cold.

Though the pandemic has reduced demand for tea from cafes and restaurants, tea consumption at home has surged as people work remotely and seek out ways to destress. This trend, combined with tea production conditions, has led the price of tea leaves to spike.

Tea Producers Face Challenges

Most tea grows in mountainous regions with tropical or subtropical climates. China, India, Kenya, and Sri Lanka lead the world in tea production, though Argentina supplies much of the tea sold in the US.

Sri Lanka, the third-largest tea exporter, experienced a severe drought earlier this year, which caused its tea production to drop by 15% during the first seven months of the year compared to a year earlier. In India, tea production fell by 22% during the same period as the country battled COVID-19. Tea production has mostly recovered in Sri Lanka and has stayed strong in Kenya and other countries, but the shortage has impacted tea prices significantly.

Tea Prices Rise

Due to the combination of supply chain strain and rising demand, the price of wholesale tea leaves has gone up by 50% since March. When the pandemic first set in, supply chain issues and oversupply caused prices to drop to their lowest levels in over 10 years. Since then, they have picked up steam and reached $3.16 per kilogram, or $1.44 per pound—levels last seen in November 2017.

The rise in the price of tea leaves caused the price of liquid tea, which is usually sold as a bottled concentrate, to rise 9.6% from a year earlier. The price of packaged tea, sold in tea bags, is up 1.7%. As much of the world looks ahead toward cooler weather, demand for tea could become even stronger. Investors will be watching closely to see how this, and other factors, impact the price of tea.

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