TEABY:

IB MUSIC (John Lo and David Su)

茶

PRODUCTION OF TEA: INTERNATIONAL MARKET SHARE

Year Share of World Exports (%)

India Ceylon China

1860 0 0 100

1880 20 0 69

1900 41 24 26

Year Share of World Exports (%)

India Ceylon Java and Sumatra

1928 39.0 26.0 16.7

1936 37.1 25.8 18.1

1940 37.5 26.0 18.4

GLOBAL TEA PRODUCTION (NOW)

WHO PRODUCES TEA???

FARMLAND

TEA LEAF PICKERS

TEA PROCESSING

Goods Made From Tea Leaves

WHERE TEA IS TRADED Began in China since 2700 BC,

spread to Japan around 800 AD Dutch East India Company carried

Chinese tea to Europe in 1610, entered European market

Reached England market in 1669 British introduced tea culture into

India in 1836 and Ceylon (Sri Lanka) in 1867; these two countries soon became major producers + exporters of tea

By 1900s, tea had spread all around the world

PRICE HISTORY AND CONDITIONS

•First world war, British gov bought an abundance of tea to avoid shortage.

•Incentive for suppliers, many countries switched land use to tea production

•Increased output until the 1920s

•By 1929 the prices began to fall with the coming of the Depression

PRICE HISTORY AND CONDITIONS (CONT.)

INDUSTRY GROUPS

Main industry group: Tea Associations in India, Ceylon, and Dutch East Indies during the early 20th century

Tried to control market place through output restriction to increase the profits of producers

Accomplished through trade agreements

TRADE AGREEMENTS

International Tea Agreement in 1930 Voluntary; each company agreed to reduce

output to prevent falling prices

Price

Quantity of tea

S1S2

D

e2

e1P2

P1

Supply and demand of tea

TRADE AGREEMENTS (CONT.)

Although many firms in industry, each firm was managed by a small number of agents

Effective firm size was larger Greater effect on market if an individual

cheats Each producer has an incentive to cheat and

may reap benefits in the short term However, cheating will result in price wars

TRADE AGREEMENTS (CONT.)

Increased output = falling prices Falling prices indicates noncompliance to

trade agreement Other firms will be lead to abandon

agreements and increase output Further noncompliance and increased output

= further fall in prices More likely to occur when there are fewer

decision makers; bigger impact from individuals

TRADE AGREEMENTS (CONT.)

International Tea Agreement was abandoned in 1931

Dutch East Indies had failed to keep their promise of output reduction

TRADE AGREEMENTS (CONT.)

Second International Tea Agreement established in 1933

Reduction of supply by 15% of maximum attained in 1929-32 time period

Was more successful than the first agreement mainly due to legislation; the agreement was legally binding

Lasted until WWII broke out; war caused a rapid shift in conditions (less purchasing power for consumers, more focus on military goods, possible devastation to manufacturing locations)

SPECULATORS

Buyers usually must buy tea in physical form as opposed to just on paper

Detracts speculators from entering market with as much ease

BIBLIOGRAPHY

Gupta, Bishnupriya. "The History of the International Tea Market, 1850-1945." Economic History Services. 3 Nov. 2008 <http://eh.net/encyclopedia/article/gupta.tea>.

"tea." Encyclopædia Britannica. 2008. Encyclopædia Britannica Online. 03 Nov. 2008 <http://www.britannica.com/EBchecked/topic/585115/tea>.

"The Tea Market - a background study." Oxfam International. <http://www.maketradefair.com/assets/english/TeaMarket.pdf >