Commodities and Futures: Ominous news in the tea leaves

THE TEABAG is 40 years old this year, but the producers see no reason to join in the celebrations.

Its rising use - bags now account for 85 per cent of the British tea market - is one of the main reasons for the fall in the beverage's consumption. For those little sachets are less wasteful than loose tea, with its tradition of 'one for the pot'.

Net UK imports, which totalled more than 200,000 tonnes in the early 1970s, will probably barely reach 145,000 tonnes this year, as the slow annual decline continues.

But the Tea Council, whose job it is to promote the beverage, not unnaturally puts a brave face on such statistics. 'Consumption is holding up pretty steadily in a highly competitive market,' says Illtyd Lewis, its executive director. He points out that tea is still the favourite drink of the British, with each person on average downing about three-and-a- half cups a day - a figure little changed in recent years.

But the leaves in these 170 million cups drunk daily - when there are any - make ominous reading, according to consumer analysts. In a report just published, Euromonitor highlights the continuing decline of the UK hot drinks market in the face of stiff competition from soft drinks, and forecasts worse times ahead.

Tea - whose share of the total volume is already down to 58 per cent from 63 per cent five years ago - is expected to be hardest hit. Tea's problem, of course, is its image: William Cowper's 'the cups that cheer but not inebriate' on a 'peaceful evening in' is hardly the sexy message needed to attract young drinkers.

So the industry is working hard to change perceptions by promoting the beverage as a natural part of a healthy, non-fattening diet - and as offering value for money, too.

A cup of tea with milk made at home costs no more than 2p. Research is taking place worldwide in an attempt to prove that tea - long thought in the East to possess almost magical curative powers - does have medicinal properties.

The results are not expected for some time, but an independent Dutch study just published in the Lancet points to the beverage's help in preventing cardiovascular disease. If tea really is beneficial to health, this would certainly give consumption a shot in the arm just where it is most needed - the industrialised world.

Chances of growth here at present are seen as minimal in contrast to the much brighter prospects elsewhere, especially in the producing countries themselves. The UN Food and Agriculture Organization forecasts that by the end of the decade, 73 per cent of all tea will be drunk in developing countries against 65 per cent at the start.

But despite the worries about demand prospects in the key British market, it is not all bad news for the world's producers. Wholesale prices have risen quite strongly this year, despite the prospect of a record world harvest after the poor showing in 1992, when drought hit harvests in both Asia and East Africa.

Heavy Russian buying at world auction centres appears to be easily absorbing the expected 10 per cent rise in global black tea production and largely explains the market's upturn. Recent restocking by British retailers and manufacturers has also played a part.

The trade expects imports by the former Soviet Union to reach 200,000 tonnes in 1993 - nearly three times the poor 1992 level, which was depressed by hard currency shortages. The UK therefore seems set to slip back into second place in the world import table, which it had headed consistently until 1989, when the USSR emerged as the biggest importer in the wake of the devastation to its own crop from the Chernobyl fall-out.

Rising Middle Eastern imports this year have also helped to push up wholesale prices - and also highlight an interesting market phenomenon: the surge in Jordanian buying since UN sanctions cut off exports to Iraq.

Before the Gulf war, Jordan never bought much more than 5,000 tonnes annually from all sources, but so far its imports from Sri Lanka alone this year total nearly 17,000. India's fight to regain market share lost in the UK because of its perceived unreliability as a supplier - partly the result of rapidly rising domestic demand - is another market development.

The move has been prompted by the fall in demand from CIS buyers, who have turned away from India to Sri Lanka and other suppliers in their search for good deals. But Kenya remains by far Britain's biggest supplier, accounting for about 55 per cent of all imports.

Although the wholesale market has strengthened, with last week's London auction average of pounds 1,244 a tonne up nearly 15 per cent on the mid-year low, British tea industry sources see little chance of higher shop prices - mainly because of intense sales competition.

In fact, some big retailers, including Sainsbury's, have been cutting the prices of their cheapest ownlabel blends, while several big tea manufacturers have recently repackaged their products in an attempt to lift sales.

After 40 years, the tea bag, which was introduced by Tetley and can contain a blend of as many as 30 different types of tea, is well entrenched. Yet it may not be invulnerable. The challenge is seen as coming from instant tea, which at the moment has perhaps no more than 2 per cent of the market. Other potential growth areas are fruit and herbal infusions and specialty teas, like Earl Grey and Darjeeling.

These are becoming increasingly popular among people in their late twenties and early thirties, according to the Tea Council.

(Photograph omitted)