Tea is considered to be the second most important beverage in the world next to water (The Tea Man, 1999). Tea consumption is greatly influenced by the availability of other beverages such as coffee, cocoa, soft drinks and fruit juices. In addition, consumer demand for tea is influenced by a number of other factors, which show a significant difference between the developing and developed countries. In the developing countries generally, consumption is very much influenced by both increasing income and population (Ali, Choudhry & Lister, 1997). But in the developed countries demand is significantly influenced by the increasing sophistication of the consumer (Kelegama et aI., 1 995). Sophistication of consumption patterns can be represented by the consumers' increasing concern for convenience, health and consumption of natural products Therefore, in terms of tea it is common that the type of tea consumed shifts from loose tea to packeted tea at the initial stages of development. With increased development, consumption will shift to more convenient forms like tea bags, and at a still higher stage of development it will be more for ready-to-drink (RTD) teas. This is illustrated by the comparatively higher proportions of bulk and packeted tea exports to developing countries and greater V A Ts such as tea bag and instant tea exports to developed countries. The recognition of these changes in tea consumption patterns and their trends is important in determining future opportunities for the Sri Lankan tea industry, especially with respect to V AT production.
Lack of data on tea consumption prevented the assessment of tea consumption patterns and their changes. Even the data available in the ITC bulletin of statistics represent only . the tea import data for consumption and exclude consumption of locally produced tea. Therefore, the available data give a clear picture of the non-producing countries only. The data are not dis-aggregated by tea type. According to the ITC ( 1 999), world tea imports for consumption grew by 26 per cent during the 1 987- 1997 period. The major contribution came from Europe (including the UK and CIS/uSSR) which accounted for 39 per cent. CIS/uSSR and the UK consumed 43 and 32 per cent respectively of the total imports to Europe. Among the Asian countries, Pakistan, (a non-tea producing
2: Value-Added Tea and the Position the Sri Lankan Tea
country) has the highest level of domestic consumption. It absorbs nearly 7 per cent of the total imports. The UK, one of the most important tea-consuming countries in the world, represents a declining consumption level, as its consumption dropped from 3.24- 2.62 Kg per head during the 1987-1997 period.
In Sri Lanka, tea is the cheapest and most popular beverage, as the price of a cup of tea is half the price of a cup of coffee, and one-fourth of that of a soft drink. Most of the country's consumers use tea in loose form, and only 20 per cent of tea is consumed as packeted tea (International Tea Yearbook, 1994). Only a small portion of green tea is consumed within the country. Usually the inexpensive, poor quality dusts and off-grade tea are consumed locally. Even though Sri Lanka is one of the main producers of tea, all the best quality teas and instant tea leave the country as exports. According to the annual bulletin of statistics of the International Tea Committee, during the period 1996-
1998 Sri Lankan per capita consumption of tea was only 1 .29 Kg per year - whereas the highest per capita consumption of 3.23 Kg per year was recorded in Ireland (ITC, 1999). In general, the country's home demand is not well-specialised and the primary driving factors for tea consumption are price and income. The calculated price elasticity of demand indicates that tea is a highly price inelastic commodity with a value of - 0.4209. The income elasticity is estimated to be 1 .004 - showing that increasing income will lead to increasing domestic consumption (Bogahawatte, 1989). However, the steadily increasing per capita income of the country, along with changing life-styles can lead to an enhancement of the domestic consumption of V AT through sophistication of food consumption patterns. This is evidenced by firms' involvement in V AT sales, especially packeted tea and tea bags, within the country. Similarly, this type of changing consumption pattern can be expected even among other developing countries due to the rapid rate of growth in income.
The increasing sophistication of consumption patterns in developed countries has increased the demand for flavoured, gourmet, organic and ready-to-drink iced teas (Kelegama et aI., 1995; Sambasivam & De Alwis, 1 998). Simrany's analysis using the tea industry within the USA showed a better explanation for the changes common to developed countries (Simrany, 1 999). According to him, consumer demand for tea can be influenced by both macro and micro demand forces. Some of the broad-based macro forces affecting tea demand are as follows:
2: Value-Added Tea and the Position the Sri Lankan Tea
1 . healthy lifestyle patterns,
2. improved knowledge of nutrition,
3 . greater reliance on natural homeopathic remedies to prevent diseases, 4. continuing appeal of natural products,
5. continuing desire for convenience foods, and 6. preference for quality products offering true value.
In addition to broad-based macro demand there are specific segments of micro demand factors. In the USA tea industry, these can be classified into four broad categories: supermarkets, RTDs, food service and speciality. Some of the micro demands affecting each category are as follows:
Supermarkets:
1 . increasing appeal of small-sized, higher retail value packages, 2. demand for branded and generic tea types, and
3. heavy reliance on trade versus consumer marketing, Ready- to-drink:
1 . increasing demand for convenience, and
2. increasing demand for higher quality speciality brands,
Foodservice:
1 . increasing demand for meals away from home and, with that, a high level of concern for the nutrition aspect, and increasing demand for tea,
2. increasing gourmet or speciality tea segment, and
3. the fact that tea is known to be the most profitable beverage item for foodservice operators.
Gourmet or speciality tea:
1 . increasing demand for speciality tea through tea saloons, retailers, catalogue distributors, and
2. the growth of speciality tea which is enhanced by high profits in the industry.
Even though - at present - consumers in the developing countries do not show highly sophisticated consumption patterns, the fast rate of growth in income of those countries can lead to an increase in the demand for V A Ts like packeted teas and tea bags. This is clearly evidenced by the statistics relating to Sri Lankan tea exports. Overall, it is
2: Value-Added Tea and the Position Sri Lankan Tea
apparent that V AT products have better prospects for the future than do tea as a commodity with a minimal level of value addition.