How the Tea Trade Works

The tea trade is the chain of hands a leaf passes through between the garden where it is plucked and the cup where it is drunk, and the system of prices set at each link. It is a large business built on a cheap product. Tea is, after water, the most widely drunk beverage on earth, made from the leaves of a single evergreen, Camellia sinensis, grown as a plantation crop in more than two dozen countries, and the world produces roughly seven million tonnes of it a year, by the reckoning of the United Nations Food and Agriculture Organization. This publication exists to read that business by the figures. This page is the map of it: how the leaf reaches the cup, how its price is set on the way, and who takes what share. The detail on the pricing floor lives in The Auctions, and the detail on the growers in Who Grows It; this is the overview they hang from.

From bush to cup: the chain

A made tea passes through a fixed sequence of owners, and the price changes hands at each step.

• The garden. Tea begins as green leaf plucked from the bush, by hand on the better estates and increasingly by machine elsewhere. Green leaf is perishable and cannot travel far, so it must be processed within hours of plucking.
• The factory. The leaf is withered, rolled or cut, oxidised, and dried into "made tea," the dark, shelf-stable product the world trades. A large estate runs its own factory; a smallholder sells green leaf to a nearby bought-leaf factory that does the making.
• The sale. The made tea is sold, either through a public auction or by private contract direct to a buyer. The auction is where most of the world's traded tea meets its price.
• The blender and packer. A handful of large companies buy made tea in bulk, blend many lots into a consistent product, and pack it under the consumer brands a shopper recognises. Most tea is a blend; the brand on the box is a recipe, not a garden.
• The retailer. The packed tea reaches the shelf, and the shopper pays a price into which the whole chain, plus the retailer's own margin, has been folded.

Almost all the value a shopper pays for is added after the leaf leaves the producing country. The garden sells a cheap raw commodity; the blending, branding, and retailing that turn it into a premium product on a Western shelf happen at the far end, and capture most of the money. That is the structure the rest of this guide, and much of this publication, returns to.

Two ways to make black tea: CTC and orthodox

Most of the world's tea is black tea, and black tea is made by one of two methods that the trade treats almost as two separate products: CTC (crush, tear, curl), which shreds the leaf by machine into hard, uniform granules built for a fast, cheap, consistent cup, and orthodox, which keeps the leaf whole or in large pieces and takes far longer to make. CTC is the commodity engine, sold by the tonne into mass blends and tea bags; orthodox is the speciality end, where a named garden and a fine grade can fetch a premium. A country's mix of the two shapes what its crop is worth, which is why Kenya, overwhelmingly a CTC exporter, and Sri Lanka, overwhelmingly an orthodox one, sit in such different positions in the trade. The full account of how each is made, where the split came from, and why the country map looks the way it does is in CTC and Orthodox.

How the price is set

For most of the tea that crosses a border, the price is discovered at auction. A producer consigns made tea to a broker; the broker catalogues it, draws samples, and offers the lots at a weekly public sale where licensed buyers, the agents of the big blenders, bid each lot down to the highest offer. The auction is a genuine price-discovery mechanism: it sets a public, visible price for a given grade from a given origin, week by week, against live supply and demand.

The trade once had a single global price-setting floor: the London auction, which ran from 1679 until 1998 and, by the 1950s, sold about a third of all the world's tea. That floor has since moved to the producing countries themselves, above all to the Mombasa auction in Kenya, now the largest black CTC tea auction in the world. The full account of how a sale works, where the centres are, and London's own history, is in The Auctions.

Where the money goes

Because the value is added at the far end of the chain, the growers at the near end receive a small and often volatile share of the final price. Fairtrade reports that growers see only a few pence from every tea bag sold, that smallholders generally have little leverage over the price they are offered, and that even where a tea estate meets the national legal minimum wage, a considerable gap remains to a living wage. The leaf is cheap; keeping it cheap has a cost, and the growers bear most of it.

This publication does not editorialise the figures, but it does insist on reporting them. A market that delivers the world its second drink for a fraction of a cent a cup is an achievement of logistics and a question of distribution at the same time, and the auction sheets, dull as they look, say so plainly. Who grows the tea, and under what terms, is set out in Who Grows It.

The margin is where the money is

The tea trade is best understood as a long chain that turns a cheap, perishable leaf into a cheap, durable, branded product, adding nearly all of its value after the leaf has left the country that grew it. Read it that way and the rest follows: why producing countries push to "add value" at home rather than export raw leaf, why a drought in Assam or Kenya moves a price in London, and why, on something the world drinks over five billion cups of a day, most of the profit lands nowhere near the leaf.