The world's first tea futures contracts could be launched in Kenya in an attempt to stabilise prices and securitise production.
Representatives of the Kenyan tea industry have held talks with INTL FCStone Inc, a financial advisory firm based in New York, about setting up the derivatives, Bloomberg reported.
Kenya is the world’s largest exporter of black tea and the third largest producer behind India and China. Tea is the most consumed manufactured drink in the world, according to the United Nation’s Food and Agricultural Organization (FAO).
Prices for Kenyan tea reached a six-year low by the end of 2014, after falling for two consecutive years due to record harvests, Avneet Deol, senior data analyst at Mintec, told City A.M.
Tea prices rebounded to reach a record high in 2015 due to a severe drought that hit production, but have fallen approximately 15 per cent since the start of 2016 after a surge in production in the first quarter.
“The main purpose for the futures contract would be to allow tea growers to hedge out any price risks,” Deol said.
“However, futures for tea have not been set up until now, due to issues over drawing up specs for possible contracts. This is because there are several varieties of tea, and the quality of tea changes between different flushes through the year and per harvest,” Deol added.
“If a decision to launch tea contracts is made, we suspect that the process of launching the futures could be up to a year long. The process will involve drawing specs for the contracts and seeking approval from the Capital Markets Authority.”