The effects of changes in tea prices on the economies of the countries concerned

The tea market is affected by price volatility and it is influenced by a number of factors both internal as well as external to the market. The tea industry in India employs approximately 10 million persons. The revenue obtained from the production and export of tea has a direct influence on the GDP of major tea producing countries. The two largest producing countries, India and China generate significant revenues that influence the amount of financial resources available to fund the government’s macroeconomic policy and strategic development plans.

The revenue derived from the sale of tea directly influence the GDP of tea producing countries such as India and China, this revenue is used by governments to fund various social and public service initiatives in which the entire population of the respective country would benefit and not necessarily only tea workers As tea prices increase profits in producing companies increase. This will lead to increased investments in the industry thereby employing more people.

Greater employment results in increased income of the total population hence increasing national income. The investments made by producers to increase output to enjoy the high commodity prices will increase national output. On the down side, as prices fall it becomes difficult for small producers are likely to go out of business due to profits being less than operating cost. The larger producers will cut its production in an effort to reduce supply, hence lower labor volume required.

Ultimately jobs will be lost and given the large number of persons employed will have a significant impact on the country ranging from high unemployment levels to reduced government revenues. Using the concepts of competition and market power, explain whether a rise in tea prices in the shops will necessarily mean a rise in the price for tea growers and in the wages of workers in the tea industry. The two major players in the Indian tea market are Hindustan Unilever and Tata tea respectively. Unilever controls 30% and Tata controls 20. % of the Indian tea market. These companies are well integrated vertically as well as horizontally. These corporations have a significant market influence due to the volume of global market supply that they control. It is these transnational corporations that benefit from the increases in the price of tea. Transnational corporations are heavily involved in the marketing of tea, at this level significant financial gains can be made, however the profits derived remain with the big players in the industry.

It does not filter down to the workers in the form of wages or improved conditions. The transnational corporations also have the financial muscle to buy the produce from the small producers at auctions. This particular situation further compounds the situation since the small producer would not be paid the premium rates which the larger corporations would receive from the sales of its product. This is another situation where the workers in the tea industry do not benefit from the increase of tea prices on the market.

Tea production is a highly labor intensive industry in India. Labour accounts for approximately 60% of production cost. It employs a large number of unskilled labor as well as under skilled and young workers, women account for 70% of the entire workforce. These workers in most instances are not unionized and have little or no bargaining influence. Workers who are employed by the large producers do not have wage structures that tie to tea price nor any profit sharing arrangements in there incentive plans.

For workers that work for the small producers in most instances it is on an ad hock basis and work only when required, these workers have no bargaining influence. Given these together with the structure of the tea industry the windfalls from increased tea prices do not work itself back to the workers in the field. As tea prices soar and large companies such as Unilever and Tata make attractive profits it is undesirable to pass the gains to the workers in the field.

Given the large work force and significant labor cost small increases to workers will result in large chunks of profits from the companies. The workers benefit in some areas where the Fairness Foundation has influence, such as north India where the foundation influenced the tea giants to invest in medical, school and housing facilities increase the standard of living for the tea worker and their family. http://www. teaandcoffee. net/1107/tea. htm http://www. scribd. com/doc/20809628/Russian-Tea-Market-Research-Report

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