Tea, as we know it in the Western hemisphere, involves all varieties of flowers, weeds, fruit, and leaves stuffed in a paper or plastic bag (mmm… delicious microplastics), steeped into hot water, and sipped, preferably with a messy, crumbly cookie. (Ed: Or a biscuit — this is as good a time as any to acknowledge that we’ve naively allowed an American to write this piece.) But as a commodity, tea is defined only as the dried leaf of Camellia sinensis, the plant from which both black tea and green tea are derived (as well as other teas like oolong, white, dark, matcha… but we will get to those in a minute). This excludes all herbal teas as well as mate, the popular Argentine drink made from the caffeine-rich leaves of Ilex paraguariensis (lo siento, Argentina). Camellia sinensis is a wundercrop, able to grow across the world in a variety of seasons, climates, and conditions. Piggybacking on international trade and colonialism, distinct tea cultures and strains of tea now stretch across six continents. China dominates green tea production, but black tea is a major crop for India, China, and Sri Lanka.
Tea’s popularity increased on the back of Covid-19 and the wellness movement — one can now go to any café in the developed world and ask for a matcha, chai latte (or a “chai tea,” to the horror of many Indian readers), or any other esoteric blend you might fancy. Industry experts predict both production and consumption will accelerate in the next 10 years. But that brings us to the first general reason why there is no futures market for tea: it’s too good of a crop. Look at tea’s longtime caffeinated nemesis, coffee. It’s seasonal, there are only a few climates where coffee crops can grow, and it can be difficult for farmers to predict annual output given uncertainty over rainfall, temperature, and humidity on a yearly basis. Tea has no such issue. It grows year-round and thrives in multiple altitudes and climates. It’s therefore relatively easy for farmers to predict their annual output, and even if there are circumstances that destroy a farmer’s yield, volatility is short-lived as tea can be reharvested almost immediately. The second core reason is its variability. Tea is a heterodox product, with a range of “colours” (white, red, dark) and varieties of tea able to be produced using the same basic leaf. But in order for a futures product to be viable, the underlying commodity needs to be uniform and tradeable (for example, consumers do not distinguish between Ukrainian or American wheat). Coffee does this by segmenting similar strains of coffee into two “reference varieties”: robusta and arabica (java does not have its own futures market). It uses the reference varieties as the price basis for the whole market, and premiums on the standard price index can be added on for futures contracts in fancier coffees.
Despite these hurdles, there are good reasons to start a tea futures market and many have advocated for it, including tea farmers who fear the effects of climate change and geopolitics on the tea industry. The UN Food and Agriculture Organization has even held summits and put out reports on the possibility of futures markets in Indian and Chinese tea. Some 70 per cent of the world’s tea comes from small farmers in what we’ll call the Global South. Additional price certainty through a futures market would help shield these inherently more fragile businesses, especially as climate change threatens to further disrupt tea yields and prices.
Which one of the following statements best describes what the passage is about?