Tea is one of the most consumed drinks in Pakistan, with an average per capita consumption of 1 kg per year. However, tea lovers may have to pay more for their daily cup of tea as the price of tea has soared for the third time in 18 months in Pakistan. According to the Pakistan Bureau of Statistics (PBS), the average price of tea increased by 19.6% in 2022 compared to 2021, reaching Rs. 1,575 per kg. The first increase in the cost of a cup of tea was in the last months of 2021 when the cost was raised from Rs30 to Rs40.
The second raise from Rs40 to Rs50 took place in the mid of 2022 and the latest increase came about just after Eidul Fitr.
The cost of a cup of tea was increased from Rs50 to Rs60 in the garrison city where neither food authorities nor the district administration or price control authorities have any check on the price increase.
The main reasons for the increase in tea prices in Pakistan are the global supply-demand imbalance, the depreciation of the rupee, the increase in taxes, and the smuggling of tea. The global supply of tea has been affected by adverse weather conditions, such as droughts and floods, in major producing countries, such as India, China, Kenya, and Sri Lanka. These countries account for more than 75% of the global tea production. The PBS estimates that the worldwide tea output declined by 2.5% in 2022 to 5.6 million tons.
The global demand for tea has remained strong despite the pandemic, as consumers seek healthy and natural beverages. Tea is rich in antioxidants and has various health benefits, such as boosting immunity, reducing stress, and improving digestion. The PBS reports that global tea consumption increased by 1.8% in 2022 to 5.7 million tons.
The rupee depreciation has also contributed to the rise in tea prices in Pakistan, as most of the tea is imported from other countries. The rupee has lost about 10% of its value against the US dollar in 2022, making imports more expensive. According to PBS, Pakistan imported about 200,000 tons of tea worth $600 million in 2022.
The increase in taxes has also added to the cost of tea in Pakistan, as the government has imposed a higher sales tax and a regulatory duty on tea imports. The sales tax on tea imports was increased from 3% to 17% in July 2021, while the regulatory duty was increased from Rs. 50 per kg to Rs. 100 per kg in October 2021. These measures were taken to generate more revenue and reduce the trade deficit.
The smuggling of tea has also affected the tea price in Pakistan, as it creates unfair competition for legal importers and reduces the government’s revenue. According to a report by Dawn1, about 40% of the total tea consumption in Pakistan is met through smuggling from Afghanistan and Iran. The smuggled tea is cheaper than the legal tea and does not pay any taxes or duties. The report estimates that the government loses about Rs. 40 billion annually due to the smuggling of tea.
The rise in tea prices in Pakistan has implications for both consumers and producers. For consumers, it means paying more for their daily cup of tea or switching to cheaper alternatives. For producers, it means higher revenues but also higher expenses and risks. Some producers may benefit from the higher price if they can increase their productivity and quality. Others may struggle to survive if they cannot cope with the higher costs or face lower demand.
The future of tea prices in Pakistan depends on various factors, such as weather patterns, consumer preferences, market competition, and government policies. The PBS forecasts that global tea production will recover by 3% in 2023 to 5.8 million tons, while global tea consumption will grow by 2% to 5.8 million tons. This may lead to a more balanced market and a stable price.
