With the commodity prices of Kenyan tea up 21% and Sri Lankan tea up 25%, the big brands are busy pushing promotional activity to shore up sales. James Ball reports

If we weren't British, food commodity prices at the moment would look pretty reassuring. The weak pound might make things pricier, and costs could rise as economies recover, but at present nine of the 12 key commodities tracked for The Grocer by Mintec are cheaper year-on-year, as are all five key economic indicators.

But the news is not so good for our national drink: tea prices are rocketing. Kenyan tea costs more than 21% more than it did this time last year, while Sri Lankan tea is up more than 25%.
Both countries have been hit by serious supply shortages, and the situation is likely to get even worse in the next month. The UN Food and Agriculture Organization has warned of a significant shortage in supply due to heatwaves and late spring rains.

The cost increase is being felt on the shelves, but consumers have so far been sheltered from the worst of the price hit. 

Data from The Grocer 33 database [4w/e 26 June 2009] show leading tea brands PG Tips and Tetley are up 3.7% and 2% in price respectively in the big four supermarkets.

Those who like a milky, sugary cuppa have it worse. Despite milk farmers facing lower prices per litre from almost all processors, due to oversupply and the recent collapse of milk co-operative Dairy Farmers of Britain, the retail price of a four-pint milk carton is up 6.3% year-on-year to £1.53.

The retail price of 1kg of sugar is up an even heftier 12.8%. This is caused by a 41% increase in the wholesale price of sugar, driven by large scale crop failures. Burgeoning demand in India, the world's largest sugar producer, is also driving prices up and the country is set to change from a sugar exporter to an importer for the first time this year.

Coffee drinkers won't be feeling too smug, however leading coffee brands have also risen considerably in price since last summer. Yet the impact on consumers would be much worse if they hadn't become less devoted to our big tea and coffee brands.

"Supermarkets' own-label tea and coffee offerings are very strong now, and they're tempting to consumers," said Kay Staniland, managing director of promotional consultancy Assosia. "We might still define ourselves as tea drinkers, or coffee drinkers, but we're not so likely to say we're a PG Tips or Tetley drinker. That means the brands are putting on some fantastic promotions to keep consumers keen. Activity is very intense, and discounting is very steep. This is really offsetting price rises."

ESA data suggests that without current steep promotions, the price rise on a 200g pack of Nescafé would have been 17.7% year-on-year. Thanks to frequent £3.00 price reductions or rollbacks, the average inflation is just 5.7%.

Still, promotions can only go so far and as recent commodity price rises haven't hit the supermarket shelves yet, a nice cup of tea could soon cost a pretty penny.