Sector Overview Tea Michael Groosman
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Sector overview Tea Michael Groosman Oct 2011 Table of Content Acronyms and Abbreviations ........................................................................................................................... 2 Introduction ..................................................................................................................................................... 1 Supply Chain .................................................................................................................................................... 1 Producers ............................................................................................................................................................ 2 Processors ........................................................................................................................................................... 3 Trade Phase ......................................................................................................................................................... 3 Blenders .............................................................................................................................................................. 4 Retail ................................................................................................................................................................... 4 Market Overview ............................................................................................................................................. 5 Global Market ..................................................................................................................................................... 5 Production and Export ........................................................................................................................................ 6 Consumption and Import .................................................................................................................................... 7 Developments and trends in the tea market ...................................................................................................... 8 Sustainability ................................................................................................................................................... 9 Sustainability issues in the sector ....................................................................................................................... 9 Social issues ....................................................................................................................................................... 10 Environmental issues ........................................................................................................................................ 10 Economic issues ................................................................................................................................................ 10 Current approaches to sustainability ................................................................................................................ 10 Conclusions .................................................................................................................................................... 12 Priorities for future investment ........................................................................................................................ 12 References ..................................................................................................................................................... 13 Tea Sector Overview Michael Groosman October, 2011 Overview of Tables and Figures Figure 1 Overview of major players in the tea value chain 2 Figure 2 Simplified supply-chain for the Tea sector from producer to consumer 2 Figure 3 Main Tea Producing Countries 5 Figure 4 Projected production and export values of black tea and green tea in 2019. 5 Figure 5 Estimated Production and Export values 2010 in metric tons of top 10 countries 6 Figure 6 EU-27 tea imports for consumption 2010 (metric tons) 7 Figure 7 Apparent global consumption of tea 2001-2010 (in 1000 metric tons) 8 Figure 8 Changes in Mombasa tea price between august 2006 and May 2011 (US cents per kg) 8 Figure 9 Volumes of certified tea (tons) compared with global tea production 12 Table 1 Ratio of smallholders to estates and number of workers in main producing countries 3 Table 2 Top 5 importing non-producing countries 7 Acronyms and Abbreviations BLF Bought-Leaf Factory ETP Ethical Tea Partnership IDH the Sustainable Trade Initiative ITC International Tea Committee KNVKT Koninklijke Nederlandse Vereniging voor Koffie en Thee (KNVKT) KTIB Koffie en Thee Informatie Bureau MNC multi-national companies RA Rainforest Alliance SAN Sustainable Agriculture Network TCC Tropical Commodity Coalition Tea Sector Overview October 2011 Introduction Tea is a very popular beverage—second only to water—and is consumed all around the world. Millions of people are engaged in the production and processing of tea, and many more rely on it for their livelihoods. West-European countries such as the UK and the Netherlands have long, historical ties with the tea trade: Dutch merchants already became familiar with tea in the 17th century during their journeys to the Far East, and the UK began building fast ships especially to get tea from the Orient around 1840. Later, the British built tea plantations in India and Sri Lanka (Ceylon, at the time), and the Dutch established plantations on Java and Sumatra (KTIB website). Nowadays, the international tea trade is largely in hands of multinational companies (MNC) with British and Dutch roots, e.g. Unilever, Twinings and Tata Global Beverages. In the past few years, however, a variety of problems have emerged. Historically, the tea market has shown a persistent state of oversupply, which has kept a downward pressure on prices. Even though falling prices might sound like good news for tea consumers, they represent a threat to the long-term economic health of the industry. Low margins and under-investment jeopardize productivity and quality, and act as barriers to the improvement of the working conditions and livelihoods of growers, creating a downward spiral that make it hard for the sector to act in a more sustainable manner (IDH 2010: 9). Furthermore, fluctuating weather patterns, primarily drought in producing countries, have also been reflected clearly in price fluctuations in the past few years (TCC 2010: 3). There is a substantial fear that the high prices realized at the moment could lead to a new supply and demand imbalance due to over stimulated production. This sector overview presents basic information on the supply chain, major markets, trends and sustainability in the tea sector. As part of IDH’s goal to capture and disseminate the latest knowledge on sustainability, this overview aims to serve as a starting point for general understanding of the sector, and present complementary information for organizations, governments and industry partners active in the tea sector. For civil society actors, this report may present relevant market analysis and trends, while for companies it may give a quick summary of sustainability issues and initiatives in the sector. The analysis is based on a desk research of publicly available sources solely. This initial report was completed in August 2011. As the IDH tea program progresses, we expect more information and data to be generated. Supply Chain Tea comes from an evergreen bush—Camellia Sinensis—that grows best at a fairly high altitude. It can take from 5 to 7 years after being planted for the tea bush to become suitable for commercial exploitation, after which it can remain productive for over 100 years. All types of tea—black tea, green tea, white tea, Oolong tea, etc.—are produced from the buds and leaves of the same plant; the difference is in the processing. Technically, tea is harvested all year round, but there are also certain peak seasons. For example, the highest quality (and most expensive) Darjeeling tea is plucked in April (Deccan Herald 2011). After plucking, the tea leaves need to be delivered to a factory, preferably within 5 to 7 hours after harvesting to prevent loss of quality (TCC 2010: 4). Although most plantations have their own processing units, small growers need to sell their green leaf to independent Bought Leaf Factories (BLFs) or to estate factories nearby. At the processing plant, the tea leaves go through a process of drying and crushing, resulting in factory tea—also known as “made tea”. This processed tea is then sold in packets and chests through auctions and international traders, ending up at the tea blenders, retail and eventually the consumer (ibid). The tea supply chain is characterized by a very strong vertical integration by just a few multinationals (Figure 1). At the global level, 85% of global production is sold by multinationals (CBI 2011b). Direct links between manufacturers and producers are common. The main packers, Unilever (12% of the global market) and Tata Tea (4% of the market) are key players in the consumer market. They dominate the trade, have a strong influence on transport companies, and source part of their supplies from their own plantations. Tea Sector Overview 1 •Major players Producing & •Unilever, Tata Tea, Mcleod Russel, James Finlay, John Keells Processing •Major players Trade •Unilever, Tata Tea, Van Rees, James Finlay •Major players Blending & •Unilever,