Prospects for the Australian Black Tea Industry

Review of the Prospects for the Australian Black Tea Industry

A report for the Rural Industries Research and Development Corporation by Dr Peter Chudleigh Agtrans Research

March 1999

RIRDC Publication No 99/28 RIRDC Project No AGT-5A

ISBN 0 642 57858 3 ISSN 1440-6845

Review of the Prospects for the Australian Black Tea Industry Publication No 99/28 Project No. AGT-5A

The views expressed and the conclusions reached in this publication are those of the author and not necessarily those of persons consulted. RIRDC shall not be responsible in any way whatsoever to any person who relies in whole or in part on the contents of this report.

This publication is copyright. However, RIRDC encourages wide dissemination of its research, providing the Corporation is clearly acknowledged. For any other enquiries concerning reproduction, contact the Publications Manager on phone 02 6272 3186.

Researcher Contact Details Dr Peter Chudleigh Agtrans Research PO Box 385 TOOWONG QLD 4066

Phone: (07) 3870 9564 Fax: (07) 3371 3381

RIRDC Contact Details Rural Industries Research and Development Corporation Level 1, AMA House 42 Macquarie Street BARTON ACT 2600 PO Box 4776 KINGSTON ACT 2604

Phone: 02 6272 4539 Fax: 02 6272 5877 Email: [email protected] Website: http://www.rirdc.gov.au

Published in March 1999 Printed on environmentally friendly paper by Canprint

Foreword

This project was undertaken to give the Corporation and other would-be investors a better understanding of the current status and future prospects of Australia’s black tea industry. This understanding is needed to help RIRDC form a view as to what level of research and development investment is warranted and where any investment would be best placed to help the industry grow and prosper.

The project complements a 1994 workshop that was used for setting research and development priorities for the tea industry as a whole.

This report, the latest addition to RIRDC’s diverse range of over 250 research publications, forms part of our New Plant Products R&D Program which aims to facilitate the development of new industries based on plants or plant products that have commercial potential for Australia.

Peter Core Managing Director Rural Industries Research and Development Corporation

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Contents

Page

Foreword iii

1. Introduction 2

2. Current State of the Australian Black Tea Industry 3 2.1 Production 3 2.2 Processing 8 2.3 Packaging 10 2.4 Marketing 11

3. Future Market Penetration and Development 12 3.1 World Market 12 3.2 Australian Market 12

4. Future Economies of Production and Industry Growth 15

5. Summary 18

References 20

1. Introduction

The Australian black tea industry is relatively small, and growth over recent years has been slow. Black tea has been grown in Australia since the early 1930s.

The Australian black tea industry presently supplies between 5 and 10% of the total quantity of tea consumed in Australia. The majority of tea consumed in Australia is sourced from developing countries.

Isolated R&D efforts have investigated particular aspects of tea production. RIRDC has supported R&D in the black tea industry in the past, with the most recent black tea project being completed around four years ago. RIRDC Project DAT-29A ‘National Tea R&D Priority Setting Workshop’ was undertaken in 1994. RIRDC Project DAQ-122A ‘Assembly and Preliminary Evaluation of Imported Tea Clones’ was commenced in 1993. Additional projects researching aspects of black tea production would have been undertaken by various organisations prior to 1992.

This report presents the results of a brief review of the prospects for the Australian black tea industry. Chapter 2 provides an assessment of the current state of the industry in terms of production, processing, packaging and marketing. Chapter 3 reports the prospects for future market penetration and development, and Chapter 4 assesses the future economics of production and likely growth of the Australian black tea industry. Chapter 5 summarises the key findings of this review.

2. Current State of the Australian Black Tea Industry

2.1 Production Technical Aspects The scientific names for the two species of bush that produce black tea are Camilia sinensis and Camilia accamica. Black tea bushes are typically grown in sub-tropical and tropical regions with annual average rainfall of greater than 1,500 mm. The north-eastern seaboard of Australia is perceived as suitable for black tea production. Tea bushes are capable of yielding for up to 100 years.

Tea can be established from either seed or from cuttings/clones. All tea grown in Australia was established from seed. One Australian tea producer has observed tea established from cuttings produces a more uniform hedge which is more suited to mechanical harvesting. However, tea established from cuttings may not develop a strong tap root until the plant is 3 to 5 years old. A strong tap root is required in dryland production areas where soil moisture may be seasonally low, to enable the tea plant to source soil moisture at depth. It is reported that yields in major tea growing countries overseas from tea established from cuttings are significantly greater than tea established from seed. Tea producers overseas are pulling out tea established by seed and re-establishing tea bushes from cuttings to increase yields and economic returns (Twyford, 1998, Pers. Comm).

Following planting, black tea bushes take up to five years to produce their first yield. During the initial establishment period, irrigation may be required to meet water requirements of the tea bushes. Maximum yield is achieved approximately 10 years following establishment.

In north Queensland, once the tea bushes have matured, harvesting of the green tea leaves occurs approximately every three weeks. The time between harvests increases over the winter months in areas where winter temperatures are low enough to cause a reduction in growth rate. Harvests are undertaken every four weeks during winter months on the Atherton Tablelands, which experience a cooler winter period than coastal areas of north Queensland. There is believed to be no reduction in the quality of tea produced over winter months in the north Queensland region. Following harvest, green leaf is required by one Australian processing factory to be transported to the processing plant within 90 minutes of harvesting to maintain quality.

In northern NSW, there is a 4 to 6 month period over the winter months where the tea bushes are not harvested as low winter temperatures inhibit the production of leaves by the tea bush. During this off-season the plants are trimmed and fertilised, and infilling is undertaken which involves planting tea bushes in any gaps in the hedge that might exist. World-wide, some producers believe the tea plants should be grown in seasonal areas so the plants can be spelled over winter in order to produce quality tea, but other producers believe a spelling period is not required to maintain quality. In northern NSW, tea is harvested every 3 weeks at the beginning of the harvest season, and this time reduces to every 7 to 10 days during the peak season (January to March).

Fertiliser is required to maintain tea quality and yields. Fertiliser is considered an important but very costly input. Information regarding the optimum quantity of fertiliser to apply and the timing of fertiliser application is unavailable for Australian growers and is considered by one Australian tea producer to be a significant gap in knowledge for efficient tea production.

Irrigation may be required to establish young tea bushes in their first year, but is not necessarily required following successful establishment of the plants if rainfall is high and reliable. One Australian tea producer considered it important for tea to be grown in high rainfall areas, as it may be uneconomic to provide irrigation for tea on an on- going basis. Irrigation in high rainfall areas may be required in emergency situations such as drought, as if tea plants are not watered for three weeks, they are likely to cease producing leaves and die. In a lower rainfall region, another Australian tea producer uses irrigation across all seasons to supplement rainfall. Traveller irrigators are considered suitable for tea production.

The black tea bush is not particularly susceptible to Australian insect pests and diseases. Weeds are of concern to tea producers, and are typically chemically controlled. Care with the timing of chemical application is required to ensure there is no chemical residue on the tea leaves at harvest.

There are no commercial manufacturers in Australia of planting and harvesting equipment required to grow tea. Equipment needs to be custom made but can be readily manufactured. Transport equipment is required to move the harvested green leaf to a processing facility.

Area of Black Tea The quantity of black tea produced in Australia is very small in comparison to total Australian consumption. It is estimated there are approximately 750 hectares of black tea plantings in Australia in 1998.

The area planted to black tea in 1982 was estimated to be 100 hectares, increasing gradually to a reported 775 hectares in 1991 (Wood et. al., 1994). In 1994, it was estimated there were approximately 900 hectares planted to tea in Australia, of which approximately 700 acres were situated in north Queensland (Wood et. al., 1994). There appears to be a net reduction in the total area of tea grown in Australia since 1994, although in some areas such as Atherton Tablelands, plans for new plantings have been implemented.

There are a number of tea plantations in Australia. Calata Pty Ltd is located on the Atherton Tablelands in north Queensland and is the largest estate. Madura tea is situated on the northern NSW coastline, Northern Rivers Tea at Casino, NSW, and The Daintree Tea Company is located in north Queensland. Smaller producers also exist, mainly in north Queensland.

Calata Pty Ltd (Glen Allyn Tea Estate) grows around 230 hectares of tea in the Butchers Creek area of the Atherton Tablelands. The total quantity of tea produced annually on Glen Allyn Tea Estate is increasing as the field plantings mature. Monthly swings in production are experienced due to climatic conditions, and

production compared to previous years may vary up to 100% or more. This factor has a large bearing upon factory size and throughput capacity.

Individual growers of tea situated on the Atherton Tablelands and on coastal regions of northern Queensland grow a total of approximately 300-400 hectares of tea in addition to that grown by Calata Pty Ltd. The size of farms range from 15 hectares to over 40 hectares. Most tea is grown by farmers that produce only tea. One tea grower also produces sugarcane and manages beef cattle; another grower also produces bananas. The annual production of tea grown by individual growers has not changed significantly over recent years.

The Daintree Tea Company is a family-owned business that manages approximately 40 hectares of tea, of which 20 hectares is owned by the Company. The company grows, processes, packages and markets Daintree Tea through specialty shops in Queensland, particularly within northern Queensland and Brisbane.

Another family based operation in north Queensland commenced production of green leaf tea in 1985, and grew 60 hectares of tea by 1997. The tea was either sold as green leaf to Tea Estates of Australia Limited (TEAL, a large scale processing factory situated on the Atherton Tablelands), or from 1994 was processed by a small scale factory on-site, packaged and retailed as ‘Johnstone Valley Tea’. This operation has recently ceased production due to family circumstances.

In NSW, Madura is estimated to grow approximately 25 hectares of tea and Northern Rivers currently has approximately 106 hectares of tea bushes planted. The area currently being harvested by Northern Rivers is 50 hectares.

Yields Yields of tea vary due to management techniques and the success of establishment. NSW Agriculture tea trials at Wollongbar yielded 2 tonnes of black tea per hectare on the fourth year of harvest. An exceptional clonal planting in Kenya has yielded 8 tonnes of black tea per hectare, and the theoretical maximum is 16 tonnes black tea per hectare (NSW Agriculture, 1988).

It is difficult to ascertain actual typical tea yields for Australian plantations. A range of yields achieved by a number of producers and publications were sourced. Of the five growers from which yield information was sourced, four growers are situated in north Queensland, and one grower is situated in northern NSW. The yields reported by growers in Australia ranged from 6.0 to 18.0 tonnes of green leaf per hectare per year, with an average yield estimated at 10.6 tonnes of green leaf per hectare per year. It is reported by NSW Agriculture, 1988 that experimental plots yielded 9.0 tonnes of green leaf per hectare per year. A QDPI study of the economics of tea production (Sing, 1990) assumed a yield of 13.6 tonnes of green leaf per hectare per year.

Consultation with a QDPI Extension Officer (pers. comm., 1998) familiar with tea production commented that the yield currently achieved by growers in north Queensland is likely to be less than 10 tonnes of green leaf per hectare. One factor contributing to the low tea yields achieved in Australia may be the age of the tea bushes. Tea takes approximately 10 years to attain maximum yield, and tea bushes less than 10 years old would not yet have achieved maximum yield. However, there is a significant area of tea in Australia that was established over 10 years ago, thus the contribution of this factor to low tea yields is likely to be minor.

An experienced overseas tea grower estimated that overseas yields for tea established from seed range between 9 and 16 tonnes of green leaf per hectare, and yields for tea established from cuttings/clones range between 18 and 32 tonnes of green leaf per hectare. As all tea grown in Australia was established from seed, there may be potential to significantly increase yields by identifying superior clones and establishing tea from cuttings. RIRDC Project DAQ-122A entitled ‘Assembly and Preliminary Evaluation of Imported Tea Clones’ commenced in 1993 and within this project the adaptation and vigour of clones imported from Africa and Asia were assessed in north Queensland. Resources were not available within the project to assess the yield potential of the clonal tea, but the imported clonal material has been maintained by QDPI, and is available for future research work. A QDPI officer estimated yields from tea established from cuttings would be 20 to 100% greater than the current yields achieved in Australia from tea established from seed.

Quality of Australian grown tea is generally considered satisfactory, although it is quite possible that tea established from cuttings/clones and grown under irrigation (in the more variable rainfall areas) would provide a more regular and consistent quality of leaf throughout the year.

Price Received by Growers Australian tea growers compete with other producers of tea in the world market who export to Australia. Imported tea is usually produced with low or nil levels of mechanisation and very low labour costs. The price that TEAL pays growers for their green leaf is calculated from the Australian import price of black tea, as reported by the Australian Bureau of Statistics. TEAL apply a formula to convert black tea to green leaf and also provide an automatic premium above the import price. This in effect raises the price paid by TEAL to growers above the average import price.

Prices offered by TEAL, excluding 1998 prices, typically range from $0.18 to $0.25 per kilogram green leaf, and the average price offered is around $0.20-$0.21 per kilogram of green leaf. In 1998 the import price rose to over $0.36 per kilogram of green leaf. TEAL has reported that buyer resistance has been encountered when trying to sell the finished product at this level. This is because spot purchasing from overseas suppliers well below this price can be undertaken, especially if the purchases are made in US dollars.

Prices for black tea imports are reported monthly by the Australian Bureau of Statistics (ABS). Australian black tea processers report the price for which imported black tea can be purchased within Australia maintains a level of between $0.90 and $1.11 per kilogram. This translates to between $0.18 and $0.28 per kilogram of green leaf, based upon a conversion factor for green leaf to black tea of 4:1 to 5:1. Australian growers report the prices received for green leaf are typically around $0.20 to $0.22 per kilogram. On occasion, peak prices of $0.25 per kilogram of green leaf have been received by growers.

There is considerable variation in the world price for tea. For instance, prices paid by Australian packagers for black tea at June 1998 is between $2.90 and $3.90 per kilogram, approximately 3.5 times the average imported price over several years. The reason for this high price is believed to be the shortage of tea on the world market due to drought in major tea producing countries. The exchange rate also influences the import replacement price for black tea. Despite the high recent price of imported tea, the price received by growers over this period reportedly increased only slightly to $0.25 per kilogram of green leaf.

Some small niche markets have been identified by individual growers that also process tea. Prices of up to $7.00 per kilogram of black tea have been received by growers for small sized bulk quantities of quality tea. Such markets include the bush food market.

To the knowledge of the authors of this report, the most recent economic evaluation for tea growing in north Queensland was undertaken in 1990 by QDPI Atherton (Sing, 1990). The purpose of the evaluation was to determine the break-even price tea growers require to cover production costs. The evaluation was undertaken using benefit-cost techniques and a 6% discount rate. All values were expressed in 1989 dollar terms. Data were collected from various tea producers in north Queensland, and analyses undertaken for various sized plantations. It was concluded that growers required a price of $0.21 per kilogram of green leaf to break-even on cash costs for 24 hectares of tea, assuming yields of 13.6 tonnes green leaf per hectare were achieved.

It was reported this break-even price was very close to the actual price being paid at the time of analysis. The yield assumed in the analysis of 13.6 tonnes green leaf per hectare is above the yield currently achieved by Australian growers (Refer to Table 1). If a yield of 10 tonnes of green leaf per hectare was assumed, the break-even price for a 24 hectare plantation would increase to approximately $0.29 per kilogram of green leaf.

Within the QDPI economic analysis, a sensitivity analysis was undertaken to determine the break-even price required to cover all cash costs for a larger, 40 hectare tea plantation. It was estimated the break-even price falls from $0.21 for a 24 hectare plantation to $0.145 per kilogram of green leaf for a larger, 40 hectare plantation, assuming yields of 13.6 tonnes green leaf per hectare. If yields of 10 tonnes of green leaf per hectare were achieved, the break-even price for the 40 hectare plantation is estimated to be $0.20 per kilogram of green leaf. The economic evaluation concluded significant economies of scale exist for tea production, and that a 40 hectare plantation would not require significant more machinery and labour than a 24 hectare plantation (Sing, 1990). These economies of scale may not be recognised by tea producers that currently grow a small area of tea. A tea harvester was developed in the early 1990s capable of harvesting an area of 200 hectares, thus the economies of scale in production may be greater than that envisaged in the 1990 evaluation.

If the cost of land is also included in the analysis, for a 24 hectare plantation, and assuming a base yield of 13.6 tonnes of green leaf per hectare, the price required for growers to break-even is reported to be $0.410 per kilogram of green leaf. For a larger 40 hectare plantation, a break-even price of $0.264 cents per kilogram of green leaf is reported to be required if the cost of land is included in the analysis.

As illustrated, the profitability of tea production appears marginal based upon the assumptions made in the 1990 analysis, particularly for smaller areas.

Due to the marginal profitability of tea production, growers may experience shortages of cash, particularly when prices received by growers are low. This may constrain the efficient and economic use of inputs, such as fertiliser.

2.2 Processing The processing of green tea to produce black tea comprises five successive operations. These five operations are: • withering, • rolling, • fermenting, • drying, and • sorting.

Following harvest of the green leaf, the green leaf is delivered to the processing plant typically by truck. Payment is made to the grower based upon the weight of the green leaf delivered. Some growers also have processing facilities on-site, and undertake the processing function themselves.

The first stage of the processing may involve placing green leaf in withering troughs and removing approximately 60% of the moisture in the tea leaves. Some operators

may use a different initial stage of processing to withering. The second stage of the process involves rolling or crushing the leaves to prepare the leaves for the fermentation stage.

Fermentation is then undertaken whereby green leaf is transformed to black tea. This is considered a critical part of the process as if the tea is insufficiently fermented or over-fermented, it will be of an inferior quality. The next stage of the process involves drying the black tea to remove most of the moisture. The weight of black tea is 20-25% of the weight of the green leaf delivered to the processing unit. Thus 75- 80% of the weight of green leaf is water removed during the processing phase. Finally, a sorting process is undertaken to separate according to form (separation of the whole leaves from the broken leaves), and to sort the leaf according to size. Black tea is the main product line produced by Australian processors although small quantities of fermented tea and fruit blend black tea are also produced.

There is only the one large scale tea processing operation in Australia (TEAL). Several smaller sized processing operations also exist. Each processing operation is described as follows.

TEAL TEAL tea processing plant is situated adjacent to Glen Allyn Tea Estate at Butchers Creek and black tea is produced in this modern tea factory during most months of the year. This processing plant currently processes tea grown on approximately 500-600 hectares located around Innisfail and the local area. The majority of tea processed by TEAL is purchased by Nerada Tea Pty Ltd, and small quantities have also been exported to Malaysia and the UK in recent times.

The TEAL processing factory faced a number of initial difficulties in designing tea making and drying equipment to cope with high cropping periods called ‘spikes’. The factory was aiming for a high hourly green leaf throughput with minimal amount of labour to run the factory. TEAL is required to produce black tea at a price which will compete in price and quality with overseas factories where spikes in growth are less severe (less capital intensive) and where labour and fuel are less expensive. TEAL now has an efficient tea processing factory which produces consistent, good quality black tea throughout the year.

Around 90% of tea produced by TEAL is suitable as prime grades which include Leaf Tea grades and Tea bag grades. Between 5 and 7% of tea produced by TEAL is sold as off grades, and the balance is dumped as there are no markets in Australia for this lower grade tea product.

Madura A quantity of green leaf is processed by Madura tea in northern NSW. It is estimated the area processed by Madura is around 25 hectares. The Australian grown black or green teas are then blended with imported black tea and packaged under the ‘Madura’ label. The reason stated for blending the Australian and imported teas is to maintain a consistent quality, as the taste and quality of teas vary over the harvest season. Madura does not source any tea from other tea growers in Australia. However, if tea grown in the local region was of acceptable quality and price, the organisation would consider out-sourcing the supply of locally produced tea.

Northern Rivers Tea Northern Rivers Tea process leaf grown on its two plantations near Casino and Lismore at its factory situated at the Casino plantation in northern NSW. No additional quantities of green leaf are out-sourced. It is estimated that 30 tonnes of black tea could be processed in 1998/9, and the factory has the capacity to potentially produce 100 tonnes of black tea per annum. Some marketing problems have been encountered in the past resulting in the loose leaf tea line to be dropped from some supermarkets. The Northern Rivers Tea company is currently on the market, and is requiring financial assistance for marketing and extending the processing factory and plant.

Daintree Tea Company A small processing plant is located in north Queensland and processes green leaf produced on approximately 40 hectares, also owned by the Daintree Tea Company. This is a small scale factory, and is operated as a family business. Approximately 70 tonnes of black tea are produced by the Daintree Tea Company per annum.

2.3 Packaging Packaging involves transforming bulk black tea into a final product, ready for sale on the retail market. Packaging involves sourcing black tea, blending (optional), tea bagging, packaging into the retail package, and then packaging in bulk for transport to the wholesaler.

Packaging of imported tea is undertaken by several large operations in Australia. Black tea processed by TEAL is packaged and marketed by Nerada using the ‘Nerada’ brand. Nerada packaging operations are based in Brisbane. Nerada also package Australian grown and imported black tea, and other types of tea, on a contract basis for other brands.

Madura and Northern Rivers package their own products on site in northern NSW. Daintree Tea Company also packages its own products on site in northern Queensland. The Daintree Tea Company packages approximately 80% of its tea in teabags, and the remainder is sold as loose leaf tea.

Commercial tea packaging requires relatively expensive capital equipment, and economies of scale are an important feature of the tea packaging sector.

Australian grown black tea is presented in a range of final packaging. From a brief survey of two supermarkets in the inner Brisbane area, it was found the most common packaging for Australian grown black tea include: • package of 50 teabags (Nerada, Madura, Northern Rivers, Daintree) • package of 100 teabags (Nerada, Madura) • 250g loose leaf tea (Nerada, Daintree)

2.4 Marketing The majority of Australian grown black tea is marketed via the supermarket sector. Nerada and Madura tea distribute tea to major supermarkets across Australia. The distribution of Northern Rivers Tea is more restricted within the supermarket sector. The Daintree Tea Company markets its final product using an agent, and currently distributes to tourist retail outlets and specialty shops in northern Queensland, and Woolworths supermarkets throughout Queensland. Johnstone Valley Tea was sold locally and via a mail-order service, but as previously stated, has recently ceased operations.

The Australian black tea market is highly competitive. Australian grown tea is typically differentiated from imported black tea by promoting the ‘made in Australia’ feature on the packaging. Representatives of the major packaging organisations believe a significant proportion (approximately 30%) of consumers prefer the Australian made product to similar imported products.

In order to retail black tea via the supermarket channel, a critical mass of final product must be produced. As supermarket wholesalers stock many product lines, it may not economical for supermarket wholesalers to carry large number of individual product brands.

Price is an important feature influencing the consumers decision to purchase a particular brand of tea. Nerada tea is positioned competitively in the market place. Madura, Daintree Tea Company and Northern Rivers have positioned their products toward the higher priced end of the supermarket sector.

3. Future Market Penetration and Development

3.1 World Market There are five main tea growing regions in the world and each region produces tea with unique characteristics. The five regions are Ceylon, China, Taiwan, India and Japan. Other countries that supply significant quantities of black tea to the world market include Argentina, Sri Lanka, Indonesia, Vietnam, Malaysia, Kenya, Uganda, Tanzania, Malawi, Mozambique, Mauritius, Turkey, USSR, and Papua New Guinea. Most of these countries are characterised by low technology, labour intensive production systems and low labour costs. Black tea is consumed world-wide, and large quantities of tea are traded on the world market. Teas are classified and graded according to size of leaf, the way in which they are rolled, and the type of tea.

In order to sell black tea on the export market, a sample of the product is required to be sent to the prospective buyer for testing. The results of the quality tests and the current world prices determine the price the market would bear. Small quantities of bulk packaged Australian grown tea have been exported to Malaysia and UK in the past, but no exports occurred in 1998. It is possible the export market will be tackled by Australian tea processers and/or packagers in the future, although this is envisaged to be some time away due to the larger quantities and consistent quality usually required to penetrate export markets.

3.2 Australian Market The quantity of black tea consumed in Australia is estimated to be approximately 17,000 tonnes per annum, and is slowly contracting. Figures sourced from the Australian Bureau of Statistics indicate the total quantity of black tea apparently consumed from 1988/89 to 1993/94 has declined 13% (ABS, 1994). Furthermore, apparent per capita consumption has fallen from 1.1 to 1.0 kilograms per head over the same time period. However, the value of packaged black tea sold in Australia is perceived to be increasing as the market share of leaf tea is falling, and the market share for teabags increases. It appears the quantity of tea sold as leaf tea has decreased, and sales of tea packaged in teabags has increased. The quantity of black tea required to make a cup of tea from leaf tea is approximately 2 to 3 times greater than the quantity of black tea required to make a cup of tea from a teabag. Thus, although the quantity of black tea consumed is declining in weight terms, the number of cups of tea consumed in Australia may be relatively static.

There are a number of outlets for black tea in Australia. The supermarket retail market is the largest sector. The hospitality sector is another smaller sector, including restaurants, hotels, motels, and airlines. It is estimated that approximately 90% of black tea consumed in Australia is retailed by supermarkets.

The majority of black tea sold in Australia is sold packaged in teabags, rather than in loose leaf form. The segments of the Australian supermarket retail tea market for tea- bagged product are detailed in Table 1. All categories refer to black tea except for ‘specialty’ and ‘herbal’.

Table 1. Segments of the Supermarket Retail Tea Market for Tea-bag Products, 1995

Segment Value Volume ($ million) (million bags) String and tag (mass) 75.8 2.6 Multi purpose 30.1 1.4 Pot bag 5.1 0.2 Specialty 23.1 0.4 Herbal 15.8 0.2 Total 149.9 4.8 Source: Anon, 1995. ‘Australian Grocery Industry Marketing Guide’. 5th ed. (Retail World, Rozelle, Australia).

It is estimated between 5 and 10% of tea retailed via supermarkets is grown in Australia, with the remainder comprising imported tea. The supermarket market is very competitive and there are many brands of tea which are presented in various packaged forms. Individual product characteristics include: • size of package (number of teabags, quantity of leaf), • type of tea (leaf, tea bag, pot bag), • type of tea-bag (regular, squeezable), • quality of tea (premium blend, regular blend, breakfast tea), • type of external package (box, ‘milk’ shaped carton).

The majority of the major brands available via supermarkets are owned by multinational food product organisations such as Unilever. There are a small number of well established brands of black tea such as Bushells, Lipton, Harris, Tetley, and Dilmah.

The brands promoting Australian grown tea included Daintree Tea, Madura, Northern Rivers, Nerada and Home Brand.

The supermarket sector of the black tea market can be divided into three price segments. The retail prices for black tea are reported in Table 2.

Table 2. Examples of Retail Prices for Black Tea, Brisbane, June 1998

Brand Name 50 teabags 100 teabags 250g loose leaf (90/100g) (170/190/200g) tea Low Priced Harris 1.46 2.97 na Highfield na na 1.85 Home Brand na 1.45 na King na na 1.89 Medium Price Billy Tea 1.79 na 2.53 Bushell 2.04 3.63 3.13 Dilmah 2.14 3.65 na Goldenia na 3.29 2.67 Lan-Choo na 3.39 2.59 Lipton (standard) 1.91 3.69 na Nerada 1.93 3.59 2.06 High Price Daintree Tea 2.99 na 2.99 Lipton (high quality) 2.46 na na Madura 2.95 5.53 na Northern Rivers 2.55 na na Tetley 2.29 4.15 na na – Not Available

As illustrated, there are three distinct pricing sections: high, medium and low. Home Brand tea and imported brands of loose leaf tea are available at the lower end of the price range. The majority of brands are priced competitively in the middle of the price range. A relatively smaller number of brands compete with the high priced segment of the market. As reported earlier, with the exception of Nerada and Home Brand, the Australian tea brands are all in the higher priced sector.

4. Future Economics of Production and Industry Growth

The key factor driving the price of black tea in Australia is the price of imported tea. As the majority of black tea retailed in Australia is imported and the cost of production overseas is low, it is likely Australian production will need to be price competitive with imported tea in order for increased growth of the Australian black tea industry to occur. The Australian retail market for black tea is segmented according to price, and a proportion of consumers recognise a quality or Australian made product, and are willing to pay a premium for these characteristics. However, the majority of tea sold on the market is within the medium priced range, and this situation is unlikely to alter in the future. Thus, in order for the Australian tea industry to expand significantly in the future, the Australian made tea products will need to be price competitive with imported products as the quantity of tea that can be supplied to the high priced segment is limited. The quantity of tea marketed within the high priced sector is unquantified, and growth trends for this sector are also unknown. Growth in the Australian tea industry may also occur as a result of expansion of exports. There may be a niche market for Australian grown black tea products in various overseas countries that could be exploited in the future although quality, consistency and quantities available may be constraining.

As the cost of processing and packaging tea in Australia was not determined in this brief study, it is difficult to be prescriptive regarding the price a tea processer can pay growers for green leaf. As earlier reported, prices received by growers in north Queensland are typically around $0.20 to $0.22 per kilogram of green leaf, although this price fluctuates depending upon the state of the world market. The majority of tea growers produce tea from a small area of land, although there is one large grower in north Queensland. The majority of green leaf produced in Australia is processed by TEAL on the Atherton Tablelands.

The most recent economic assessment of tea production in Australia (Sing, 1990) concluded that if a yield of 13.6 tonnes of green leaf per hectare per year was achieved and the cost of land was included in the analysis, a break-even price of $0.264 would need to be received in order to break-even at a 6% discount rate. These results were estimated for a 40 hectare area, and economies of scale could possibly be achieved for areas larger than this. The yields currently achieved by growers are believed to be significantly below 13.6 tonnes green leaf per hectare per year. Consultation with a number of tea growers indicated the average yield currently being achieved is around 10 tonnes green leaf per hectare per year. Thus, the economics of a grower supplying green leaf to a large processer are likely to be marginal. Based upon prices received of around $0.20-$0.22 per kilogram of green leaf, and yields of around 10 tonnes of green leaf per hectare per annum, returns to investment are likely to be negative using a 6% discount rate.

However, excluding the cost of establishing tea bushes, the annual returns to growers are likely to cover the variable costs of maintaining and harvesting green leaf. Total variable costs reported by Sing are $1,035 per hectare for the first year, and $458 for a standard year post-establishment. Thus, most growers are probably remaining in the industry as the annual variable costs can be met. It may be concluded that tea growing in Australia established from seed is probably marginally economic. Consequently growth of the Australian tea industry is slow.

It is unlikely the average price received by growers for green leaf will increase in the short to medium term, as prices are largely determined by the world market. It is possible improved economies of scale achieved by processing factories may lead to a slight improvement in the price obtained by growers. However, as the cost of processing is believed to be relatively small compared to the price received by growers, changes in processing costs may not lead to a significant improvement in the price for green leaf.

There is potential to improve the average yield tea growers achieve. One of the main reasons why yields of 13.6 tonnes per hectare are not currently achieved by Australian growers is because fertiliser and other inputs are not currently being managed correctly. It is believed that when the price for green leaf falls, the level of inputs is reduced (particularly for smaller growers). The economics of production at varying prices and levels of inputs are believed to be poorly understood by growers. There may be an opportunity to improve the prospects for Australian black tea growers by compiling existing information on yield responses to fertiliser and the economics of production at various fertiliser application regimes, and extending the results to growers. It may be of benefit to update the financial model utilised by Sing (1990) and use this model to investigate the impact of alterations to fertiliser inputs. Additional field trials may also be of benefit depending on the extent of information available, and how long ago price and cost assumptions were made. Further, based upon overseas experience, the use of tea grown from cuttings or clones, rather than from seed, is also likely to significantly increase yields.

Tea production should be undertaken on reasonably flat land to enable machinery access, and in high rainfall areas. There are areas of such land suitable for tea growing along the eastern seaboard of Australia, and any physical availability is not limiting the growth of the industry. However, it is unlikely current tea production would be able to compete strongly in economic terms with dairying, banana and sugar production, which are the main industries competing with tea for suitable land. Improved economics of production would be necessary for additional areas of land to be converted to tea production. It appears the low return on investment to tea growers supplying green leaf is currently a major factor constraining growth of the industry.

Another major constraint to the further development of the Australian black tea industry is market development. To tea growers considering establishing their own processing, packaging and marketing operation, there may be significant barriers to entry to the supermarket sector. Supermarket wholesalers may not be interested in taking on a new product line where there are already many brands available, and they already stock a number of ‘Australian made’ black tea brands. However, existing processors of black tea could out-source additional quantities of green leaf tea to

expand the market share of existing brands of Australian grown tea. Most ‘Australian made’ tea is positioned within the higher priced segment of the market, and there may not be capacity for additional quantities of product, or additional brands, to be sold within the high priced segment. This, however, was not fully investigated within this brief study, and the potential size of the high-priced sector of the market is unknown.

The area of black tea grown in Australia is relatively stable, although different growers have recently both exited and expanded production. Growth of the Australian black tea industry may occur in the future if the cost of production is reduced, if an export market is developed, or if increased market share of the Australian market is achieved. However, it is likely any growth in the industry will occur at a relatively slow rate given the market constraints operating and the current state of the Australian black tea industry.

5. Summary

The Australian black tea production and processing industry is small, and presently supplies approximately 5 to 10% of the total quantity of black tea consumed in Australia. The quantity of black tea supplied by Australian growers has remained relatively static over the past 5 to 10 years. The majority of black tea consumed in Australia is grown and processed overseas in developing countries where the cost of labour is low.

Tea is grown in north Queensland and northern NSW by individual growers and by processing companies. Processing is undertaken by some individual growers, and by one large scale processing company situated in north Queensland. Packaging and marketing are either undertaken by individual grower/processer operations, or by a specialised packaging organisation. The Australian market for black tea has changed significantly over the past decade, and is continuing to change. Trends indicate the total quantity of black tea consumed in Australia is declining slowly. The main outlet for black tea in the Australian market is the supermarket sector which is dominated by a small number of large multinational brands. Most of the brands promoting Australian grown black tea are positioned at the high priced end of the market. However, Nerada supply a significant volume of Australian grown black tea, and are positioned in the middle of the price range. Further development of the high priced segment of the market may be constrained by the potential size of this market segment, and by the price competitive nature of the Australian black tea market. The maximum size of the high priced segment of the market was not specifically investigated within this brief study.

Use of tea established from cuttings/clones rather than from seed is likely to result in higher yields and improved economics of production, as well as higher quality and consistency of leaf. Also, although technologies associated with tea production are largely known, there are apparent gaps in knowledge of tea growers regarding the production response from fertiliser, and the economics of increasing inputs such as fertiliser. Improved use of inputs could result in lower costs of production. It is uncertain whether cash flow factors are also reducing fertiliser rates, but this is most likely. More extensive use of irrigation could improve quality and consistency of product in variable rainfall areas.

Further, economics of scale in production is likely to be an important characteristic of the tea growing industry, but may not be recognised by some smaller growers.

In order to establish tea, significant capital investment is required. As bushes do not yield for several years, and take several more years to reach mature production yields, there are significant time lags involved between investment and returns. Further, competing industries such as sugarcane, bananas and dairying may be perceived as low risk, relatively price stable enterprises. Time has not permitted comparisons of the profitability with these other enterprises.

Significant variability is associated with the prices growers receive for green leaf. The prices growers receive are based upon the price of imported black tea, which can vary according to the exchange rate, the quantity of tea supplied on the world market and other factors.

There are a number of factors that will influence the growth and ultimate size of the Australian black tea industry. The major constraints include: • variability in prices received by growers, • low yields, due to all tea grown in Australia being established from seed as opposed to established from cuttings/clones, • lack of knowledge regarding the suitability of overseas-sourced, proven clones to Australian conditions, and yield potential, • lack of knowledge of growers of response to inputs, • relative profitability of competing production industries, • future price of imports and the competitive advantage developing countries have in tea production/processing, • the restricted size of the high-priced segment of the black tea retail market, and • the highly competitive retail market for black tea.

The major opportunities include: • the potential for reducing costs of production through improved agronomic knowledge and its application, and economies of scale, • the potential to significantly increase yields through establishment of tea from cuttings/clones, rather than from seed, • the potential to expand the size of the high-priced segment of the black tea retail market as a result of promotional efforts, • the potential to develop an export market for Australian grown black tea, and • the potential for tea margins to be reduced within the tea processing sector as a result of increased competition and increased throughput of green leaf without capacity expansion.

References

Department of Agriculture, NSW. 1988, ‘Tea Growing in New South Wales’. Agdex 277/20.

Sing, N.C. 1990, ‘The Economics of Growing Tea in North Queensland’. Queensland Department of Primary Industries, Atherton (RQM 91004).

Wood, I., Chudleigh, P. and Bond, K. 1994, ‘Developing New Agricultural Industries, Lessons from the Past’ (Volume 2). RIRDC Research Paper Series No 94/1.