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Regional
Trends Reshaping World Tea Markets

by Randy Altman

International zones in the tea business once limited by national borders have now become more independent than ever before. Regional organizations are gaining their own prestige and legal clout. The official regional entity with the most potential for impact on the tea trade in today’s era is the South Asian Association for Regional Cooperation, known as SAARC. At the global level, the World Trade Organization (WTO) is now the ultimate authority, with decision-making power that already influences nations’ tea tariffs, import/export rules, subsidies, and quotas. These regional and global systems are creating new opportunities - and new conflicts - for the entire tea trade.

Two of SAARC’s members, Sri Lanka and India, market most of the world’s quality value-added tea. However, SAARC is internally split, weakened by conflict between the most militarized members, Pakistan and India, who went to limited war last year in Kashmir. SAARC remains a regional organization poorly integrated into the power structure of global trade. On the other hand, China’s integration and access to global markets is strengthening, and the world’s most populous nation is now even close to WTO membership. Yet, while China’s tea production is massive, the quality is uneven.

China can earn additional hard “foreign” currency if their tea quality improves and their marketing modernizes. With over one billion people, China is a region unto itself. China’s huge governmental bureaucracy, in addition to its immense population, makes predictions about tea market share an especially hazardous activity. The third major world region is Africa, with Kenya being the trend-setter for the continent’s tea export. Tea is the top export earner for Kenya, the leading nation of Central East Africa. And yes, Kenya belongs to a regional trade entity, the Common Market for East and Southern Africa, which results in yet another acronym, COMESA.

In the African region, a conflict increasingly disrupting the tea trade is distressingly old in origin. Once again, ethno-religious difference is impeding the attainment of international markets for tea. The East African Tea Trade Association (EATTA) complained this past fall about what they perceive as unnecessary restrictions on travel of crucial tea buyers from tea-loving Islamic nations. In a bilateral trade relationship unknown to many in the Western world, the number one buyer of Kenyan tea is Pakistan. Four of the top five importing nations from Kenya are primarily Islamic. Most of these countries are in the Middle East, where tea is a beverage entrenched in the culture.

Islamic nations tend to outlaw alcoholic beverages, with harsh penalties for importing, selling, brewing, or distilling any type of booze. In this religion-based culture, tea has no competitor in beer, wine, or liquor. The Kenyan laws directed against travel from Islamic nations were imposed after the American Embassy bombing in Nairobi, which killed over 200 people and injured over 5,000. Under these new laws, a tea buyer from Pakistan can possibly wait two months for a visa to enter Kenya. Such delays throw tea trading backward in time, wasting money, killing sales, and mocking modernity in the millennium.

Tea executives throughout the world favor stable, consistent markets for buying and selling and crave new market mechanisms that reduce wholesale price volatility while allowing for long-term planning. One approach is the bilateral trade agreement. For example, the wealthy United Arab Emirates is striving for a global import/export tea hub at its multi-billion-dollar port in Dubai. This Islamic nation is increasingly visited by tea executives from Hindu-majority India. At the governmental level, India and the U.A.E. recently signed a series of little-publicized bilateral agreements, including a treaty, covering criminal and civil law. Political leaders, wishing to avoid public scrutiny and inter-religious controversy, downplay agreements as narrowly technical legalistic matters, preferring the very quiet promotion of bilateral commercial trade.

For centuries business leaders have provided a private, secret “back channel” forum for governmental negotiations between nations to fix market problems. The need continues. Egypt is finally, at the time of this writing, ending a de facto impoundment of a $20 million Kenyan tea shipment, held for a month at Port Said. Especially for Africa, this is a hugely valuable shipment, with impoundment causing disruption to the regional trade. In this African case, the private-sector intervention of regional tea leaders pressured government officials into finally allowing the tonnage off-loaded from ship. Tea makes a good pawn in international affairs, proven by the Boston Tea Party.

Tea executives forge links across national boundaries better than many politicians. Businesses are capable of independent, real-time, low-cost international discussions, via the internet. However, a company’s own rural plantations often have no reliable internet link to their central headquarters office. I have witnessed top managers and owners of big tea companies, on their own property, completely cut off from all forms of communication. Almost all tea fields are located in regions where land phone lines intermittently fail or simply do not exist, making e-mail via old infrastructure permanently impractical.

Fortunately, land-line telephone hook-ups are becoming unnecessary for internet access; a laptop computer may be taken into the field or certain cellular phones may now double as a computer. This technological advance will force the tea trade to either modernize on-site plantation telecommunications or suffer further decline in profitability. Tea executives, packers, shippers, and marketers will gain real-time data linkage with fields, which all too often are in areas with a full spectrum of backward land infrastructure: poor roads, airports, drainage, erosion, sewage, and power lines, not to mention telephone problems.

Producing regions’ telecommunications will be propelled forward by the internet, and their price-determining financial mechanisms will surely follow. The most elaborate (and controversial) price-stabilizing mechanism now planned is the futures market. The main technical upgrade needed is daily data flow from individual fields to the Futures Exchange. Lack of real-time plantation data fosters excessive speculation regarding quality, yield, and other crop specifications.

Modem-less internet access will facilitate accurate forward-looking assessment of seasonal yield, and will also reduce operating costs and time spent flying to distant tea fields. Internet sophistication can save more money by cutting dependence on regional auction houses. These auction houses can, in theory, be phased out completely. Auction houses are usually seen as “middlemen” that soak up cost and, when the situation is to their advantage, increase price uncertainty, delays, and speculation.

The global process for bringing buyers and sellers more directly together, in this case without auction houses, is termed disintermediation. Disintermediation has already produced cost-effectiveness and shareholder profit for modernized business, with catalog sales of premium tea as a perfect example. Advanced internet systems, combined with disintermediation, can support a price-stabilizing tea futures market, assuming the market is financially transparent, ethically instituted, and justly enforced.

One powerful, contemporary company strategizing for the future is Williamson Magor Group (WM), currently restructuring debt load and spinning off non-core subsidiaries. Williamson Magor is unique among multi-national tea companies, revolving around three areas of expertise: tea, distribution infrastructure, and batteries. WM Group consists of interdependent subsidiaries with their own successful brand names, such as Premium Gold and Tez teas, and Eveready batteries.

WM Group owns Eveready Industries Ltd (EIL), which maintains a direct distribution channel to 500,000 retailers. Well-positioned for the technology-based millennium, Eveready Ltd of India expects “Billionth Battery” status attainment in the year 2000. WM’s tea volume is equally world-class, reportedly reaching annual production of 70 million kilograms, with possible expansion to 100 million kilograms by 2005, fueled by more acquisitions.

WM’s powerful existence is kept relatively low-profile, a standard strategy in the Asian region, where family-controlled companies predominate. The clout carried by the top families usually operates best behind-the-scenes. For a company that sells retail to millions of consumers, the important image is the public recognition of brands, not the corporate parenthood. Consumers identify with and buy brands, not complex corporate hierarchies. When a company is huge and owns many diverse subsidiaries, consumer consciousness of the linkage among all the products becomes tricky.


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