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Global Glut Ahead?


The concern with “over-production” of tea continues to rise. I now hear routinely from trade executives and government officials on this topic, with the question phrased along the lines, “will what is happening with coffee happen to tea?” Most industry insiders assume over-production of tea. The wild factor that could actually kill the entire assumption is an Indo-Pakistan war. India simply produces more tea than any other nation on the planet, and Pakistan itself is a major player in the tea game, as a big consumer and lower-level producer.

The tea trade must keep an eye on the Indo-Pakistan conflict. Amazingly, an under-production of tea could ensue from a regional nuclear war. Nuclear weaponry, held by both India and Pakistan, is too complex a problem for any tea businessperson to master. To simplify, an Indo-Pakistan war would “go nuclear” only if Pakistan is the first to fire a nuclear device. India reiterated the week of this writing that it retains a “no first use” policy, a stabilizing stance in the Age of Terrorism.

In late spring of this year, governments ranging from the U.S., the U.K., Japan and Germany repeatedly issued unprecedented Travel Warnings covering the entire Asian subcontinent. The tea business is globally connected to the events befalling the world after 9/11. If we assume no Indo-Pakistan war, then attention turns to another vexing question: Just how much tea is produced now in 2002?

This article is not the forum for statistics. Tea Boards and associations frequently churn out such data. I recently completed a five-week tour of the area, and can attest that the official data are far too low. The point is not to focus on a “numbers game,” but to analyze impact on tea trade and predict future trends. (Anyone wishing data is advised to simply contact the closest Tea Board or association.)

As for current impact of production levels, hardest hit is the small-holder in south India. A role model is Sri Lanka, showing flexibility to manufacture types of tea desired in world markets. The new production expanders, Vietnam and Indonesia, are focusing on one type of tea, mass-market category, with Vietnam possibly doubling or tripling output. The tea industry must look at the paradox of certain areas increasing cultivation while other areas decline. Basically, labor costs in Vietnam are the lowest imaginable, and low too in Indonesia. The second factor is economy-of-scale, which improves as a nation ramps up output.

The anticipated increase places severe pressure on mass-market regions already losing money, but elite regions also suffer from new competition. Darjeeling fears the increasing production by Nepal. The concern with Nepal initially confused me, because the branding advantage held by Darjeeling is enormous. The Darjeeling worry revolves around unauthorized mixing with the similar, but lower-cost, Nepali tea. The concern involves false labeling, indicating only Darjeeling as the source.

The Darjeeling versus Nepal controversy covers a tiny percentage of total world tea production. Yet, this market share fight is based on increasing production from one player, and moreover demonstrates the essential role of value-added manufacturing. I frame the debate concerning “over-production” not as a tonnage issue, but as a quality or value-added issue. From this perspective, the south Indian small-holder suffers because of inability to improve or diversify the product, not because extra tea comes out of, for example, Vietnam.

The new global competition should be seen as primarily one of quality, not quantity. This marketplace orientation can provide an advantage to the older, established producer nations. However, action to upgrade cultivation and manufacturing is merely sporadic, although here Sri Lanka appears to hold a lead. Still, even Sri Lanka often neglects to follow through with well-planned marketing of the wholesale product.

A value-added product should not be the final step of national, or regional, output. India, as one case, just spent large sums on market research, but tends to under-emphasize the basic marketing tool of advertising. Industry leaders complain about output increases from the “new” competitors, but in this age of export globalization, such competition is inevitable, and the sophisticated response requires promotional expenditure to keep one’s standing.

Much of the nationally-sponsored market research seems wasted, although to be fair, a significant amount of the money is often donated by international aid agencies. The work of generically promoting tea from an entire nation or region is important and evolving. More private-sector business input is needed, and Tea Boards/Authorities are generally becoming more responsive.

One nation, let alone one region within a nation, like Darjeeling, cannot prevent another nation from growing more tea. Even if a well-funded international forum for tea were existing, it would have no power to dictate any sovereign nation’s output. Bangalore’s Secretary of the Chambers of Commerce, T. Ramappa, reminds me of the phrase “borderless world,” which does increasingly apply to the international flow of tea, even with ethno-religious conflict so much in the news.

So, what can a nation or a region do? Tea is under-promoted by the established producer-nations and regional bodies, especially when compared to another “soft” commodity, coffee. Relatively low-cost globally-reaching advertising venues exist, but industry officials historically overlook more frequent use of long-established venerable print outlets. Television is simply too expensive, beyond producer-nation budgets. The issue becomes not solely tea output, but promoting an image of respectability, reliability and marketability for the product.

Many, many nations grow tea. China and the producing African nations maintain relatively stable borders, as do Turkey, Argentina and Brazil. Do not forget Brazil, which is rarely mentioned in discussions of increasing output. I do hear of more tea, including green, coming out of this South American nation. If indeed a global glut occurs, producers are best served by a value-added identity to their tea, separating their product from the rest.

Again, the next step is protecting this brand identity, and not just by the new and important technique of regional trade marking and copyrighting, performed most significantly by Darjeeling. Advertising is crucial to any effective marketing, by protecting the “image” and carving out a demand for the turf on which the tea grows. Producer nations’ best strategists are now frequently mentioning value-adding in cultivation and manufacturing, but the marketing stage remains under-utilized.

Almost never discussed by industry leaders are the rare cases of nations who could grow excellent tea simply refusing to do so. officials of Bhutan including rank of Minister, and they know they can grow fine, profitable tea. Bhutan is a relatively self-contained society, perhaps the world’s only actual theocratic monarchy; it is a pleasantly stable Buddhist Kingdom.

Bhutan could, by command from the top, grow tea that would be in marketplace demand. They decide to forgo the “hard” “foreign” currency because of concern over union radicalization and a non-native majority among the laborers. Bhutan specifically tries to avoid the type of bloody Maoist insurgency now fighting Nepal’s monarchy. Yes, we are back to the role of international conflict in tea production and export. In Bhutan’s case, the potential for conflict pushes them away from starting production of an elite-niche premium tea.

Sri Lanka, always very export oriented, represents hope in a troubled world by apparently heading to a peaceful negotiation of their destructive ethno-religious conflict. Peace will free much more money for this nation’s tea business. Sri Lankan tea leaders often talk of peace enabling the buying of new infrastructure, such as super-modern tea bagging machinery, even entire factories. We will see if Sri Lanka proceeds beyond equipment, to protecting the image of the output in the global marketplace.

Any discussion of output levels and quality must at least mention the weather. The likelihood of a glut of mass-produced tea is always contingent on the weather, not just high-tech concerns like nuclear weaponry. And, the weather is not under the control of nations. Industry leaders must focus on what is, in fact, under their control or guidance. One expert, Dr. A. Damodaran of the prestigious Indian Institute of Plantation Management, calls for diverse types of value-added tea, including organic. Organic output helps a nation not just export tea, but also improves the environment and increases employment. Organic tea is simultaneously labor-intensive and profitable, assuming proper marketing to the health-conscious middle and upper classes.

The industry is capable of implementing long-term options, to move beyond merely talking about other nations’ increasing output. Here is one statistic: the Associated Press reports that Kenya’s tea production rose 25.4% in 2001. Other nations have no control over Kenya’s output. If a global glut occurs, what is the best array of market niches for a nation? National Tea Boards and Associations can guide their clients toward profitable niches, combined with efforts to control the global image of their tea. Only marketing sophistication can protect the product after export has taken place.

Competition is nothing new, but the amount of tea seems headed toward an excess at the mass-market level. The best response is a well-made diversified product that sees its reputation enhanced by promotional activity in globally circulating venues. These “generic” promotional campaigns are usually performed by national or regional bodies, such as Tea Boards, Authorities, Councils or Associations. However, multi-national corporations based in the venerable tea-centric nations, from the U.K. to India, are in somewhat the same position as the non-profit bodies. These established MNC’s are least likely to own plantations in the newly expanding areas. The private-sector large producers are wise to protect market share with advertising in cost-effective venues targeted to the wholesale trade, plus, when affordable, broader promotions.

The world has gotten stranger, with new dangers. Tea business leaders need not be international-relations experts to realize their own trade faces more confusing factors than ever before. In such a world, the time-tested techniques that signal market share protection do indeed provide a safety net. Tea is one of the good things about the world. Tea production in greater quantity is not necessarily bad for a realistic trade.

Specifically, I think tea as a “comfort” beverage providing feelings of security should be the next big retail advertising angle. More tea may mean more use of simple methods, wholesale and retail, that provide some security for producers. A sense of security sounds good to me.

Randy Altman, in addition to being a knowledgeable writer on the subject of tea, has advised the United Nations and other transnational organizations, and has held directorships and officerships at various non-profit corporations. He also holds several adjunct academic appointments.

Tea & Coffee - September/October 2002
Modern Process Equipment


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