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Environmentally Hot Tips Sustain the Price of Tea

By Dr. Terry Mabbett

Dr. Mabbett examines the reasons for the continual decline in tea prices, and what companies like Unilever are doing to successfully sell tea produced on sustainable farms at low, competitive prices.

Even though the price of every other commodity continues to rise, tea prices continue to fall as they have over the last 25 years. Market comparison of tea and coffee could not be more different. Coffee prices reached a nine-year high in 2007 fed by fear of droughts cutting production in Indonesia and Vietnam and predicted cold conditions damaging the world’s biggest coffee crop in Brazil. No such worries in the tea industry though, which could be wishing for inclement weather to cut back oversupply as newer producer nations like Vietnam and Cambodia contribute to tea surpluses higher than ever before.

Price deflation is good news for tea drinkers but the industry is worried that long term tea production and quality is unsustainable if faced with further falls in price. Reports in the international press of tea estate workers in West Bengal, India literally starving to death because tea gardens could not survive on the low price of tea is proof, if ever proof was needed. Hundreds of tea pickers in the northeastern Indian region home to “Darjeeling” (the “champagne” of tea) clearly have no cause to “toast” and celebrate rock bottom tea prices.

Tea Sustainability
Sustainable tea is the talk of the town, but “sustainable” is an over-used and abused word regularly taken out of context. “Sustainable” means to maintain or keep something going. In contemporary crop commodity terms, this means measured use of environmental resources. For commodities like coffee, cocoa and tea produced in tropical developing countries, the word is used in a broad term and context to describe a program for boosting general livelihood and quality of life of tea growers and communities, while maintaining environmental integrity.

The growers are only one side of the tea equation. Sustainable tea will only work if consumers keep on drinking the beverage and those in the middle, the packers and distributors, are able to buy and sell at a profit. That is why one-sided price manipulation in favor of growers and at the expense of consumers is laudable but unsustainable.

Sustainable tea in the Netherlands was on the agenda in May 2006 when Dutch tea companies and non-governmental organizations (NGOs) started to discuss ways of improving social and environmental performance in the tea industry. Some of the largest tea packers and distributors in the Netherlands: Sara Lee International, Unilever and the supermarket branch Albert Heijn (part of Ahold), gathered for the first-ever round table conference with NGOs to discuss progress in corporate social responsibility for the Dutch tea sector. On the table was a report entitled “Sustainabilitea: the Dutch tea market and corporate social responsibility,” produced by the Tea Initiative. Catchy phrases alone won’t be enough to overhaul the world’s tea industry and overcome supply/demand and pricing crises.

Yearly declines in the long-term price of tea are the basis for the sustainable tea mission. Supply continues to exceed demand by 1-3% a year as countries like Vietnam diverts its attention to tea. Improved agronomic technique is boosting yields and helping more small farmers to enter the market. Tea producing countries as distant and different as China, India, Sri Lanka, Indonesia, Turkey and Kenya are badly hit by world oversupply and falls in real price paid for tea.

Unilever, the world’s largest tea company, could be on the way to unlocking secrets to sustainable tea with a balanced approach that benefits producers without penalizing consumers. As the international buyer of 12% of the world’s black tea and seller of finished packaged tea products in 130 countries, Unilever is in a pivotal position to make a significant impact and difference. Unilever formally announced its aims in mid 2007. Consumer focus is on the UK, a market downing 60 billion cups a year. Tea producing nations around the world are affected by the current price malaise, but first under the spotlight is Kenya, where Unilever is a key producer in its own right, and a big buyer from small tea growers. Kenya ranks with the biggest in tea production and export. Producer problems in Kenya are aggravated and exacerbated by high wage demands in a strongly unionized workforce, a relatively strong currency and poor infrastructure including roads and transportation.

Certified Tea
Unilever clearly sees the UK tea market as amenable and malleable to its plans. UK consumers have history and performance in buying sustainable commodities especially through Fair Trade, well established and supported for coffee in particular. For mainstream British tea drinkers guzzling 1,000 cups each year, Unilever tea brands like Liptons and PG Tips are household names, almost on par with milk and sugar. Unilever is committed to introducing “certified sustainable tea” right across the product range including Lipton Yellow Label and PG Tips tea bags. Targets are UK and Western Europe by 2010 and globally by 2015. The company anticipates certified tea will command a price 10-15% higher than is currently fetched at tea auctions, thus allowing growers worldwide to collect £2 million more for their tea by 2010 and another £3 million by 2015.

Chief executive Patrick Cescau said, "This decision will transform the tea industry, which has been suffering for many years from oversupply and underperformance. It will not be achieved overnight, but we are committed to doing it, because we believe it is the right thing to do for people who drink our tea, the people along the entire length of our supply chain, and for our business. The company believes the program has the potential to reassure consumers about the source of the tea they enjoy drinking, while allowing it to differentiate company brands from those of competitors.”

This inclusive view and strategy for certified sustainable tea covering the entire product range could prove to be key to its likely success. It is in direct contrast to existing market situations for sustainable beverages where niche products, set apart by higher price as well as certification, invariably create a niche market and by definition, a limited market. Mainstream consumers continue to purchase standard cheaper products, which means only select bands of farmers and growers producing certified origins will benefit.

Kenya, the world’s third largest tea producer and top tea exporter is the first target for Unilever’s certified “sustainable tea.” The first priority was the tea’s production on the estate at Kericho in Kenya’s Rift Valley certified by the Rainforest Alliance. Around 8,000 hectares of prime tea bushes are nurtured in rich soil and washed by clean cool rain from East Africa’s Lakeland to “shoot” in the heady rarefied atmosphere 2,000 m above sea level. This is the epicenter of Kenya’s tea industry where 100,000 Kenyans (20,000 employees and 80,000 dependents) rely on tea for their livelihood. The estate generates 90% of Unilever’s tea requirement from Kenya and one-fifth of all tea sourced by the company worldwide.

If the plantation at Kericho is at the heart of Kenya’s tea industry, then the 450,000 smallholders who sell to big tea companies are the soul of the industry. Getting its own plantation and production on board was the relatively easy part, since Unilever claims to have practiced sustainable production in everything but name for many years.

Sustainable development is defined as “development practice that meets requirements of today’s generation (at both producer and consumer level) without compromising capability and capacity of future generations to meet their own needs.” Unilever has a long history at Kericho dating back to 1984 when the estate was purchased from Brooke Bond, and lays claim to at least one generation of experience and achievement in sustainable tea development.

Richard Fairburn, who is chief executive of the company’s Kenya tea operations told The Independent of the far-reaching sustainable development practices at Kericho that include energy from renewable resources like hydropower, planting fast growing and heavy yielding timber species like Eucalyptus, to fire boilers, water conservation and soil erosion prevention. Other tea farms in Kenya, Tanzania, Malawi, Indonesia, India, Argentina and Sri Lanka will follow. Eventually, certification will extend to thousands of farms in Africa, South America and South East Asia, improving the livelihoods of around two million people across three continents, claims Unilever.

Some observers may ask why Unilever opted for Rainforest Alliance as certification rather than Fair Trade, which is more of a household name in the UK for coffee, tea’s main rival beverage. Their reason for this choice is to achieve a broader-based approach: rather than focusing primarily on the welfare of workers Unilever says it prefers the tripartite approach of the Rainforest Alliance with planet, people and profit (PPP) as the three key areas.

Though less well known, Rainforest Alliance comes with impeccable credentials, reputation and 20 years of experience. Rainforest Alliance certifies coffee, chocolate and bananas in products worth over one billion USD annually, including such brands as Starbucks, McDonald's, Chiquita, Innocent and Kenco. And 2007 was another milestone for Rainforest Alliance as it moved into the certification of sustainable tea for the first time. “We believe we can help tea growers around the world get a better price for their tea by virtue of certification,” said Rainforest Alliance’s media representative Anita Neville. “Every farm the alliance certifies is visited once per year to check it is maintaining standards.”

No one should think for a second that Unilever is doing all this for philanthropic reasons, for it clearly sees universally available sustainable tea as a sound and sensible long-term business proposition, as well as a good deal for tea growers.

Michiel Leijnse, the global brand development manager for Lipton claims 60% of consumers say they take social and environmental factors into account when deciding what products to buy, but are held back due to price and availability. Unilever aims to circumvent this block by selling sustainable tea at no price differential compared with regular tea.

There is no sense in launching sustainable tea at a higher price then getting lumbered with a “niche product,” much better to move on a broad front covering the entire market. Leijnse is on record as saying there is no point in launching a single certified product and stopping there.

Great Strides
Since August 2007 a certified single blend Lipton Tea produced at the Kericho plantation in Kenya has been available from restaurants and caterers in Europe. Lipton Kericho Estate Tea is certified sustainable by the Rainforest Alliance and marketed by Foodsolutions Europe. "The estate met all the tough standards required for certification, including good conditions for employees, environmentally-friendly agricultural processes and wildlife protection,” said Leijnse. But this first of many sustainable tea products carrying Unilever’s brand names was also driven by a strong business rationale.

Foodsolutions claims many of its European customers have been “thirsting” for a sustainable tea as corporate responsibility becomes increasingly important to their business. At time of the launch, Susan Gregory, business development director for Foodsolutions Tea Europe said: "This is a significant step forward in the tea industry, and we're delighted to be at the forefront. Although there is still a long way to go before all our tea is certified, the launch of Lipton Kericho Estate tea is a momentous start."

The hard part comes in dealing with smallholders like Kenya's 430,000 tea farmers who claim a massive 62% of the Kenyan market compared with Unilever's share at just over 10%. Sustainable tea certification will make the market highly competitive and the world’s smaller tea farmers must be carried along and not left behind.

Gavin Bailey, executive director of the Ethical Tea Partnership (ETP), a tea industry body based in the UK, argued along these lines at the Netherlands “Sustainibilitea” conference in 2005. “Because Western tea companies increasingly buy from estates that pay attention to social standards, tea producers in countries with poor law or standards enforcement may become ‘economically handcuffed’,” said Bailey. “They could find themselves at a competitive disadvantage in comparison to countries with better law or standards enforcement practices.” He went to say presence of good laws does not necessarily mean workers are well protected. In nations such as China, labor law is similar to those of the European Union (EU) but implementation is often poor, claimed Bailey.

Winfred Mwaniki is an agronomist working on a sustainable tea project run by the Kenya Tea Development Agency, representing the growers and Lipton. The three-year project funded by the UK’s Department for International Development aims to roll out sustainable practices across the country. "If the small-scale farmer doesn't have this knowledge then he is at a disadvantage," says Mwaniki. "The market is getting very competitive, and it is critical to bring them along and to make sure they don't get locked out. Sustainability can make a real difference in their lives. It is a tremendous challenge, but we are at the start of the journey," she told Karen Attwood from The Independent.

Unilever are hitting the right notes and striking the right balance as far as consumers are concerned, and especially in the UK market. Britain was once an unashamedly tea drinking nation, and on balance still is, even after a ferocious onslaught from coffee, first soluble in the 1960s and still taking about 70% of the UK market, and more recently R & G.

Promotion and Marketing Thanks to the promotional activity of leading chains of coffee shops, including Costa Coffee, Café Nero and Starbucks, the average “Brit” is now on “drinking terms” with a huge variety of coffee origins and beverages and no longer thinks of coffee as rich brown instant granules from Brazil. That said, Britain is still a tea-drinking nation with a strong evidence of tea making a comeback. Falls in the price of tea over the last three decades, especially in relation to coffee, has helped tea to more than hold its own.

Unilever wants to be at the very front of this “brave new world of tea.” "Certification will help to roll out the standards to the rest of the supply chain and credibly tell the story to consumers," said Leijinse. "We want to lead the change in the industry. We are the biggest player - we can't change the industry by ourselves, but we want to point in the right direction. We want to stop this trend of tea prices going down."

Tea & Coffee - December, 2008

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