Commodity Teas versus Origin and Specialty Teas
Tea market in Kunming, Yunnan
Tea is the world’s number one hot cup; with a highly integrated value chain and multinational companies dominating the Western markets. A large volume share of tea is traded as commodity.
By Barbara Dufrêne
Tea, coffee and cocoa are all on the commodities markets. During the latter part of the past century, with many newly independent countries joining the supplier side within a continued development of global trade patterns, the United Nations established several International Commodity Agreements (ICAs) and International Commodity Bodies (ICBs) to monitor appropriate supply for the consumer/importing markets whilst ensuring appropriate revenue to the producers. They include: the International Cocoa Organization (ICCO) set up in 1957, the International Coffee Organisation (ICO) in 1963, the International Sugar Organization (ISO), and more on cotton and other commodities.
Another set of International Commodity Bodies (ICBs) are the Intergovernmental Groups (IGG) created within the UN Food and Agricultural Organization (FAO), such as IGG Tea, set up in 1975. Other IGGs monitor rice, citrus fruit, meat, etc.
Tea, coffee and cocoa are all classified as international agricultural commodities. Given their importance as revenue crop for the producing countries and their respective international trade flow, the UN intergovernmental structures oversee providing useful tools for a global monitoring of supply and demand and appropriate governance of the value chain.
In order to compile production, consumption and trade statistics for coffee and cocoa, the ICO and the ICCO operate with a specific crop year that runs from 1 October to 30 September of the following year. The data are expressed in green beans for coffee and raw beans for cocoa, hence the need for conversion factors for roasting and processing, in order to account for the number of cups of espresso or of chocolate bars.
Tea statistics are established in line with the calendar year and always refer to the finished product, the processed dry tea leaf, referred to by stakeholders as “made tea.” This is the tea that is traded and shipped, hence, no need for conversion factors.
In the context of agricultural production, the green leaf, as harvested, is an important reference element that pertains to the yield of the tea gardens, which can vary greatly, according to plant variety, geographical location, agricultural practice and harvesting methods, and age of the bushes, etc. Tea may therefore be considered as a crop and as a food and beverage product that offers good transparency and easy comprehension for overall market assessments.
The term commodity comprises tangible products that are wholly or for a major part interchangeable, ie fungible and standardized, traded in bulk and sold freely at prices that fluctuate according to supply and demand. This implies that there are the commodity teas for the mainstream markets on one side, and the teas that are neither interchangeable nor standardized, but quality-specific and even special on the other side.
The key data issued by FAO-IGG Tea and the International Tea Committee (ITC) show that the tea market has some important specificities. Preliminary data published by the ITC for 2017 reveals that total production amounts to 5.7 million tonnes, of which only 1.8 million tonnes are exported, hence subject to international trade, ie 31.3 percent. This is a rather small proportion, and which is decreasing year after year. In comparison, and based on estimates by Euromonitor International and ICO data for coffee, more than 74 percent of coffee production is exported, of which 52 percent is to North America and Europe.
Tea’s global production is shared out according to the process, with black tea dominating with 58 percent, green tea accounting for 32 percent, other teas around 10 percent. Another dividing line shows that black teas are shared between CTC teas at 62.6 percent and orthodox leaf teas at 37.4 percent.
Commodity Tea Producing Countries
Tea, coffee and cocoa are all three highly labour-intensive crops and grown predominantly by smallholders for a huge share of the output, which is estimated to stand at over 60 percent for tea and at over 80 percent for coffee and cocoa.
In 2017, tea exports represented less than one-third of the global output, amounting to 1.78 million tonnes. Although the two big producers, China and India, consume most of their own cups, they have exported 355,300 tonnes (t) and 240,700t respectively. The balance of the export trade volume comes from other tea exporters, the most important ones being Kenya, Sri Lanka, Vietnam, Indonesia and Argentina, which together represent 959,500t, whilst the remaining 25 other tea exporters sell 222,900t in the market. China and Vietnam export mainly green teas, while Kenya, Sri Lanka, India and Argentina export mostly black teas, and Indonesia both. Furthermore, most of the black tea exports are CTC, except those from Sri Lanka.
In this complex scenario, there is a red thread leading straight to the commodity teas, and that is the set of 11 big Tea Auction Centres, which handle the large part of commodity teas in India (Kolkata, Guwahati, Siliguri, Kochi, Coimbatore, Coonoor), in Bangladesh (Chittagong), in Sri Lanka (Colombo), in Indonesia (Jakarta), in East Africa (Mombasa), and in Central Africa (Limbe). According to ITC 2016 data, these 11 tea auction centres have handled 1.29 million tonnes of tea, mostly black CTC teas, with the exception of Sri Lanka, which produces only orthodox leaf teas. Commodity black teas, the bulk of which go directly to the various domestic markets, may be estimated to represent around two million tonnes, plus an additional estimated 250,000t of green teas, exported in bulk as gunpowder from China, and as green filler teas, mainly from Indonesia and Vietnam.
Commodity teas can most likely be traced back to the British Rule, which introduced industrial tea processing, with the CTC method, in India and East Africa. In the 1950s, Britain controlled 85 percent of the world’s tea trade, stated Mike Bunston OBE, past president of the ITC and chairman of the London Tea Auction, which closed in 1998 after 300 years of operations. The past glory of British involvement in tea is also being recorded by the London Tea History Association, with the intent to safeguard the memories of an important activity that has fashioned tradition and lifestyle, centred around the supply chain with the London Tea Auction a vital part of it.
The system of the tea auctions is closely linked to former British Rule, with trade platforms set up in newly independent producing countries and providing efficient tools for the sale of commodity teas into mainstream markets, be they basic packed bulk teas or tea blends for tea bags.
There are also multinational tea packers that source big volumes directly from their own estates and blend their commodity teas for the mass market, packed or in tea bags. Many of these teas are mechanically harvested. With Unilever’s Lipton brand as number one, the 10 biggest operators concentrate 27 percent of the global retail value, according to Euromonitor International.
Finally, there are the instant tea manufacturers, which supply the ever-growing RTD market, and such leaf will be purchased as commodity teas. ITC data finds the biggest instant tea producers today are China, India, Kenya, Chile and Argentina.
China: The Cradle of Tea
China is where the tea bush has prospered for nearly 5,000 years, has been cultivated for over 3,000 years, and where hundreds of different tea varieties have developed according to climate, soil and specific environments. Most people will drink their local teas. “In China, we do not blend teas,” said Yun Jing Zhong, aka Vivien Messavant, who runs the oldest Chinese tea house in Paris. “All our many different teas have a specific taste, cup colour and leaf shape, blending does not make sense.”
China does not have tea auction centres. “It does not appeal either to the producers or to the wholesale agents to negotiate on a public platform,” said Kelly Ye from the Guangzhou International Tea Trading Centre (GTTC), which launched in 2010 to replace the traditional Fang Cun tea market with its hundreds of small family-run tea shops. “But we are aware of the need to have an international trade platform, so we offer good visibility to the well-established regional brands and suggest that they go for more transparency, namely by labelling product details and prices in our GTTC showrooms,” she said. “We hope that it will work out, but it is the opposite of a privately negotiated contract.”
French tea expert, Katrin Rougeventre, said with China having become the biggest player as the world’s number one tea producer and consuming 86 percent of its output, they are living by their own rules. There are no Chinese commodity teas on the market in China, but there are some big volume bulk green teas, which are custom-made for export. Even the black CTC teas, sourced by Unilever Lipton China from the Dianhong Company in Yunnan to make British-style tea bags for Western consumers in China are origin teas, as they come from one specific area. There are no commodity teas in Japan or Korea.
With a growing awareness in the West of the fine qualities of origin teas, there is a strong trend towards introducing high-end and value-added teas. Many producing countries have begun investing in specialty teas, and now consumers can buy white teas from Kenya, Sri Lanka and from Indonesia, and green teas and wulong teas from India. More options, new products, innovative processing will make tea even more attractive, thereby increasing consumption and higher retail value. However, the market will continue to rely on the bulk of commodity teas, in order to offer an affordable cup to the millions of consumers who will not go without their favourite beverage.
Barbara Dufrêne is the former Secretary General of the European Tea Committee and editor of La Nouvelle Presse du Thé. She may be reached at: b-dufrêne@orange.fr.