The rise and fall of the Caucasus tea industry

Once a thriving region for tea production, The Caucasus has struggled since the fall of the Soviet Union. However, tea revival programmes have been launched in the Caucasus states with the hopes of rejuvenating their tea industries by focusing more on quality and less on quantity. By Vladislav Vorotnikov

In recent years, business was tough for tea growers in Caucasia, comprised of Armenia, Azerbaijan, and Georgia. The importance of tea production at the world’s most northern plantations is even recognised at the state level, but in the face of stiff competition with imports, this is still not enough to help the industry out of its current predicament.

The Caucasus region has a rich history in tea production, which might surprise many. In the 1970s, this area was a significant contributor to the global tea industry, with an impressive output of nearly 140,000 metric tonnes (mt) of tea. Georgia played a major role in this, accounting for 60 percent of the total production. At its peak, Georgia’s tea production alone reached an impressive 95,000 mt per year.

Caucasus tea largely met the demand of the tea market on one-fifth of the world’s land surface. It was also exported across countries of the socialistic camp, as well as to Afghanistan, Iran, Syria, Yemen, Mongolia, and some African states. In the 1980s, the Soviet Union was the fourth largest tea producer, following India, China, and Sri Lanka.

Those days are long gone now. In the 2020s, Caucasus tea accounts for only around 0.05 percent of the global production, as estimated by the Food and Agriculture Organization (FAO) of the United Nations. The transition to a market economy has been brutal for the tea industry in the Caucasus. Over 90 percent of cooperative farms involved in tea production have gone bankrupt, leaving behind vast swathes of abandoned tea plantations across the region.

Now, Georgian tea is even losing the domestic market, as estimated by Tengiz Svanadze, head of the Georgian Tea Association. In fact, Georgian tea meets only 25 percent of the local demand, while the rest is covered by imports.
Despite the bleak situation, there are glimmers of hope. In 2016, Georgia launched a tea industry revival programme, aiming to rejuvenate 7,000 hectares (ha) of abandoned tea plantations. A similar initiative was undertaken in Azerbaijan in 2018, with a goal of increasing tea production eightfold by 2027 to 8,500 mt.

However, these efforts have yet to pay off. Svanadze estimated that as of 2022, Azerbaijan manufactured between 500 and 1,000 mt of its own tea. A substantial share of the tea imported on the Georgian market comes from Azerbaijan, he admitted, adding that those were not locally grown products.

Over the last several years, Azerbaijan heavily invested in several tea factories, which import tea leaves from Asia, instead of cooperating with local farmers.

In Armenia, the tea industry has a much smaller scale and is primarily concentrated in several high mountain areas nearly 1,700 meters above sea level, where farmers focus on herbal tea production. As reported by a local news outlet, Mir, Armenian mountain herbal tea is exported to Russia, Europe, and North America, though in small quantities.

In fact, tea growing has never been popular in Armenia – a country of coffee lovers. For example, BusinesStat, a local think tank, calculated that sales in the domestic tea market between 2018 and 2022 dropped from 370 to 346 mt, and the trend is likely to continue. The analysts emphasised that, on the other hand, Armenia has some of the highest coffee consumption levels per capita in the entire post-Soviet space.

A hard-to-forget bad name

It has been over three decades since the Soviet Union ceased to exist, but Caucasus tea growers still blame it for the ruined reputation of their brands.

“They [Soviet managers] tried to pump up Georgia to produce large quantities of tea to cover the Soviet’s needs for the drink. But this was an impossible task for a small country,” commented Andrey Skidan, tea production technologist. As a result, the quality of Georgian tea at that time was poor. Tea leaves were mixed with pieces of wood and other components, sometimes of unknown origin. “In the end, the drink was poorly brewed; its taste was dull and unsaturated,” he said.

Similar practices were introduced in Azerbaijan, but poor-quality tea is primarily associated with Georgia since it was the largest tea manufacturing republic at the time.

“We tried to break out to the Russian market with our tea, but the memories of Soviet-era quality are still blood-curdling,” a manager of a Georgian tea company revealed, admitting that some Russian importers still refrain from working with Georgian tea suppliers, though there are signs of improvement in this field.

Unfortunately, official figures suggest that the Georgian tea industry revival programme has gone sideways. In 2023, the country exported 1,522 mt of tea, worth only USD $2.2 million. Exports have been steadily shrinking during the last five years, plummeting by 27.5 percent during this time. In monetary terms, sales to foreign customers are halved compared with 2019, when they generated $4.4 million for the Georgian tea companies.

Svanadze insisted that the downward dynamics are not a sign of a crisis. He explained that the drop in sales is primarily attributed to a gradual switch of Georgian farmers towards manufacturing better quality products, which entails a temporary decline in output. “Georgian firms have switched to the production of high-quality tea. Everyone wants to brew high-quality tea, while the low-quality tea production, in practice, is no longer profitable, and accordingly, the harvest has shrunk.”

Svanadze said the change in quality helps Georgian tea better compete with imports on the domestic market, and the share of locally grown products has been steadily growing in recent years.

Some Georgian firms have reported a burgeoning tea-export renaissance. Tornike Shekiladze, director of tea manufacturing company, Gezruli Tea, disclosed that the company exported 400 kg of tea last year, primarily to the European Union (EU). Nearly 60 percent landed in France, 30 percent in the Czech Republic and the rest in Germany.

There might be other reasons for the negative production dynamics. Recently, Georgian farmers growing tea have faced fierce competition for land with other agricultural manufacturers and even investors from other economic segments. An ongoing boom in solar power generation in the country promises to drive the cost of land even higher, meaning that only high-margin businesses can sustain the rising costs.

Organic tea potential

Shote Bitatdze, founder of the Association of Georgian Organic Tea Manufacturers, is one of the enthusiasts struggling to give a new life to the local tea production. Bitatdze, who was engaged in successful business in China until 2006, moved back to his country where he saw a potential in growing high-quality ‘specialty’ tea.

Organic tea production perked up to 30 mt in Georgia in 2023, Bitatdze estimated. He added that this figure has a potential to grow to 200 mt if there is sufficient demand in the global market. Since 2009, the Chinese government has supported organic tea production in Georgia, helping to train local farmers and their personnel, Bitatdze said. “As practice showed, there are no preconditions for the development of mass tea production in Georgia,” he said, adding that at the end of the day, production costs at Georgian tea plantations appear to be higher than that of those from countries with tropical climates.

Exports in the spotlight

Analysts believe exports will largely determine the future of the Caucasus tea industry.

Natalya Zhukova, director of the European Bank for Reconstruction and Development’s (EBRD) Agribusiness Department, for example, expressed confidence that the region can benefit from its strategic location, close to the big markets of the post-Soviet space and the EU. However, he emphasised that to grasp its opportunities, the tea industry should play its cards right and not repeat the mistakes of the past.

“The international tea market continues to develop, with trends showing strong demand for a variety of quality tea products such as oolong and white leaf tea. By ensuring improved product quality and efficiency throughout the supply chain, as well as diversification of production, Georgia and Azerbaijan have much to offer tea lovers,” Zhukova said.

Georgia, with a population of 3.7 million, Azerbaijan, with 10.1 million, and Armenia, with 2.8 million, are markets not comparable in size with the nearly 200 million Eurasia Economic Union and 450 million EU populations.

Dodging the reputational damage, Azerbaijan’s tea industry, in recent years, has been successfully utilising the export-oriented development model. In fact, there is more high-quality Azerbaijani tea abroad than in Azerbaijan itself, Rauf Garayev, a local agricultural economist, said. “For example, if you buy Azerbaijani tea in Russia, you will see that it is of higher quality and tastes better than what is sold here.”

Remarkably, tea consumption in Azerbaijan has jumped by nearly 50 percent over the past decade. However, local customers are still unwilling to pay extra for high-quality tea, while in Russia and the EU, Azerbaijani tea is perceived as a premium exotic product.

“We can sometimes hear from our citizens that the [locally grown] tea is impossible to drink, while foreigners who bought our tea in their countries [report] that it is of excellent quality,” Garayev said.

Azerbaijani tea companies are confident that some measures are needed to help them regain their market from importers. Uncontrolled tea imports into the country reportedly threaten the industry, including its premium segment. “In the near future, Azerbaijan can become a net tea importer instead of a tea manufacturer. And no steps are being taken to prevent this from happening,” Garayev stated.

Tea exports are now on the agenda even in Abkhazia and South Ossetia – breakaway unrecognised regions of Georgia. The Abkhazian government has purchased and installed a line for processing premium tea products from China for $22,000 million. Thanks to these investments, several tea plantations were revived in the country, securing an output of eight metric tonnes of tea. A part of this volume is due to be exported to Russia.

It is unlikely that the Caucasus tea industry will ever again achieve the Soviet-era production performance. However, by focusing more on quality and less on quantity, local growers have every chance of finding a comfortable niche in the global market.

• Vladislav Vorotnikov is a Batumi, Georgia-based multimedia B2B freelance journalist writing about the tea and coffee industries since 2012.

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