China Tea Back on Top to Stay

×

1 of 2

Expand

Photo courtesy China Tea Marketing Association

Investment in rural tea festivals, marathons, sporting events, and the constructionof vacation destinations such as tea-themed hotels, restaurants, and museumsencourages tourists to explore non-traditional tea lands year-round. In this photo,cyclists race through Songyang County’s green tea farms.

×

2 of 2

Expand

TEA TRENDS

• China’s tea export market grew 2.43% in September,despite Covid as global competitors India and Sri Lankasuffered significant setbacks. Volume to date is 263,000metric tons, averaging $5.84 per kg, a year-on-yeardecrease of 3.9%. The cumulative value is $1.54 billionthrough September, a 3.6% increase compared to the prioryear to date total (China Customs).

• China’s domestic economy quickly recovered, andthe demand for wellness beverages is high. Improvingconsumer confidence boosted private spending, making China the only major world economy to grow GDP in 2020.

• Due to declining foodservice sales, early-yeardomestic surpluses encouraged the expansion of teaexports to new trading partners among the belt & roadInitiative countries in Africa and Central Asia.

• Tariffs and trade war instability compounded byeconomic decline depressed tea imports to the US fromChina. Green tea imports are down 15.2%, and black teaimports from China declined by 42.7%.

Prev

Next

By Dan Bolton

China’s dominance of the global tea trade was evident pre-pandemic and will be insurmountable by next summer when China celebrates the 100th anniversary of the Chinese Communist Party’s (CCP) founding.

Last year China grew 40% of the world’s tea and supplied 31.8% of global tea exports by value. According to International Trade Center statistics, during the past five years, as the value of tea exports fell by an average of 12.8% globally, Chinese tea export value increased by 46.5%. The $2 billion worth of tea sold by China in 2019 increased in value by 13.1% compared to 2018.

The export value rose again in 2020 despite Covid-19 lockdowns and prevention measures that reduced exports by 3.94% through September.

Jason Walker, marketing director at Firsd Tea, a division of Zhejiang Tea Group, observes that “current and historical data from SARS and MERS periods revealed an uptick in tea consumption during health crises. This trend has held, opening doors to deliver teas as wellness and to present teas as part of a healthier lifestyle. Green and white teas are often perceived as healthier forms of tea, as research on green tea is more abundant,” he writes.

“As the largest tea producing country, China has always been willing to make its contribution to the prosperity of the global tea industry and play a positive role in improving the quality of tea products; advancing technological development; carrying on tea cultures; facilitating cooperation and promoting exchanges with other countries; setting quality standards,” writes Yu Lu, vice president of the China Chamber of Commerce of Import and Export of Foodstuffs, Native Produce and Animal By-Products (CFNA).

China’s export revenue in 2019 was 2.5 times greater than the $803 million exported by India, the world’s second-largest tea producer. India accounted for 12.6% of the global market by value that year.

Anshuman Kanoria, chairman of the Indian Tea Exporters Association (ITEA) estimates that the 252 million kilos (m.kg) exported last year will decline to 185 m.kg in 2020, a 28% decline.

Sales of exports by No. 3 ranked Sri Lanka fell 24.2% in 2019 and remain down. The value of China’s tea exports was six times greater than Kenya, the No. 4 exporter by value with $361 million in sales. Countries that ship comparable quantities fall short of the average price China commands for exports – a price six times less on average than what growers receive for tea sold in China’s domestic market.

Over centuries the middle kingdom’s thirst for tea never wavered domestically. Tea consumption grew 9.2% from 2007 to 2018, and that resilience is now powering a resurgence. Steady demand and stable prices in China’s domestic market are why 99% of the tea departing China is mass-produced, sold in bulk, and still brings a tidy profit.

Once an undisputed tea monopoly ― China’s share of the global market has waxed and waned since the mid-1800s. Fifty years ago, CCP leaders saw tea’s potential to uplift the rural quality of life and committed to doubling output.

Yu estimates annual tea production in 2020 “might be around 2.6 million metric tons, [mt]” making good on that promise.

The best tea for these times

In late September, tea trader Jem McDowall joined Ian Gibbs, chairman of the International Tea Committee (ITC), at a virtual gathering of tea professionals organized by the Tea & Herbal Association of Canada. The two “deconstructed” ITC’s “green book” of annual statistics. The green book documents a remarkable half-century commitment to return China to its former position as both the top producer and the top tea exporting country.

Gibbs and McDowall, vice president at Universal Commodities in New York, described the economic damage wreaked by tea-growing countries that accelerate production in times of surplus, slashing prices to the point that tea becomes more costly to grow than earnings.

According to Gibbs, increased tea production in Bangladesh, Nepal, Uganda, Malawi, Rwanda, Vietnam, and Kenya is driving prices down.Yet China is expanding its land under tea and its yield per hectare. Instead of flooding the market with low-priced black CTC (cut, tear, curl), China meets the global desire for green tea.

Gibbs points out that in 1999 green tea growers produced 23% of global tea. In 2019, as demand shifted away from black tea, green tea production climbed to 32% of the worldwide output. Green tea exports comprise 84% of Chinese tea exports through September, a relatively small share of the 1.5 million mt produced annually.

Green tea production grew 5% between 2017 and 2019. This year green tea accounted for 211 m.kg of the total 263 m.kg exported. China exported only 13% of the 2.8 billion kg grown in 2019.

“Shortly after the Covid outbreak in China, the Chinese domestic retail market saw a flood of tea blends designed with traditional Chinese herbs associated with traditional Chinese medicine aimed at maintaining the body’s natural health balance,” explains Walker.

In 2020 the value of tea exports has so far averaged $5.84 per kilo, an increase of 7.83% compared to the previous year. The year-to-date value of tea exports is expected reach $2 billion in 2020, up 3.58% compared to 2019.

Prices held even though green tea export totals decreased 6,940 mt as did exports of black, oolong, and pu’er tea, a decline mainly attributable to weak demand in foodservice globally.

Consumer economy

Every major economy in the world suffered massive setbacks as the coronavirus halted commerce during the first half of 2020. China is the sole economy to recover, recording mid-year growth of 4.9% in the gross domestic product compared with 2019.  China’s GDP is projected to reach $14.7 trillion by year-end.

Manufacturing recovered quickly, and while demand for goods is impacted by setbacks in Europe and the United States, China is no longer as dependent on foreign trade. In October, meeting to formulate China’s 14th five-year economic plan, President Xi Jinping emphasized ways to boost domestic consumption and the need for long-term investment to alleviate poverty in rural portions of the country.

“Leading indicators indicate demand is coming back at a faster pace than production at this stage of the recovery,” according to Chang Shu, the chief Asia economist at Bloomberg. According to Bloomberg, consumer spending is expected to return to pre-pandemic levels within 12 months while Europe and the United States remain mired in recessions growing more severe as the coronavirus spreads. Per capita spending on foodservice was CNY1,732 billion ($258 billion), growing by 9.8% going into 2020. “The market may find it hard to bounce back to the pre-Covid level anytime soon owing to dampened purchase power and the gloomy economic outlook,” writes Mintel research analyst Wen Yu. Expenditures on food prepared at home are three times greater at CNY6,254 billion than food consumed away. In-home sales grew 6.5%, but non-alcoholic beverages experienced “a rapid recovery post-lockdown,” according to “The Chinese Consumer 2020,” a report by Mintel.

While the foodservice segment emerged from the pandemic battered, China’s domestic tea market is the most lucrative in the world. Market research firm Statista in its Consumer Market Outlook estimates that tea segment revenue is $79 billion, down 8.8% due to the pandemic but expected to grow annually by 9.3% through 2025. The average consumer buys $54.39 of tea annually, down 9.2%. Consumer confidence remains a concern, but China now ranks 47th among the countries battling Covid-19. Bloomberg ranks China’s as 8th most Covid-19 resilient country in the world citing 3 deaths per 1,000 and a positive test rate of 0.1%. Outbreaks are met with massive testing and rigid lockdowns. China’s tea retailers were quick to adapt to online transactions, delivery, and pickup. Statista estimates that “55% of spending in the tea segment by 2025 will be attributable to out-of-home consumption.” In China, the average domestic price per kilo is $39, as tea retail finds new traction with the young. Consumers 25-34 of age account for 31% of China’s tea market by value.

Pivot to premium

In 2015 China trailed only Kenya in export volume. Volume remained flat from 2010 through 2014. Shipments ranged from 301,000 mt in 2010 to a high of 325,800 in 2011 before falling to 302,500 mt, the point at which the government announced a 2020 goal of doubling tea exports. Critically, exports increased in value throughout these five years, rising from $748 million in 2010 to $1.27 billion in 2014. It is estimated that 80% of this tea was low-grade green, sold to African, European, and Russian buyers, mainly for blending — tea sold for an average $4/kg.

Last year, China produced 2.79 million mt of tea on 7.6 million acres (3 million ha), up from 282,000 acres in 2001. There were 2.2 million ha under tea in 2017 and 2.3 million ha in 2018, an increase of 275,000 acres.

Domestic tea drinkers in China pay top prices for low-production, handmade teas of many types. In contrast, global demand is for mass-produced teas for branded teas that taste the same year after year.

Barbara Dufrêne, the former secretary-general of the European Tea Committee and editor of La Nouvelle du Thé, writes that after more than 20 years of carefully fostering the revival of tea traditions through the creation of attractive national brands like Ten Fu and Wu Yu Tai, the promotion of tea schools and tea art training, the staging of tea expos and tea events all over the country, tea is a flagship product again. Famous origin teas get regular media attention and continue to belong to the selection of premium gifts, fetching premium prices.”

Belt and road initiative

Morocco imports far more Chinese tea than all of North America. Annual shipments total 75,000 mt compared to the 25,000 mt imported by US and Canada combined. In 2015 Morocco lowered tariffs to 2.5% on bulk tea imports but raised tariffs to 32.5% on packaged tea, making foreign-packaged imports less appealing.

The following year Lichuan Jinli Tea, headquartered in Hubei, invested $9 million to build a tea packaging and distribution factory in Morocco. The company’s local subsidiary, Cathaysian Tea Company, added five packaging lines in 2019 to serve West African countries. Cathaysian’s Le Mont Yoto, China’s first belt & road initiative (BRI) based tea brand, sold 100 metric tons of tea last year.

According to the China Tea Marketing Association, Morocco is the gateway to northern and western Africa, importing almost a quarter of China’s total tea exports. The success of Lichuan Jinli establishes a model for expansion.

Tea consumption among the 157 BRI nations and international organizations is substantial but influenced by price. Low-quality CTC dominates the market, but logistics favor China as 18 of the largest 20 export markets for Chinese tea are located on either the belt (maritime) or road (ancient silk routes).

Chinese exporter BAMA in Fujian is changing the perception that BRI countries prefer cheap tea by introducing quality Wuyi oolong and green teas. “We’ve only just come to realize that many foreigners are, in fact, interested in Chinese tea and its culture,” BAMA general manager Wang Wenji told CGTN.

“China has continued to expand and deepen the cooperation with the countries and regions along [BRI] since it was proposed in 2013,” according to CFNA’s Yu Lu. In 2019 exports to Belt and Road countries grew to 94,000 metric tons, a 4% volume increase, and a 30.7% increase in value, according to the General Administration of Customs.

A spokesman for jasmine tea maker Chunlun in Fuzhou explains that “jasmine green tea is not a newcomer to the Maritime Silk Road; it was the tea that the Chinese explorer Zheng brought with him on his expeditions 600 years ago.” Chunlun, the largest Chinese producer of jasmine tea, with an annual turnover of CNY1 billion, exports about 2% of the 3,300 mt it produces.

In 2016 Fujian’s provincial government began subsidizing tea promotion in European and Southeast Asian countries, contributing to an overall gain in shipments to  BRI countries.

 Yu said that trade with countries along the belt and road was valued at $560 million. “In the past seven years, from 2013 to 2019, the compound annual growth rate for tea exports is 3%, the value of tea exports increased by 15.2%.

Rabobank analyst Stacie Wan said that the biggest impact of BRI [for China’s tea industry] is that China can have a stable export market.

Import destination

The tea economy in China’s tea producing regions is very closely tied to the cultivars, local preference in taste, and processing techniques (i.e., pu’er is produced in Yunnan, rock tea in Wuyi, and white tea in Fuding). Markets are local, and sales are negotiated face to face without disclosing price or contract terms. There are no international tea auctions like those in India, Sri Lanka, Kenya, and Indonesia. Unlike western competitors, there is virtually no blending of different origins except for factories under contract to supply multinationals like Twinings. It is said that added together, China’s 70,000 tea companies “make one Lipton,” writes Dufrêne.

China’s tea market is the only country in the world where tea suppliers make the rules. “As a result, Chinese teas have become quite expensive, which has opened the doors for imports from Sri Lanka and India in the past few years,” according to Dufrêne.

Black tea imports grew quickly in 2017 to $1.49 billion, according to Caixin. Sri Lanka sold China 10 million kg of bulk black tea for blends and bottled tea that year, a 230% increase over five years. In 2018 India followed Sri Lanka’s lead, shipping 4.4 million kg, then doubling that total the following year as political tensions with Pakistan flared, making available large quantities. Last year India surpassed Sri Lanka as the largest exporter, shipping 13.5 million kg. In recent months as border tensions between India and China increased, exports rose to 5% of India’s total.

The price paid for imports is favorable, around the current $5 global average price, but China’s tea drinkers are discerning and insist on better quality tea than CIS countries and most Middle East destinations such as Egypt.

Tea Celebration

Seen from the vantage of competitors in Africa and Asia, China’s growth is exceptional. What many observers fail to recognize is that among the world’s tea producers, China is the exception. Exports are clean of contaminants and high quality. China produces nearly half of the world’s Fair Trade certified tea. There is a shortage of workers, and while plucking is a seasonal job, the best tea pluckers work all they want, earning around RMB250 ($40) for a six-hour day. Unlike most of the world’s tea lands, tea garden owners in rural China live in nice homes, and tea pluckers own scooters.

Westerners imagine China as socially backward. “That skews the way we describe and discuss China today,” writes Businessweek’s Michael Schuman. “We call it an “emerging market,” but Chinese poverty is a fairly recent aberation. The county had consistently been one of the world’s largest economies over the past 2,000 years—and still was well into the 19th century. That’s why Westerners who visited China were awestruck by riches exceeding anything they’d witnessed in Europe.

“Rather than something startling, China’s growth into the world’s second-largest economy is a return to the norm,” said Schuman. “So is the critical role it plays in modern manufacturing and trade. Historically, though, the country had been a major manufacturing center and premier exporter, capable of producing valuable goods on a mind-boggling scale.

“A much better way to describe the country’s 21st-century ascent is as a restoration, not so unlike the many imperial restorations of the past,” he writes.

This is the situation in tea.

CCP’s anniversary party on July 1 is both a historical milestone and testimony to China’s resourcefulness. In 2010 the government promised to double China’s economy by 2021, an ambitious goal considering the $6 trillion economy. In 2020 the Chinese economy will total almost $15 trillion.

Income per capita reached $10,000 (CYN70,892) for the first time in 2019 – per capita income was $90 in 1960 and did not reach $1,000 until 2001. Since 1960 China’s economy has experienced only eight years of negative growth with an unprecedented string of positive gains beginning in 1988. IMF’s World Economic Outlook database projects China’s per capita income will reach $12,000 next year and $16,000 by 2025.

The impact of this growth is evident in the tea provinces. Fujian has a per capita average of CNY91,200, Zhejiang’s rate is CNY98,643, and Yunnan CNY37,100. Economic success has lifted 68 million people living in China’s rural areas out of poverty in the past five years, driving the national poverty rate down to 3.1%. During the past 30 years, the World Bank estimates more than 850 million Chinese people advanced from the ranks of the poor. In rural areas, the number of poor declined from 99 million in 2012 to 5.5 million in 2019, and disposable income grew to CYN30,733 by 2019.

In September, President Xi Jinping told the United Nations General Assembly that China would teach other nations how to lower poverty, pledging $50 million to aid UN programs and committing to reduce extreme poverty by 7.6 million people in BRI countries and to raise the standard of living for 32 million experiencing moderate poverty.

During July’s anniversary celebrations, tea will play an essential role in both festivities and the future of China.