The retail price of teabags continues to rise while the quality and price paid to farmers continue to decline.
Many believe that tea should deliver more, which would require it to cost more than it’s currently sold for, at least for most teas on the marketplace. This assumes that a redistribution of margin is not in the cards. Some will point out that loose teas are bought and sold at much higher prices than many of the teabag grades, but this does not exempt analysis to see whether this portion of production, sold at said rates, does indeed keep all involved in its making supplied with a living income, without whom tea doesn’t exist.
You may ask yourself, where does the responsibility stop? Should I buy one type of tea but not the other? Contractually and ethically, there is a good case to say that as long as your purchase price delivers a living income after all inputs and intermediary costs, then you have delivered on this most important of foundational principles: that of commercial sustainability for farmers and other workers.
However, there is more than individual responsibility at stake. If a producer is engaged in selling 20% of his crop at a profit and 80% of it at a loss, then, irrespective of the fact that you are one of the purchasers of the top 20%, the business may not actually provide for the tea makers. This reality is not your personal responsibility, but it is rather one of commodity economics. These cannot and should not be manipulated, sometimes the demand-supply equation informs and demands a change of direction from farmer and producers.
The fact that a particular market may buy certain grades from a tea origin but others may be procured internally or by other international markets makes it impractical for a consuming origin to take responsibility for the health of an origin’s industry. However, the major players in these tea destinations can and should ensure that what they procure and sell to their consumers is based on a fair return to all those within the supply chain.
How to Assess the Ideal Cost of Tea?
So what is the best way to assess how much tea should cost?
The steps start with a ramping-up of all costs associated with the production and delivery of that product.
In this vein, working with a small tea grower company in India, Iron Kettle’s “Commitment to Small Tea Growers and Fine Leaf Tea” () we at tea consultancy NMTeaB have been working on a living case study to try and change the conversation.
It starts with irrefutable proof: the price of green leaf paid to farmers and the total value of leaf procured over a season, all manageable through the insistence that every farmer has a bank account, which is not a given in many growing regions in the world.
Once we have this starting point, we can overlay the living income requirements for each individual farmer family, based on size, age, work, education, housing, nutrition etc. This informs us whether the remittances deliver a living income or not (with the important caveat that where not, the leaf price is mandated to meet the need). The Anker method provided inspiration for this theory.
Is this easy? No!
Does it take work? Yes!
Will it pay? Yes!
This is a traditional zero cost budgeting/accounting method, where the determination of a minimum selling price is de-linked from historical pricing or competitive analysis in order to ensure that the source is compensated appropriately to costs.
That stance will raise hackles in retail channels and be greeted with raised eyebrows in the corridors of CPG companies because the very thought of ignoring “their” marketplace in deference to the needs of the supply chain has been a foreign concept, to date. The ludicrous gaps between the two primary competitive markets (private label and branded products) on UK supermarket shelves proves no focus on product cost.
However, as consumers demand more from retailers and brands and as ESG investing gathers momentum in the world, the need to be able to answer the question “Does this tea deliver a living income for all in the supply chain?” become more persistent and relevant.
Many will point to third party on-pack certifications as proof positive of their ethical procurement practices and, while delivering some significant attributes in this direction, they do not—I repeat, do not—guarantee commercial sustainability.
Santosh Unni of Iron Kettle puts it like this: “Iron Kettle… is building a tea agronomy model leveraging science and technology to raise the level of quality, standardization, and cleanliness of the tea. Is Iron Kettle getting the right price for these efforts? The answer is a definite ‘NO’. Instead, the industry hides behind charades of sustainability and fairness articulated by rubber stamp certifications, while continuing to pay the lowest prices.”
Value vs Cost
Irrespective of the narrative, the facts remain that while tea prices for teabag grade teas have declined in real terms, over the last 40 years the price on the shelf continues to rise at a healthy clip. Add to this that, according to nearly every expert in the industry, the average quality of that “cuppa” has declined and the question of how much should tea cost becomes more one of who should pay more, or is there a more equitable distribution of profit required?
Jem McDowall, vice president, Universal Commodities said, “We in tea have gone through an extended period of ‘removing costs from the supply chain’. Unfortunately, that process [over two decades] has overshot the mark, and a considerable amount of value has been removed from the category [commoditization]. This has resulted in lower returns for all concerned, not least farmers, producers and pluckers, and gives consumers generally less diverse, less interesting products. The need to reverse this process is now critical, lest we are to follow the same path as say a product like cocoa.”
What seems to have been lost in the competitive field of CPG is that driving down costs inevitably leads to efficiency drives by producers which, often, have an inverse impact on quality. In tea, we can grow leaf more quickly but not without diluting the quality quotient of the leaf and we can ram more through a factory but not without compromising on finished in cup quality.
So “Should we pay more?” This is a little more serious than that. This is a market in urgent need of revival from a crisis point created, over a number of decades, by a combination of dislocated actors and their actions. From Retailers driving down prices and quality to the consumer accepting a decline in quality, to poor, politicized, policymaking at origin, all made possible by the lack of any single source of truth from which no one can hide, displaying the true cost/needs for a viable industry.
There is no quick fix. Indeed, the number of farmers chained to the monoculture of tea is daunting, as is the likelihood of altering mass consumer optics on what tea is. So where to start must be an honest approach to costs and capabilities.
- If you can measure it, then do and account for it in an auditable framework that can deliver the true cost of tea. Publish what the minimum sustainable price for a particular growth, region, season, make and grade is.
- Set up minimum export/import quality criteria, specifically sensory, to ensure that the industry is not, once again, hijacked by those with misguided agendas.
These two easy to build criteria will bring foci for consumers and producers, while building much needed and desired ESG credentials for CPG companies and retailers, should they wish.
NMteaB, utilizes these tools to advise others on their “valued competitiveness” against others.
These attributes can and are used at the other end of the decision tree, to educate brand owners on what are the key attributes that consumers will pay for and defining meaningful steps in attribute scores that are discernible to consumers. If this sounds fanciful, consider the leading brand in the UK, Yorkshire tea, which came out of nowhere (in my lifetime in the trade) and has vanquished the largest brands to “also rans” based on an emphasis on quality; the consumer is not wrong.
So, the question “How much should tea cost?” is relevant but not in isolation of quality and value distribution. While we cannot and should not try to manipulate markets, because it is impossible, we can connect the needs of those at both ends of the supply chain to better educate both to the needs and desires of the other.
In the acknowledgement that commercial sustainability is an imperative, but not the only measure of success for tea.
Joyce Maina of Cambridge Tea Consultancy states, “Like with everything else, you get what you pay for. By continuing to pay poor prices for tea we starve the industry and stifle quality and good innovation, and so we encourage poor bulk standard production and quality. That’s what we get. Let us drink better - pay a bit more and get better tea. Better in quality and ethics.”
Hear hear to that!