By Dan Bolton
Decoupling the deeply entwined US and Chinese trade relationships will have a profound and largely negative impact on coffee and tea retail.
Imports to the US spiked in anticipation of higher tariffs but are now in decline; companies are scrambling to find new suppliers of packaging materials manufactured exclusively in China. Tariffs appear to already have killed the blossoming import of specialty coffee celebrated two years ago when the Specialty Coffee Association, at its annual expo, celebrated China as its portrait country.
It was a well-orchestrated debut. Green coffee exports to the US climbed steadily in value from $22 million in 2014 to $39 million in 2017, before declining sharply to $30 million in 2018. Most of the coffee China produces is sold as instant or for blending and the 15% tariff will likely price middle grades of arabica out of the US market.
Retaliatory tariffs imposed by China added 5% to 10% to $75 billion worth of US goods including coffee, mainly roast and soluble. Exports of US coffee to China declined 8% by value to $13 million during the first six months of 2019 following five years of steady gains, according to USDA's FAS (Foreign Agricultural Service) online database. Sales peaked at $23 million in 2018. Green coffee imports were insignificant at 143 60-kilo sacks in 2018.
Shifting supply chain
The fundamentals of supply and demand are not changing. Tea consuming nations developed their preference for Chinese tea over hundreds of years, ensuring steady demand. Likewise, if you are Chinese and have a taste for Kauai coffee from Hawaii’s Koloa Estate you’ll pay – but the long-term impact of decoupling is far more insidious than price hikes.
The US specialty coffee community has embraced China’s emerging Yunnan origin. Ted Lingle, a former president of the Specialty Coffee Association of America, shared his expertise, leading to the construction of the Yunnan Coffee Exchange in January 2016. After a decade in-country, Tim Heinze, the most accomplished specialty coffee trainer in China, recently resigned his position as c.e.o. at Yunnan Coffee Traders, the country’s largest exporter of specialty grade arabica. “It was time to look to our next adventure,” he said.
When it comes to coffee and tea, the current US administration’s decrees have no putative weight in the trade fight. Trade rules permit roasters to claim their work has “substantially transformed” the green coffee they import and so long as they don’t draw the US’s ire, Chinese coffee in blends and as instant coffee and concentrates will continue to find its way into US pantries without paying the tariff. China competes with 25 coffee-producing nations in a global coffee market where US roasters have many, many alternatives. It is likely the finest coffees that China produces will simply be shipped elsewhere.
The situation is different in tea.
China is the largest supplier of green tea in the world. It is the only nation that produces several specialty teas including pu-erh and yellow tea and several oolongs. It is also the primary supplier of coffee and tea packaging materials, including patented ultra-thin aluminum overwraps manufactured in no other country.
In addition, significant quantities of raw materials, such as abaca used in making tea bag and coffee capsule filters, are shipped from the Philippines to China where these raw products will take on the now ominous “made in China” tariff burden.
“We are already paying 25% on packaging items from China,” said Mike Harney, v.p. at Harney & Sons Fine Tea.
Cindi Bigelow, c.e.o. at Bigelow Tea, said that the tariffs on aluminum foil overwraps already cost her company $2 million... “right out of the bottom line.”
Steeped in history
In 1783 after the Treaty of Paris brought an end to the American Revolutionary War, a 360-ton three-masted privateer was refitted for commercial trade. Carrying a full load of goods, including 30 tons of Appalachian ginseng, The Empress of China was the first American ship to trade in tea, an event significant enough in their history for the Chinese to mint a commemorative 5 yuan coin.
As recently as 1934 the tea trade was valued at $550 million ($10 billion in 2018 dollars) of which China received 7%. The Dutch earned double that amount but the British Empire retained 80%. China’s domestic market is valued at $10 billion and expanding rapidly.
Four hundred years ago the tea trade was so important that wars were fought and fortunes lost due to trade disputes — in 2020 tea and Chinese grown coffee constitute such a small percentage of exports the supply chain will simply adjust.
US tea imports from China, especially high-value green tea, climbed from $21.8 million in 2017 to $24.2 million in 2018. FAS reports a total value of $81.5 million during the first six months of 2019. Quantity increased by 12% to 13.7 million kilos during that time.
Tea blenders in the US will be at a disadvantage to foreign competitors, but tea from China will continue to enter the US in quantities large and small.
Customers who prefer the finer quality Chinese teas will reluctantly accept the increases. The origin of teas proudly listed as Chinese – a label attesting to quality, will be masked and the goodwill associated with sharing a cup tarnished.