Printer Friendly

China's international tea trade.

China's international tea trade

The export of tea from China has a long and turbulent history. Until the late 19th century, China virtually monopolized the world tea market supplying 86 percent of the world's consumption as late as 1871. Tea was China's prime export during the early years of her seaborne trade with Europe and North America. This trade built up rapidly during the latter part of the 18th and into the 19th century and peaked in 1886. In 1820 tea made up 75 percent of China's exports and this figure stood at 60 percent in 1867. By 1926 tea only comprised 10 percent of the country's exports and today the figure stands at about one percent.

Her principal customer was the United Kingdom until the 1880's when this country began to withdraw from the China market and buy tea from the plantations she had established in India and Sri Lanka (then Ceylon) over the previous two decades. Russia compensated for the loss of Britain as a customer until the outbreak of the Russian Revolution brought this trade to a temporary halt in 1918.

The fortunes of the industry over this period have thus fluctuated as widely as those of China's domestic and international politics. Since 1970, tea exports have expanded in consistent and impressive fashion.

Of total world tea production of over 2.3 million metric tons, about 80 percent is black tea. About 57 percent of black tea is exported. By contrast, only about 16 percent of green tea is exported. China ranks third in total tea exports (of black and green tea), contributing about 18 percent of world tea exports in 1987, up from 14.29 percent in 1985. In 1987 China produced 62 percent of the world's green tea and 82 percent of the world's trade in green tea but supplied only 10 percent of the black tea trade. In 1987 China exported 86,000 tons of black tea, 69,500 tons of green tea and 18,600 tons of speciality tea. In 1986 its total exports were 24.4 percent up in volume and 12.8 percent in value on 1985. In 1987, the increases were less than two percent in volume. Indications are that the value of exports in 1988 will be $465 million (the figure for the end of November was $408 million). This figure is far in excess of the original planned goal of $328 million.

China's most valued customers in 1986 were Poland, Morocco, Hong Kong, the Soviet Union, Japan, France, Tunisia, the U.S. and the U.K. in that order. Tea exported to Poland and the USSR is mainly traditional Chinese black, known as congou (gongfu), to Morocco, Tunisia, France and Japan green, to the U.S. and the U.K. broken black and to Hong Kong a variety of all kinds of teas. The breakdown of China's tea exports by three major categories and by country of destination.

One major problem dealing with official figures is that there is often a discrepancy between those provided by the yearbooks of the Ministry of Commerce and those from Chinese customs. The former department presumably calculates its statistics at the procurement stage while the latter, calculating tonnages at the port of export, are generally preferred for their greater reliability.

Both India and China have enormous domestic markets and only export about one third of their total production. In the case of India, increasing domestic demand which is income elastic has brought great economic and political pressure to bear on the government to reduce the amount of tea leaving the country. China also faces the dilemma of measuring the cost of diverting tea away from a domestic market where demand is high and unsatisfied, where prices are favorable and rising, leading to the hidden subsidy of exports. The `tea war' of 1987 witnessed a mad scramble for fresh leaf and crude tea by buyers who competed to bid up the price and caused a shortfall in supplies supposedly guaranteed for the export market. Export prices, even after a concessional foreign exchange rate is taken into account, could not match those offered by the domestic market. This phenomenon will be increasingly difficult to control with the freeing up of tea marketing that has occurred since 1984 and consequent chaotic situations that has superceded state controls.

The accuracy of world tea price forecasts hinge critically on the relative rates of production growth and domestic demand in these two countries. The next level of producing-exporting countries (Sri Lanka, Kenya, Indonesia and Bangladesh) are much more reliant on the international market to absorb any increases in production.

While 99 percent of tea produced in India is black tea, over 80 percent of China's tea production is green tea. However, whereas China exports only 20 percent of its green tea, it exports over 90 percent of its black tea production - production which has been increasing at over seven percent per annum over the last 15 years. For this reason the World Bank concludes that: "A major uncertainty in future world [black] tea output projections is the prospects of China's black tea product.' (World Bank 1986, p. 55)

If China's production and exports of black tea continue to grow at the rate they have in the recent past, the World Bank predicts that world tea prices are likely to be 10 percent lower than they would otherwise be by the turn of the century. In 1986 production of black tea in China rose by a mammoth 42.7 percent over the previous year, while the increase in exports was 56.5 percent. Output of green increased by a more modest 7.8 percent. In 1987, exports of black tea fell back but green tea increased by 15 percent. Considering that very little black tea is consumed in China, the driving force behind this rapid increase in output is clearly coming from the international market and the desire to earn hard currency.

World Tea Prices

It becomes a serious matter, then, whether China continues to push black tea exports in the face of the downward trend in world prices or whether China seeks to develop further the exports of it's own unique green teas. The current export policy seems to favor the promotion of black tea--with some factories switching processing from green to black tea. The Ministry of Commerce, in its 1986 yearbook, criticized the decision in 1984 of traditional green-growing districts to switch to the production of broken black for the export market, in the face of the sluggish domestic market in the previous two years. Quality was poor, returns low and the teas were uncompetitive internationally. Because of the volatility of the international market, the Ministry warned that producers switching in this fashion could be caught out in a downturn. In Zhejiang province, in order to solve the problem of low prices for summer and autumn teas, there have been moves starting in 1985 to process this tea as broken black. The sales price is on average 50-60 yuan per 100 kg higher than if the same leaves were processed as crude green tea. In 1985 and 1986 exports of broken black from Zhejiang earned the industry $200,000. (Lu Zhonghong, p. 7). On the other hand there is a real awareness that China produces many teas that other countries cannot easily copy.

A survey article of 1986 in an official Ministry of Commerce publication predicted a bright future for China's green teas on the world market. In 1985 supplies, particularly of high grade mei (long-leaf roasted green) and special grade gunpowder (round-leaf roasted), had not kept pace with demand. International trade had only been growing at an average annual rate of five-six percent, below the surge in demand. With the fall in exports from taiwan and the failure of both India and Sri Lanka to produce green tea of a quality to match China's, the field was open for her to consolidate her already strong position. The problems remained those of quality and adherence to specified standards.

Both these points are covered in an article by a Chinese expert Zhuang Xuelan in an article that she published in 1987 in the journal China Tea tracing the `evolution' of the world tea market, she notes the historical switch of the North American market away from green tea towards black tea and comments "Americans are receptive to change." Her paper indirectly raises the question as to why the Americans made the change--was it simply a change of taste or was it linked to the relative prices and availability of the competing teas? Or the more probable explanation that British control of the world tea market led to Britain promoting the sale of tea from its colonies in India and Ceylon in places like the U.S., combined with the strict controls passed by the Congress over the quality of foodstuffs entering the country, standards which China, with its notoriously poor quality controls, failed to meet. Zhuang notes the recent surge in American demand for herbal and scented teas. This raises the very significant question as to the potential for the promotion of some of China's own unique teas. However, to develop the overseas markets for these will take a concerted effort, backed by careful planning.

To direct quality green teas into upper-income market niches in North America in an era when "yuppies" and "dinks" are looking for alternatives to alcohol could be significant. Trendy Californians could add interest to their fresh water cocktail parties by supplying a range of Chinese green and other exotic teas. Green tea would give a sufficiently wide and varied range of choice for consumers to become connoisseurs. With wider markets there should be every possibility for China to establish its own tea auctions for both green and black tea.

Recent import statistics from the U.S. reveal, however, that black tea quantities continue to outstrip green by a ratio of nearly 16:1. In the first quarter of 1988 China was the third largest supplier of black tea to the U.S. behind Argentina and Indonesia, supplying about 15 percent of that country's imports. Of the U.S. green tea imports China supplied almost 80 percent of the total, but its green teas were less than one half of its black tea exports to that country.

Currently, China sells a negligible quantity of its output through the international auction markets. About two-thirds of exports are in the form of direct commercial `cash' sales while the remaining third is in the form of government contracts and/or barter arrangements with Eastern Europe (especially USSR and Poland) and State-run economies (Iraq, Tunisia, Algeria, Libya and the Yemens). While black tea exports go primarily to Europe, N. America and Oceania, China's green tea and specialist teas (Jasmine, Puer(h), steam, compressed, 3505, Gunpowder, Sumi etc) are mainly sold by counter trade or cash contract to Overseas Chinese markets, Japan, North and West Africa and, because of its sizeable North African population, France.

In both 1984 and 1985, tea was China's most valuable agricultural export commodity. In 1986 it was exceeded by aquatic products and in 1987 was second to silk. In 1986 the total value of China's exports were about $30 billion; of this, primary commodity exports other than fuels, minerals and metals, amounted to about $5.5 billion. Thus, tea exports of $327 million were about five percent of primary exports and only one percent of total exports. Exports continued to grow in 1987 to 174,000 tons, and in the first half of 1988 have totalled 80,164 tons, an 11.5 percent increase over same period for 1987.

For the 7th Five-Year Plan (1986-90) the central government has set an annual percentage increase of 12.6 percent. Thus, by 1990 tea allocated for export should have reached 250,000 tons (allowing 20 percent wastage in transport, turnover, storage and blending).

China has also introduced reform policies in its foreign trade system since the late 1970's in an attempt to give the provinces more autonomy in conducting international trade. The central authorities have permitted provincial-level trading companies and provincial branches of national foreign trading corporations to purchase and sell goods from local producers and for local governments to retain a portion of foreign currencies. These are called `self-managed exports.' According to one report, the export of tea remains under the control of the national office of the China Native Produce and Animal Byproducts Import-Export Corporation. However, Anhui province reports that for 1986 $15,660,000 of its $21,900,000 in tea exports came from the self-managed sector. Due to exchange costs on the American dollar exceeding state standards, losses on exports totalled 14,120,000 yuan. The principal reason given was that procurement prices in that year shot up by an average of 44 percent leading to losses in the processing sector totalling 22,000,000 yuan.

China's Exports

It is difficult to gauge the quality of China's tea entering the world market. One the one hand the 11 and 107 tons of China's black tea sold on the London auctions in 1985 and 1986 respectively, obtained the lowest average prices of any country selling through the market--indeed, in both years, the price was less than half the average of all teas sold there. On the other hand, the average unit values of China's tea exports measure up favorably against the international average and are not far behind India's. The dip in China's relative performance in 1984 suggests that its `counter trade' continued at a constant unit value while prices increased substantially on commercial markets. China suffered less in the lean years of 1981, 1982 and gained less in 1983, 1984. Since the peak prices of 1984, world prices have continued to decline.

There are two problems with gauging the real unit value of China's tea exports from the FAO Trade Yearbook from which is derived: first, the presence of the substantial counter trade and, secondly because Taiwan's exports are included in the FAO figures for China. However, the latter problem is likely to be minor as Taiwan's volume of tea exports is well under 10 percent of the Chinese total. Furthermore, China's own Customs department statistics confirm the general quality issue (as gauged by the unit value) depicted here. Whereas the average price of black tea sold on the London auction was US 198 cents/kg in 1985, Chinese statistics show an average unit export value (presumably f.o.b.) of US 215 cents/kg - a rise of just two cents on the previous year. The explanation for the difference between the price received for the Chinese tea sold on the London auction and the average unit values could lie in the quality differences in China's green and black tea exports.

In 1986 the state invested $6.74 million under a plan to construct an export production system--$1.37 million has been earmarked for black tea and US$1.23 for green tea, with the remaining US$4.13 million unspecified. The funds have been distributed half as allocations converted into loans and half as bank loans. The money will be used in the production, processing, extension, storage and marketing sides of the industry, specifically for the construction of export bases, renovations of old fields and expansion of fine bush strains, modernization and expansion of processing plants.
COPYRIGHT 1989 Lockwood Trade Journal Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1989 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Publication:Tea & Coffee Trade Journal
Date:Jun 1, 1989
Previous Article:Fine teas plus exotic coffees power Taylors marketing drive.
Next Article:Life in the fast lane at Douwe Egberts France.

Related Articles
Tea for two in Hamburg.
A look into China's only tea exporter.
Provincial profiles of tea in China: Zhejiang province.
A look inside Russia's tea market.
Export prospects: concern mounts over China's role in the international tea industry.
Hamburg: Germany's largest tea and coffee port.
China's tea industry in 1996/97.
German tea: a classic beverage turns trendy.
Picking leaves of innovation: how do you sustain the viability of an age-old trade in the face of a quickly changing modern world? Ask Sri Lanka's...
Hamburg: always tea and coffee thirsty: Manfred Korner covers the Hamburg scene, as Tea & Coffee World Cup prepares for its Sixth Symposium &...

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters