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Taiwan's dynamic tea industry.

Taiwan's dynamic tea industry

Taiwan's commercial tea industry is 125 years old. During this time, its role has changed from being the island's premier export commodity to being a minor crop within the agricultural sector which is itself of declining significance. Within the industry, there has been a fundamental shift from exports to sales on the domestic market. In the process of this change, the industry has probably become more prosperous than at any other time in its history.

The metamorphosis of this export oriented industry is of great interest to the world tea trade because of its potential implications for major tea producing countries such as mainland China, India, and Indonesia and for the major tea importing countries of northern and eastern Europe and north Africa.

The basic changes in the tea industry of Taiwan over the last 40 years are summarized in figure 1. Over this period, the area initially increased and then declined by about one third from a maximum of about 38,000 (late 50's) to 24,500 hectares today. Since the peaking of tea production in the 70's, output has stabilized. However, exports have declined dramatically over the same period.

This situation contrasts sharply with the trends on the Chinese mainland (the People's Republic of China or PRC) where both production and exports have been expanding rapidly. Over the last two decades, output from the tea industry in mainland China has grown at over 7% per year. Indeed, since 1962, 1989 has been the only year in which production has actually declined. Even with this decline in output, exports continued to increase.

Tables 1 and 2 give respectively tea output, area and yields by province for the years 1979 and 1988, and the annual rates of change in these statistics over the same 10-year period. At the bottom of the tables are the comparative figures for Taiwan. The contrast is thus great. On the mainland, output and yields have increased rapidly while the area has remained constant. In Taiwan, there have been small rates for decrease in area and output and a negligible rate of increase in yields. If it is ranked with the mainland provinces, Taiwan's position as a tea producer slipped from 5th to 8th over the period 1979-88.

However, behind Taiwan's apparently poor performance lies a story not of decline but of dynamic change. This is not an industry that has just curled up and died in the face of the dramatic industrialization of the country, but rather one which has adapted to changing conditions of input supply and dynamic domestic and international markets.

Historical background

The Taiwanese tea industry originated on the Chinese mainland. Settlers from Fujian and Guangdong provinces brought tea seed across the straits to the island and established the first tea gardens. The earliest official records of a tea "industry" appear at the end of the 17th Century. In many respects, tea cultivation was a frontier activity: as tea grows best on cool, misty hillsides, aboriginal forests were cleared for its cultivation. Small peasant families sharecropped on the edge of the Han civilization and were often involved in fighting with the indigenous people. Tea growing was but a minor adjunct to the subsistence rain-fed farming in parts of the north of the island. By the mid 19th Century, there was little hint that this would become a boom export industry by the end of the century.

As in so many other countries, the British had a significant impact on the development of tea as a commercial enterprise in Taiwan. A key date was 1865, when John Dodd, a British merchant who had based himself on the island the previous year, started taking a serious interest in the tea trade. He imported plant cuttings from Fujian and distributed them to farmers in Tamsui district.

Following favorable reports from Macao concerning an initial consignment of tea, Dodd set up a tea factory to produce a more carefully processed finished product. The chosen type of tea was Wulong (Oolong) which is a semi-fermented tea with a slightly astringent flavor but a quite remarkable sweet aroma. The tea was very well received and, in 1869, Dodd used the trademark "Formosa Tea" for the first direct shipment to New York. Exports of this tea increased rapidly both to the U.S. and Europe where it had the reputation of being the "champagne" among teas.

Over the next three decades, tea exports from Taiwan shared in the enormous expansion of the world tea trade, whereas mainland tea exports experienced a dramatic decline during the last two decades of the century.

While Wulong found favor in Western markets, a slightly fermented and scented tea, Baozhong (Pouchong), rapidly became very popular in SE Asia following its introduction in 1881 by a Chinese merchant, Go Fok-lu. Production of this tea was complementary to Wulong because lower grades of crude tea were used. Baozhong is said to appeal to the pallet of both black and green tea drinkers and is sometimes referred to as the "ideal" tea. Possibly its wide appeal was associated less with the tea itself than with the wide variety of different flowers used to scent it. These inculded White Jasmine (Jasmine Officinale), Jasmine (J. Sambac), Oleander (Oleacear fragrans), and Gardenia (Rubiacear).

In 1902, the total production of Formosa Tea reached 10,000 tons, of which 85% was Wulong and the remaining 15% Baozhong for a total value of US (gold) $3.5 million. This represented about 85% of the island's export revenue--with sugar and camphor taking up most of the remaining value in equal amounts.

In 1885, the Imperial Government of the Ching Dynasty appointed Liu Mingchuan as Viceroy of Taiwan. Liu took a great interest in the tea industry. He organized a tea manufacturer's association, encouraged improved field management and processing techniques, and the more widespread cultivation of tea. The area under tea increased to about 24,000 hectares, and there were steady increases in exports.

An observer has noted the degree of specialization, the extensive linkages, and off-farm employment opportunities that the tea industry provided. There were the farm families who planted and cared for the bushes; young girls and women who selectively plucked the tea leaves; the carriers who rushed them down the hills for processing; owners and workers in small tea-drying factories; makers of sacks, baskets, lead liners and wooden boxes for tea chests; and porters, clerks, and intermediary buyers moving the tea to the large traders in the export ports. The industry was sufficiently large and profitable to attract large numbers of migrant mainland workers in the peak spring and summer seasons.

The official encouragement of the industry continued under the Japanese occupation (1895-1945). The new administration issued and enforced regulations aimed at preventing the adulteration of Formosa teas with lower grades from the mainland. This was said to be a common practice among Chinese dealers, reversing the situation of 30 years before. In 1898, planters, manufacturers, and dealers were required to form associations to prevent adulteration and to take responsibility for "sustaining the high character of Formosas."

In 1909, the Pingcheng Tea Experimental Station was established to undertake research in both breeding and processing. Between 1915 and 1935, the Station released four recommended improved varieties. These varieties were used in new planting and improved both quality and yields. A specialized extension service was built up around the graduates of a Tea Technicians Training Institute.

A tea inspection agency was established as the export ports in 1923. The development of new processing equipment enabled Taiwan to start producing black tea. This was boosted following the successful experimental planting of the larger Assam varieties in the mountains of central Taiwan and, in turn, led to the establishment of the Yu-Chih Tea Experiment Station in 1936. As was the case with so many other enterprises, the work of this station was severely curtailed by World War II.

During the period of Japanese rule, the area under tea expanded, and the operation of the industry came under the increasing control of Japanese plantation companies. Thus, of a total tea area of about 43,000 hectares in 1927, the Mitsui Gomei Kaisha alone held 16,000 hectares. While the total area increased, the Japanese were much less successful in increasing production and exports.

In 1936, exports were the same as they had been in 1896. What was significant, however, was the increasing importance of black tea--a response to a changing market where the British had entered commercial tea production themselves and had succeeded in changing consumers' tastes from the more delicate black teas, oolongs, and green teas of China and Japan, to the strong black teas of India, Ceylon, and the Netherlands Indies.

There is also a possible production technology explanation for the increasing importance of black tea; large scale production systems established by the Japanese in Taiwan, emulating the British in India and Ceylon, lend themselves particularly well to black tea production. This production scale factor is likely to have been behind the original thrust of the British marketing strategy.

By 1937, black tea comprised 56% of production (11,373 tons) and 55% of the value of output. Over the five years 1934 to 1938, exports of black tea nearly doubled. This may well have been in response to the favorable international market following the formation of the International Tea Agreement in 1933.

The ITA was formed by British and Dutch interests controlling production in India, Ceylon, and Netherland East Indies. Japan refused to join the agreement, but she and Taiwan benefited from the higher (and stable) prices and increased their tea production and distribution (of types) accordingly. Production peaked in 1938 at 12,171 tons, a figure not exceeded until 1954.

In 1938, domestic consumption of tea in Taiwan remained negligible (less than 2% of output) at about 0.075 kg per capita. This contrasted with Japan's per capita consumption of tea which was 0.45 kg--six times that of Taiwan. It was not until the mid-60's that Taiwan caught up with this level of Japanese per capita tea consumption.

Overall, the importance of tea to the economy of the island colony had declined sharply from its preeminent position at the beginning of the century. By 1937, it was ranked fourth in the value of exports (2.8% of total value)--well behind sugar (41.4%) and rice (28.2%) and similar to bananas (2.9%).

Dynamic Development, 1945-80

After World War II, China remained in the grip of civil war. It was not until 1949 that a form of stability was established, with a Communist government formed on the mainland and the Nationalist Government retreating to Taiwan. Continuing hostilities saw both sides taking defense as their first priority. For Taiwan, economic growth and a surplus on the balance of trade was the second priority--partly to help pay for the military establishments.

The nationalists sought first to encourage traditional exports before developing other agricultural and manufacturing industries. Tea production and exports rapidly achieved their pre-War levels (about 11,000 and 10,700 tons, respectively) and continued to increase steadily over the next two decades. Exports peaked (22,807 tons) in 1971 while production peaked (28,581 tons) in 1973 (see Figure 1).

The initial emphasis on agricultural exports was short-lived. The relative decline in the sector's exports became apparent as industrialization became more widespead and diversified. During the period 1952-61, Gross National Product (GNP) grew at an annual rate of 75.% and all exports at 8.5%. Over this same period, tea production grew at 5.1%, and exports at 6% In other words, even in this early phase, the very rapid recovery of tea output was somewhat slower than the rate at which the rest of the economy was growing. The remarkable rates of growth over the next decade (GNP 10.2% and exports 23.5%) saw the importance of tea with its continued expansion of output (4.2%), and exports (6.2%) decline rapidly in significance within both the overall economy and also within the agricultural sector.

Thus, while we are now dealing with a minor industry in a relatively declining sector, nevertheless, the tea industry grew fast. The rehabilitation of the perennial crop fields was initially significant, but the growth continued beyond its pre-War level. Here, the institutional framework of research and extension set up by the Japanese was an excellent basis from which to expand--a factor emphasized by local and international experts alike.

It is not clear what role the major land reforms, which were so vital to the development of the agricultural sector in general, had on the tea industry. Certainly, the Japanese plantations were broken up, and the average size of tea holding (about 1 hectare) is similar to other agricultural enterprises. It is probable that it was the combination of the reforms and the substantial pre-war infrastructure that enabled the tea industry to achieve its rapid expansion.

The dynamics of the tea industry cannot be assessed by simply looking at aggregate output and exports. We have noted that, before the War, an industry which had been noted for its semi-fermented tea (Wulong) changed, under the Japanese, to one producing mainly fully fermented black tea and that ownership of the industry was highly skewed towards a few large scale operators.

The production pattern that emerged after the war was very different: black tea was much less significant while green tea production expanded rapidly. This had much to do with the influx of the wave of mainlanders fleeing the new communist regime, many of whom came from provinces where green tea was the preferred beverage--although domestic consumption of tea in Taiwan was still very small.

The influence of these new settlers on tea was to introduce the technology for and cause a shift to the manufacture of green tea. Production was started in 1949 with the trial export of 1,190 tons to North Africa. These exports increased rapidly and peaked in 1967 at 9,801 tons. Political, quality and price factors were responsible for the loss of the North African market to green tea from the mainland in the 70's.

The manufacture of green tea makes a great deal of sense where new areas, with relatively poor transport networks, are being opened up because the raw (freshly plucked) tea leaf is initially processed by the farmer. The resultant "crude tea" is about 1/4 the weight of the original leaf, is robust, and can be more easily transported and stored prior to final processing in a large-scale tea "refinery." The major types of green tea produced at this time were "gunpowder" and standard "mei" cha.

The far better relations between Taiwan and its former colonial master than those with the mainland, and the rapid growth of incomes in Japan, induced the next switch in production technology--a switch which is hidden in export data. Taiwan had forced the Japanese out of the roasted green tea market in North Africa in the late 50's. By 1960, Japan ceased to be a significant tea exporter and became an importer.

Japanese teamen then flocked to Taiwan to become involved in the establishment of steamed green tea plants. Four hundred factories were set up (half of which processed steamed green tea), the price was good, and buyers were in abundance. Field management, product quality, leaf freshness, manufacturing technology, and automation, all received a big boost from the Japanese input.

In 1963, the export of this Japanese specialaty--"steamed green tea" (Senchia or zhengcha)--commenced. The production of this tea requires a sophisticated processing plant and the delivery to the factory of fresh green leaf. The dramatic change shows up in the "Countries-of-destination" statistics for tea exports: in 1967, North African countries imported nearly 10,000 tons of Taiwanese tea--this would have been almost entirely standard roasted green tea--, and Japan's tea imports from Taiwan were only 2,000 tons. Six years later (1973), the situation had reversed completely with Japan importing over 12,000 tons (almost all Senchia) and North Africa only 2,000 tons (out of total green tea exports of about 18,000 tons).

The high levels of Senchia exports were also short lived: exports fell to half their peak level and are limited today to very minor specialist exports from one (Japanese owned) factory which air freights new Spring tea each year. This tea comes into flush in Taiwan a month ahead of that in Japan and is able to obtain premium prices on the Japanese market.

It is highly likely that the drop off in the production of stemed green tea in Taiwan was due to a diversification--and diversion--of Japanese investment into factories on the mainland. We have visited one such factory on a State tea farm in Zhejiang province (see the T&CT, February 1990). However, it is said that the 15 years of concentration on steamed green tea for the Japanese market had a big impact on how the business was run in Taiwan in terms of outlook and systems.

Ironically, it appears that more recently consumer tastes in Japan have moved away from Senchia towards Wulong and Baozhong. These are the very teas that the Japanese administration discouraged in the 20's and 30's!

This change has been attributed to the popularity of natural and health products and semi-fermented tea reputation among young women as a drink that improves the complexion and keeps the figure trim. There is also the attraction of a new fad: sales of canned Wulong in Japan seem to have increased dramatically. However, Taiwan again faces stiff competition from the mainland to retain its share of the Japanese market in Wulong tea. [Table 1 to 2 Omitted] [Figure 1 Omitted]

Dan M. Etherington ad Keith Forster Economics Department & Contemporary China Centre Research School of Pacific Studies Australian National University
COPYRIGHT 1991 Lockwood Trade Journal Co., Inc.
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Author:Etherington, Dan M.; Forster, Keith
Publication:Tea & Coffee Trade Journal
Date:Jan 1, 1991
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