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The changing face of the Chinese tea trade

A look at the evolving Chinese tea market and the effects of rising Chinese prosperity. Inspired by an article on tea blog by Derek Chew, titled, "Why the rising price of tea in China is not entirely bad news".

We have to look at the background to this story. What the opening up has mean for Chinese and Chinese tea farmers has been a huge opportunity. In the 1970's tea farming began revive, though was limited and controlled primarily by the government State Owned Enterprises (SOE). We have to remember that during the 50's and 60's tea production was severally limited as it was not deemed a core necessity by the central government. The production that there was, was inefficient and output primarily reserved for government officials, rather than the general population.

The opening up of the economy in 1980's meant that individuals in certain regions were able to take some control of their own destinies. Trade was encouraged, and gradually movement was allowed between regions thereby opening up new trade opportunities which brought with it rising incomes. These changes in the tea producing regions encouraged families to develop tea plantations that had for the most part been abandoned and to open up new land that had been unusable previously for other types of agriculture. It is important nonetheless to remember that communication were and still are an issue. Often these farms were only accessible by mud road, making journeys long and slow.

For specialist teas, China is one of the fairest markets around due to the fact that still the bulk of good teas are still produced by families. Such small production units share profits more equally and with lower overheads. Overseas (read Africa, Sri Lanka, India) tend to be more business like and often rely on shareholders and investors which means dividends / profits are taken out, plus there tends to be a hierarchical distribution of wealth in the organisation i.e. the Directors --> Managers --> Workers take home (significantly) different wages.

As Derek mentions, many families take the initiative to expand their business by opening tea shops in local or big cities in order to maximise profits. It is also a great way for often university educated family members in their 20/30s to live in cities whilst still being connected to the family business. For many, heading back to their village is not top of their list of ambitions when graduating and therefore can be an excellent way to balance an urban life with rural connections.

Industrialisation has meant inflation is a significant factor in China. Input costs are a major factor in tea production, whether fertiliser, petrol (for the motor bikes transporting pickers, the picked tea and vans that take the finished tea to market), rents for shops/storage, wages for the many people that help out, electricity used for lighting, air conditioning, processing (especially baking) have all risen dramatically and will continue do so for the foreseeable future. For example the Chinese government is targeting 13% p.a. rise in wages in the next 5 years which will obvious impact the tea industry both from supply and demand angles.

Touching on the supply and demand factor, what you are seeing is the huge growth in wealth in China. This rising affluence sees tea consumption growing and people increasingly buying higher quality teas whilst gaining access to a much wider range than ever before. In Shanghai, Beijing, Shenzhen etc. you can now buy teas from all over China. The market's growth means that regionally limited teas such as 'WuYi rock tea', XiHu 'West Lake' Longjing, XiShuangBanNa Puerh and TaiPing KouKui are increasingly grown outside of the original regions. To be honest, much of the Big Red Robe (should be translated as Scarlet Robe) consumed in China and overseas is almost certainly produced outside the 70sq km UNESCO protected region. Whether this is an issue is a subject for another blog entry!

The growing popularity and success of tea has encouraged and created many new varieties and opened up regions for tea production. Yunnan, famous for it's Puerh and black tea now produces oolong teas, green teas and even white teas.

Hopefully places like Thailand, Myanmar, Burma, New Zealand, Hawaii, Georgia etc. can build tea industries based on flat organisations like that in China. Such organisations tend to be more focused on quality, producing unique products that are passionately made whilst gaining a good market rate for which the family can make a good profit. A significant challenge for small family business is that entry to the market place is not that easy. Skills and markets tend to be developed over generations. Although the internet levels the field for selling, you are still looking at years to develop a business. This for many poor regions means the need for investors, which as we highlighted, tends to involve larger organisations and overheads.

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