Tea-The Past, The Present and The Future

8/6/2019 Tea-The Past, The Present and The Future

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TeaTea

The Past, The Present and The FutureThe Past, The Present and The FutureBetter to be deprived of food for three days, than tea for one. -AncientChinese Proverb

Simranjeet Singh

MBA-926 1


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An Introduction to TeaAn Introduction to Tea

y Tea refers to the leaves, leaf buds, internodes of theCamellia sinensis plant, prepared and cured by

various methods.

y "Tea" also refers to the aromatic beverageprepared from the cured leaves and is the common

name for theCamellia sinensis

plant itself.

y Tea is the oldest & the most widely consumedbeverage in the world after water.

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Origin of Tea & Major SpeciesOrigin of Tea & Major Species

y According to Mondal (2007, p. 519): "Camellia sinensisoriginated in S.E. Asia, specifically around the intersection oflatitude 29N and longitude 98E, the point of confluence of

the lands of northeast India, north Burma, southwest Chinaand Tibet.

y The plant was introduced to more than 52 more countries

from this centre of origin.

y

Tea as such has only one major cultivated species i.e.camellia

sinensis.

y Some varieties are:

C. sinensis sinensis (Chinese)- Used for Darjeeling tea

C. sinensis assamica (Assam)- Used for Assam tea 4


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TeaTea-- Historical SignificanceHistorical Significance

y Tea as a commodity has had a profound

influence on the world perhaps secondonly to gold.

y It has made and marred fortunes.

y It has created and ended wars.

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Tea Growing Regions In IndiaTea Growing Regions In India

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Tea VarietiesTea Varietiesy Some cultivars being developed by research institutions and

promoted by the tea board include-

TRI-2024

TRI-2025

Some cultivars are world famous and the teas obtained from these

cultivars command a major premium:

Longjing (Dragon well)-Green Tea-China (Premium)

Tie Guan Yin(Iron Goddess of Mercy)-Oolong Tea-China & Taiwan

Shuixian Oolong Tea-China & Taiwan

Formosa(Beautiful)-Oolong Tea-Taiwan

Formosan OR Red Jade(TT53)- Black Tea-Taiwan

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Major Types of Tea(Based upon DegreeMajor Types of Tea(Based upon DegreeOf Fermentation)Of Fermentation)

White/GreenTea

Oolong Tea

Pu-erh Tea

Black Tea

Increasing

Degree of

Fermentation

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Major Types of TeaMajor Types of Tea

y White tea

y Green tea

y

Yellow teay Oolong Tea

y Black Tea/Red Tea

y

Pu-erh Teay Flavoured Scented/Flower & Spiced tea

y Herbal tea/Tisane

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Tea ProcessingTea Processing

Source-Wikipedia10


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Type Specific ProcessingType Specific Processing

y White tea

y Green tea

y Oolong (Wulong)

y Black tea/Red tea

y Post-fermented tea

y

Yellow teay Kukicha

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Tea Processing EffectsTea Processing Effects

Source:Wikipedia 12


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TeaTea -- GradingGrading

y Tea grades commonly refer to leaf size

and location on the tea bush. Tea gradingis primarily used by the estates for

segregating various teas during themanufacturing process.

y Grading terminology also differs when

describing green tea, black tea, and oolongtea

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Various Tea Grades(Black)Various Tea Grades(Black)y D Dust

y F Fanning

y S Souchong

OP Orange Pekoe

y BOP Broken Orange Pekoe

y Flowery Orange Pekoe

y FBOP Flowery Broken Orange Pekoe

y GFOP Golden Flowery Orange Pekoe

y TGFOP Tippy Golden Flowery Orange Pekoe

y FTGFOP Finest Tippy Golden Flowery Orange Pekoe

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Tea Grades(Green)Tea Grades(Green)

y apan: Extra Choicest, Choicest, Choice,

Finest, Fine, Good Medium, Medium, GoodCommon, Common, Nubs, Dust and

Fannings.y China: Gunpowder, Imperial, Young Hyson,

Hyson Twanky, Hyson Skin and Dust.

y

India grades are similar to China's. Theyinclude: Fine Young Hyson, Young Hyson,

Hyson No. 1, Hyson, Soumee, Fannings, Dust.

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Tea Grades(Oolong)Tea Grades(Oolong)

Oolong teas also have their own gradingsystem.

The Taiwanese government developed thissystem.

They go in the following descending order:Standard,On Good, Good, Fully Good,Good Up, Good to Superior,On Superior,Superior, Fully Superior, Superior Up,

Superior to Fine,On Fine, Fine, Fine Up, Fineto Finest, Finest, Finest to Choice. There aresome intermediate grades that arerecognized as well.

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Tea Export StandardsTea Export Standards

y Tea traded internationally needs to comply withmandatory standards (e.g. EUs food safety andlabeling regulations)

y However certain minimum export standardsthat need to be adhered to are referred as theSpecifications : International Tea ExportStandards

+ Moisture : 7.0 % WT MAX+ Broken Tea : 6 % WT MAX+ Powder : 0.5% WT MAX

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Tea IndustryTea Industry-- Economic AspectsEconomic Aspects

y Globally tea production is estimated to touch 4billion kg by 2010.

y Tea is a commodity with worth $23.323 billionannually of trade and in terms of retail volume1,765 m. kgs.(2008)

y Indian tea industry is 2.5 billion US$ in size andemploys 12.5 lakh workers, 50% of them female.

y Indian tea domestic market is estimated to be 876.4million US$ and 650 million kg in retail terms ofwhich 290 million kg is packaged tea.(2008)

y It is growing annually at an estimated rate of 3.5%(value) and 2.6%(volume retail sales).

y Growth rates in 2010 dropped to 0.7-0.9 % due tohigh commodity prices and inflationary pressures.

Sources: Tata Tea, FAO, Tea Board, Nielsen, ITC-2008 18


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Tea MarketTea Market--Segmentation,NichesSegmentation,Niches

yGlobally tea market is segmentedvarious parameters.

yThis has allowed creation ofvarious traditional marketsegments.

yNew opportunities are howeveremerging.

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Tea Market(Segmentation In India)Tea Market(Segmentation In India)

Source:Russian tea market study 21


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Tea: Marketing ChannelsTea: Marketing Channels

Plantations

Own ProcessingUnit

RetailConsumer/Export

Market

MerchantExporter/Retailer

Bought LeafFactories

Retail/ExportMarket

Tea LeavesAuction/Direct

Sale

ProducerExporters

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Price Spread Tea (2006)Price Spread Tea (2006)

Source: NABARD Evaluation Study 23


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Innovative Marketing/DistributionInnovative Marketing/Distribution

Channels for TeaChannels for Teay Tea producers are making a switch from

traditional channels.

y New channels include auctions, e-auctions, e-

commerce.y New methods for price determination include

tea futures contracts.

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TeaTea--Marketing StrategiesMarketing Strategies

y Historically tea market in India has been heavilyfragmented.

y However organized player have hit back with avengeance wresting 60% of total sales back(2008) tothe 5 major players.

y This has been made possible by focusing on effectivemarket segmentation, regional/sub branding and othermarketing strategies, erosion of major pricedifferentials of past & better distribution/SCM.

y Organized player are also leveraging their strengthsand strong financials to move into the global arena. EgTetley acquisition by Tata tea in 2000 has createdworlds 2nd largest tea group behind Unilever.

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TeaTea--Value AdditionValue Addition

Value addition in tea especially in Indiaremains a one dimensional figure.

Out of the total quantity of tea exported, 66

per cent is in bulk form, 26 per cent is in lowvalue added packets and the rest ispackaged.

y Green / Fruits & Herbal / Flavours / Specialty

tea account for 49% value of all globalpackaged tea revenues (48,000 Crspotential) yet are nowhere in sight as far asdomestic producers are concerned.

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Tea Price Trends (Indian & GlobalTea Price Trends (Indian & Global

trends)trends)

Tea has proven to be a volatileagricultural commodity withsharp price fluctuations.

Tea market prices haveincreasingly been determined by

a complex interplay betweenseveral long and short termfactors

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Monthly Domestic Tea PricesMonthly Domestic Tea Prices--2008 vs. 20072008 vs. 2007

Source:ICRA Report 30


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Tea Price Trends(National)Tea Price Trends(National)



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Auction Centre Price TrendsAuction Centre Price Trends

Source:Russian tea market stud32


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Tea ConsumptionTea Consumption--Trends (2008)Trends (2008)

2.32.1

1.51.4

1.21.2

1.11

10.9

0.80.8

0.750.70.7

0.60.40.40.40.3

0.30.20.20.20.2

0.10.10.09

0 0.5 1 1.5 2 2.5

United Kingdom

Ireland

Bangladesh

Egypt

Poland

Netherland

India

Germany

Norway

Sweden

Finland

Canada

Denmark

Italy

Per capita Consumption(kg)

Per capita Consumption(kg)

Source: Tea Board 33


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Total Tea Consumption &Total Tea Consumption &

Production figures (2008)Production figures (2008)

1160

980.82

317.7

345.82

155

China

India

Sri Lanka

Kenya

Turkey

Top 5 Producing Nations

(Production in Million kgs)

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Tea ConsumptionTea Consumption

Trends(National)(2008)Trends(National)(2008)

0

100

200

300

400

500

600

700

800

900

YEAR-2002 YEAR-2003 YEAR-2004 YEAR-2005 YEAR-2006 YEAR-2007 YEAR-2008

Domestic Consumption ((M.Kgs) )

Per Capita Consumption(Gram)

Figures:Tea Board Of India 35


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ExportExport--Import Scenario (Global)Import Scenario (Global)

(2008)(2008)

0 2000 4000 6000 8000

Kenya

Sri Lanka

China

India

Vietnam

Indonesia

Argentina

Malawi

Uganda

Tanzania

Bangaldesh

Zimbabwe

Others

Total

World Export (In M. Kgs) Years-2008(P)

World Export (In M. Kgs) Years-2007





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ExportExport--Import Scenario(National)Import Scenario(National)

0

20

40

60

80

100

120

140

160

180

Year-1995 Year-2000 Year-2004 Year-2005 Year-2006 Year-2007

Prices(Rs per kg)

Value(Rs Crores)



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Supply & Demand In IndiaSupply & Demand In India



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World Demand & Supply TrendsWorld Demand & Supply Trends



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Production Statistics(National)Production Statistics(National)

631.75 648.28662.19

718.42

753.24 764.74

733.92

206.72229.85 230.78 227.55 228.56 221.69 246.9

838.47878.13 892.97

945.97981.8 986.43 980.82

0

200

400

600

800

1000

1200

Year-2002 Year-2003 Year-2004 Year-2005 Year-2006 Year-2007 Year-2008(E)

North India

South India

Total

Figures:Tea Board Of IndiaIn Million K s

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Acreage (National)Acreage (National)

390906 395113 401118404884 406190

435788447371

458718

113460 114693 114714 114714 115213 119823 119649 119740

504366 509806515832 519598 521403

555611567020

578458

0

100000

200000

300000

400000

500000

600000

700000

YEAR-2000 YEAR-2001 YEAR-2002 YEAR-2003 YEAR-2004 YEAR-2005 YEAR-2006 YEAR-2007

N.India(Ha)

S.India(Ha)

Total(Ha)

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National Productivity(In Kg/ha)National Productivity(In Kg/ha)

Assam W.Bengal Tripura N.India Tamilnadu Kerala Karnataka S.India All India

YEAR-2000 1686 1689 971 1639 1772 1866 2548 1817 1679

YEAR-

2001 1685 1686 904 1647 1751 1764 2615 1771 1675

YEAR-2002 1601 1662 874 1575 1893 1563 2741 1802 1625

YEAR-2003 1601 1770 1037 1601 2203 1569 2476 2004 1690

YEAR-

2004 1603 1882 867 1630 2146 1675 2641 2003 1713

YEAR-2005 1622 1900 863 1649 2022 1591 2545 1899 1703

YEAR-2006 1610 2066 818 1684 2014 1641 2547 1910 1732

YEAR-2007 1593 2053 877 1667 1995 1507 2423 1851 1705

Figures: Tea Board Of India 43


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National Productivity (National Productivity (ContdContd))

1685 1686

904

16471751 1764

2615

17711675

0

500

1000

1500

2000

2500

3000

Assam W.Bengal Tripura N.India Tamilnadu Kerala Karnataka S.India All India

YEAR-2000

YEAR-2001

YEAR-2002

YEAR-2003

YEAR-2004

YEAR-2005

YEAR-2006

YEAR-2007

Figures: Tea Board Of India(In Kg/ha) 44


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Trend in Indias Production,ConsumptionTrend in Indias Production,Consumption

and Exports of Tea (2008)and Exports of Tea (2008)



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Indian Market(Major Players&Indian Market(Major Players&

Market share)Market share)



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Latest Available DataLatest Available Data

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Some Indian Tea Market BrandsSome Indian Tea Market Brands

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Future Directions for TeaFuture Directions for Tea

Producers.Producers.y Rough estimates put tea margins enjoyed by tea producers

for selling in national markets at a maximum of 1.15$/kg.

y Global demand has out stripped supply in the past few years.

y But this demand growth pattern is not uniform with certainmarkets having high growth rates(eg:Russia) and certain

categories enjoying huge premiums(green, oolong and otherpremium blends).

y Thus most tea producers/retailers are using a mixed strategyof market segmentation and vying for a slice of lucrativeexport markets.

y These include psychographic, demographic, pricing and

marketing differentials to create niches. Eg. Scented tea (lotustea-Vietnam),Organic tea, Fair-trade Tea, Sehatmand tea, Premium Blends etc

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Trend in Aggregate Income and ProfitabilityTrend in Aggregate Income and Profitability

Indicators of Bulk Tea CompaniesIndicators of Bulk Tea Companies

Source:BSE 53


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Geographical IndicationGeographical Indicationy A geographical indication (GI) is a name or sign used on

certain products which corresponds to a specificgeographical location or origin (eg. a town, region, orcountry).

y The use of a GI may act as a certification that the productpossesses certain qualities, or enjoys a certainreputation, due to its geographical origin.

y Geographical Indication is a term covered under TRIPSagreement under WTO.

y It bestows upon goods with specific characteristics andproduced in specific regions a geographical trademark.

y This is most famous in the case of wines, spirits and specificcheeses. Eg: Champagne, Cognac, Armagnac, Roquefortcheese.

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Indian TeaIndian Tea GI, A ProgressiveGI, A Progressive

OutlookOutlook

y Indian GI act provides protection toregistered GI products and follows the

general international norms.

yThis is also enforced internationallythrough treaties.

y

Yet scope is limited till article 23 ofWTO agreement is amended

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TeaTea-- Proposed & Current GovernmentProposed & Current GovernmentPoliciesPoliciesy There is a 25-40% subsidy for replacement of

old equipment offered by tea board under theupgradation program.

y A subsidy of 25% is offered by tea board to

install value addition infrastructure.y For certification processes a subsidy of 50% is

offered.y For setting up of new factories for

green/orthodox/speciality teas a subsidy of 40%

is offered.y A subsidy of up to 5 Rs/kg is offered to

orthodox tea producers since 2005.(total outlayabout 200 million Rs).

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ContinuedContinued

y Creation ofSpecial Purpose Tea fund tobridge credit requirements of smallergrowers.

y Excise duty of Rs1-2 for social costs of

plantation workers on branded tea(notexported) and bulk tea.

y Extension of concessional import duty onimported plantation machinery, like tea

bagging machines, till March 31, 2011.y 100 per cent FDI is allowed in the tea

sector, including tea plantations to encourageinvestment.

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EXIM PolicyEXIM Policy

y Imports are allowed for value addition(min 50%) and re-export.

y SEZ are being established with a 25% tax waiver forvalue addition and export units.

y In order to maintain quality and retain the brand equity

of Indian teas, the Government has issued a new Tea(Distribution and Export) Control Order, 2005 whichprescribes strict norms for tea. All teas, whetherimported or exported would be required to conformto the specifications cited in the new Order.

y

QR on instant tea, quick brewing black tea, tea aromaand other extract/essences/concentrate of tea removed.

y 100% import duty except on imports from SAARCnations.(7.5%)

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SWOT AnalysisSWOT Analysis

Strengths:o Industry has a lot of spare capacity in form of non

operational tea gardens.

o Regions with special teas having unique characters exist.

o World class tea research institutes and expertise is available.

o Industry is highly competitive with larger manufacturersenjoying economies of scale.

o Diverse agro-climatic zones produce subtly different andexotic teas.

o Indian tea has a good brand image internationally.

o Adequate resources of germplasm for future research exist.

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WeaknessesWeaknesses

y Large no of tea gardens are small in size(10 ha orless) reducing operational efficiencies.

y Tea industry has primarily focused on black teamaking it more vulnerable to market volatility.

y Most of the tea bushes are old and have lowproductivity.

y Processing equipment is outdated, especially in caseof small gardens.

y Labour unrest especially in W.Bengal and excessivered tape hamper functioning & have led to financialunviability of several estates.

y Cost of tea cultivation is highest in the world.

y Highly labour intensive with a high social sector cost.

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OpportunitiesOpportunities

o Low per capita consumption (.75kg)demonstrates huge untapped domestic market

o G.I. protects and creates new markets for specialIndian teas.

o Changing consumer preference towards premiumblends and different types and grades of tea.

o Increasing awareness of health benefits of tea.

o More efficient marketing channels in form of e-

auctions etc.o Opportunities for product diversification exist.

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ThreatsThreats

y Ethnic & political disturbances in form of terroristoutfits like ULFA etc damaging tea industryespecially in NE India.

y Loss of production and quality due to climatechange

y Economic recession and currency market swingswhich create dips in demand and fuel pricevolatility.

y Competition from other beverages like malt

based health drinks, coffee, carbonated beverages.y Youth perception of tea not being a trendy

drink.

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ConclusionConclusion

y Tea industry is passing through a difficult

phase post the liberalization era

y Global competitiveness is an issue.

y While there is a lot of latentpotential, serious constraints impede fast

growth.

y Outlook is positive for the medium termwith recognition of new models ofgrowth by all the concerned stakeholders.

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TeaTea--Major InstitutionsMajor Institutionsy TEA BOARD OF INDIA, Kolkata, West Bengaly ASSAM AGRICULTURAL UNIVERSITY, Jorhat, Assam

y CSIR INSTITUTE OF HIMALAYAN BIORESOURCETECHNOLOGY (I.H.B.T) Palampur

y DARJEELING TEA RESEARCH CENTRE, Tea Board of India

y INDIAN INSTITUTE OF PLANTATIONMANAGEMENT, Bangalore,

y TEA RSEARCH ASSOCIATION, Jorhat, Assam, India

y UPASI TEA RESEARCH INSTITUTE, Tea ResearchFoundation, India

y

ITA, INDIAN TEA ASSOCIATION,y U.P.A.S.I- UNITED PLANTERS ASSOCIATION OF SOUTH

INDIA, Connoor

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Tea-The Past, The Present and The Future

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