Oolong Supply Chain and Time To Market

[Herb_Master]

I have been reading "Harvesting Mountains" by Robert Gardella it is a scholarly work featuring lots of statistics culled from archived records but makes very interesting reading. It is subtitled "Fujian and the China Tea Trade, 1757-1937" and contains much that is not apposite to today's situation, but some things change very little.

Some words at the end of chapter 1 caught my attention, describing ownership of the tea land and how this broadly mirrored itself from Mid Qing to the 1940s in that large scale plantation ownership from land, tea, production packaging and distribution as in the plantations (of India say) just did not exist and could be identified as falling into 1 of 3 categories.
Petty producers [renting land] using only their own labour or that of the extended family. #1
Wealthy Peasants [ with their own land, or renting larger acreage] who could afford to hire skilled artisans for the purposes of picking or Mao Cha production. #2
Merchant Entrepreneurs who could rent large areas of land, afford the investment to plant tea and hire waged workers to pick, produce mao Cha, and reprocess the tea and package it #3


#1 Hopefully the family members were skilled in the tasks they had to perform but this is not always the case - though they may have passed the tea {sold at local auctions} to skilled mao Cha or Reprocessing factories. However village tea was often mixed together by a large purchaser evening out the very good, good and mediocre tea leaf.
#2 If the artisans were skilled the tea could have been superior to that of petty producers - but if not it would probably still be more expensive
#3 All kinds of production sold their tea on to another link in the chain Initial financing of the tea, and eventual marketing and distribution rested with Outsiders whether from Shanghai, Canton or Europe/America.

Reading elsewhere that quality Oolong not only needs good leaf to begin with, but transportation and storage, production of Mao Cha and reprocessing are all opportunities for a Quality to be ruined.

This made me wonder how important is control over the whole supply chain. It made me wonder from time to time, but as this is not information generally available about different Oolongs we are left to find trustworth vendors whose products we have enjoyed in the past and make use of their services again.

Brain Teaser closed, or so I thought until recent teachat about the early(iest) arrival of Spring Tea. Part of the tea reprocessing that takes it from Mao Cha to the finished tea - include baking[/roasting] AND Resting. - before the tea reaches it's finest drinkable state. So if we know when a particular Spring Harvest begins in a given region can we guess that a given tea has appeared TOO early on the market to be of the highest quality?

Beaujolais Nouveau was a big FUN thing in 1960's, in the 1970's it became a huge fad - More Beaujolias Nouveau was drunk in Paris in the early 1980's than the entire production of Beaujolais each year. Serious Beaujolias was never Nouveau it needed more time and care in production - but after the Beaujolais Nouveau explosion was over serious Beaujolais was tarnished by the same stigma and suffered greatly because of it.

So do we worry about it arriving too early - or just trust our favoured vendors again. Personally I like to revisit favoured vendors but have great fun rooting out new sources also, come Spring however I may just keep track of when harvesting occurs before trying any new suppliers

[woozl]

Absolutely fascinating...
Too much to respond to at the moment.

I'm hoping tea doesn't go the way of the wine market.
I have wine in my basement, I paid 30$ US, now it's worth 200+
-still tastes like 30-

What was the line "clay is gone before knowledge"?
I hope it doesn't apply to OUR beverage also (be it tea or wine or...)

read "Noble Rot" about the wine trade .....

PS. Good Beaujolais rocks, (even fresh whites)

[Intuit]

Between 1990 and 2005, the percentage of the global population that could be defined as belonging to the 'Middle Class' of economic status rose from approximately 1/3...

to just over 50%. Most of that growth occurred in Asia and SE Asia as a result of the migration of industrial jobs from the West, an emphasis on rural development and education of the masses, and improved market infrastructure.

Ponder this mind-boggling statistic for a minute. That is one helluva increase in economic status and discretionary wealth. It has catalyzed a boon in internal consumerism and changed consumptive habits (including diet) in China, SE Asia and India.

I cannot answer your questions, but I would like to offer a guesstimate on the effect of this enormous consumptive drive and wealth:

Where corners can be cut and profit made, somewhat ruthlessly and while ignoring time-honored quality control practices and market ethics, you can bet that an 'established' name and its reputed quality will be used to push suboptimal goods at the highest price that name can fetch, as demand for limited supply rises.

In fact, we see this over and over in many specialty goods markets.

Confounding the issue of production rates, we also have a new dynamic that I mentioned previously: a decoupling of supply from price. It's been catalyzed by globalization of goods (local and regional markets morphed to transglobal markets); collusion among producers and distributors to maintain high pricing irrespective of actual demand, quality and product supply status and internet sales, wherein the consumer perchases items 'blind' at distance from vendors.

And at present, a troubling trend: distributors are sitting on a vast supply of goods, bottlenecking the movement of goods to vendors and artificially boosting pricing at a time when oversupply, under-demand (from belt tightening), and smartly diminished base cost (real estate/storage and energy costs) should be pulling pricing down. That's where collusion comes in to artificially set prices higher than would otherwise be prudent due to consumer resistance.

It suggests that the polyglot of credit-driven 'rolling demand' fueled consumer wealth and booming production of the past decade has changed the way markets function.

Because we have no safeguards like product dating for 'freshness', you can and will have feckless vendors who are willing to sell you, the hapless consumer, suboptimal goods at high pricing.

A primo example: we now have black teas that are processed to prolong shelf life (and thus historically encourage bulk purchasing by consumers) being sold in very small quantities (eg., buy the ounce or 100 grams, weeks to a month supply) that boosted actual product pricing to pound to 2-5x equivalent bulk cost - for decidedly mediocre goods. That pricing strategy was heretofore reserved for the most 'rare' black, oolong and most green teas (due to a separate freshness issue).

Yesterday, I saw an internet vendor listing a very standard array of black and oolong teas, nothing special, available only in 100-gram lots (less than 1/4 pound) for $8-12 dollars each, very near the pricing of their green teas! huh???

Furthermore, we saw a negligible decrease in shipping costs levied for internet purchases on many goods (tea in particular), once exorbitant charges were established as 'the norm' in 2007 and the first 2 quarters of 2008 - now far in excess of actual shipping costs born by the vendor.

I have seen a heartening trend: were small groups of producers come together to offer noncompeting products under one name, to sell directly to consumers without middle men. They have a single entity on each continent that receives and sends orders directly from estate/farm to consumer.

You join a buyers club with a small yearly fee that pays for these distribution points and for minimal internet marketing costs. In return, you get 'dibs' on a suitable selection of quality products (eg., white, green, oolong and blacks from a small array of quality estates) that are guaranteed not to be diluted with inferior teas and are shipped within a reasonable time to ensure freshness.

This direct sales and fair-market model* is a remarkable concept, because it cuts out about 70 percent of the price inflation and unethical quality diminishment, with a percentage of return profit that would not otherwise be available to producers - to be invested into product improvement, including biodynamic and organic garden conversion, and fair compensation/benefits/worker conditions for employees.

* Similar concept to local farmers co-operatives, except that they operate at a distance to co-op members, and you still have the issue of 'trustworthiness'.

[Herb_Master]

I have seen a heartening trend: were small groups of producers come together to offer noncompeting products under one name, to sell directly to consumers without middle men. They have a single entity on each continent that receives and sends orders directly from estate/farm to consumer.

You join a buyers club with a small yearly fee that pays for these distribution points and for minimal internet marketing costs. In return, you get 'dibs' on a suitable selection of quality products (eg., white, green, oolong and blacks from a small array of quality estates) that are guaranteed not to be diluted with inferior teas and are shipped within a reasonable time to ensure freshness.

Are you in a position to point us in the direction of any of these entities in Europe or America ?

[Herb_Master]

A lot

And covered many aspects, but of course

Where profit IS being made the authorities get jealous too!

Chapter 2 covers much to do with financing of the Fujian Tea Trade.

200 years ago the Fujian authorities levied local tea taxes, the Chinese National government applied further Tea Taxes, and once shipped to Britain yet more taxes were applied.

Would you look upon this as bad, after all if not for British Taxation the U.S.A might still be part of Britain

[Intuit]

The garden-member buyers coops can be found by searching the web. I found several in Darjeeling, where production yields are limited and growing national demand can be balanced against overseas sales through cooperatives purchases. I have also talked to low profile Assam growers who have adopted the model of direct sales alongside more traditional sales model. They're obviously cautious about commitment to complete shift in market model, lest they be caught in a pinch if buyer demand collapses, as it can in severe economic conditions.

For the teagardens, it affords them a better return on their products and removes some of the market vagaries of fluctuating demand. Improved profit making MUST be plowed back into these estates - in Assam, Nilgiri, Darjeeling and Sikkim, in Ceylon, in China and Vietnam, and Indonesia where soil leaching and erosion, climate change, regional air pollution, urban growth and tourism erode yield and harvest quality of established estates with older plants.

By reducing pesticides and herbicides, working conditions are far healthier for their laborers, who have no protection against chemical exposure. Higher return of profit allows fair-market pricing to farmers and in turn, to their labor force stabilizes the economy against demand and yield fluctuations, and more importantly, provides a modicum of assurance to purchasing members that the tea is not watered down - as much as 50% by tea association laws/labeling rules, and downstream illegal 'watering down' by distributors who combine relatively tasteless, low quality blending teas with name-product.

Eventually, that can damage the reputation of well established estates.

Since we are discussing taxes, know that the ethnic peoples who work on these tea plantations in Asia and SE Asia and the Pacific, are wanting to apply their own taxes and encumberances on tea harvest because large and expensive central governments are failing to provide social services locally and do not address dangerous labor conditions... and in marginal tea plantations, outright failure to pay workers for months at a time.

Graft and corruption from within the industry and by overseeing officials is not new; but pressure to keep the best for local distribution and send off lower quality teas overseas might be expected to grow, as wealth accumulates and more of the population can afford name-brand teas formerly inaccessible to them.

[Intuit]

"So do we worry about it arriving too early - or just trust our favoured vendors again. "

It's not so much a problem of it arriving too early, as poor quality tea being passed off as higher quality, based on 'name recognition'.

This is a really big problem for oolongs from Taiwan and Anxi, China, for example.

This reality came home in a major way when I purchased oolongs from reputable vendors that paled in comparison to substantially less expensive 'no-name' oolongs. These noteworthy teas were obtained from a local organic food coop in the first case and a very large tea and coffee on-line vendor in the second. Neither of these sources was touting their teas as exception - I spoke to their buyers out of curiosity. They did have relatively fast turnover, however, relying on suppliers they had used for years.

I now opt to 'shop around', not necessarily because these big name vendors are deliberately misleading their customers. but more likely because the supply chain has quite a bit of corruption. Where these vendors don't keep a tight fist on quality (due to volume of sales and mass of product they move), and where customers don't put up a fuss when suboptimal product is received, you can't count on purchasing the best teas based on vendor name and reputation.

One other factor worth considering: purchase agents, warehouse staff and sales agents don't always work together to provide customers with the best possible product. They don't necessarily work in the same building. If the loading dock or stock managers fail to label large batches with dates, those teas that suffer from seasonal burst in demand may grow stale and loose flavor value without the seller recognizing the fact, especially if they receive little or no feedback from customers.

[Herb_Master]

It's not so much a problem of it arriving too early

My reference here was to the supposed nature that while the best processing of tea to become Mao Cha may be best done in a more or less continuous manner lasting a few days to a week. Yet the best further processing of Mao Cha before it becomes the finished product is NOT in a continuous cycle of mini roastings but a repetition of roasting with lengthy rests between them.

How many rests I don't know, and what constitutes lengthy I don't know - I was just interested if there could be some minimum time period that if not attained would suggest tea from the new harvest could not have had the BEST processing!

[Intuit]

Yes, I saw your post with the bold-face emphasis on 'rest period.

"How many rests I don't know, and what constitutes lengthy I don't know"

Tea masters will know how to adjust roasting and rest periods to obtain a reproducible product quality. More importantly, they must harvest leaves on just the right day.

Note the comments about yearly variations in climate that seriously affect choice of harvest days and overall quality of the tea leaves that may not be correctable by processing manipulation.

An interesting blog (albeit with commercial spin) on oolong tea processing and the artesian aspects of production.

http://www.redcircletea.com/blog/?cat=3

"Resting", as far as I can tell, involves time alloted for reactions that produce aromatic components of aroma and flavor following oxidation and roasting steps.

[gingkoseto]

You join a buyers club with a small yearly fee that pays for these distribution points and for minimal internet marketing costs. In return, you get 'dibs' on a suitable selection of quality products (eg., white, green, oolong and blacks from a small array of quality estates) that are guaranteed not to be diluted with inferior teas and are shipped within a reasonable time to ensure freshness.

I like this idea. I heard of some club kind of thing going on in China, initiated by individual farmers (those who know about internet tools). I have yet to learn more about that, and I wish it would be something like the alliance of a group of producers, hence covering more varieties of tea.

I have to find some other time to thoroughly reading you guys long analysis (just had a quick reading only). I always like Herb-Master's research report and Intuit's economic analysis (Intuit, there was a good one you posted in one of the tea day survey threads that I really like, but can't find it at this moment).

For most Chinese tea in western market, I believe, more costs come from transportation, warehousing, along with regular corporate operational costs. Similar to the buy's club Intuit describes, however shifting to another direction, it would be also nice to have a buyer's club/coop. that does group buying from sources. When buying tea from China, I don't care that much about the price of the tea because it won't go too high or too low than market average. Getting big discount in transportation is more important than getting any discount on the tea's own price. And not all Chinese suppliers are willing to ship their tea overseas. Some of them would think, why bother, when they can sell as much as they want within China (but this situation is likely to somewhat change in this internet era ). And of course the more a group buys, the more likely the supplier wants to do the international shipping, and there is better deal for transportation cost.

[gingkoseto]

About whether a tea comes too early, I guess, it's always hard to tell. If a vendor wants to play tricks, usually they are smart enough not to let you tell at least from schedule. So ultimately, it's still the quality of the tea counts. If the quality of the tea is good, I don't mind not knowing the schedule details

As for the pricing, Intuit, I agree with you that there are large mark-ups. But I don't think most reputable tea vendors just use their names to make huge profit by marking up the price. There may be some vendors that make good money easily. But I believe generally the serious tea market (not including tea bags) in the west is still so small, that many vendors have no choice but selling for high prices, in order to cover all the costs. I've seen some vendors offering rather large discount for their 2-lb. packages, compared with their ounce-50g packages, because when they sell more, the risk and basic costs involved per unit tea decreases rapidly.

Some teas in US, I don't know the sources, so can't compare the price. But for some brand name teas from China, I can get an idea of the price mark up. Based on my limited observation, I think, if a vendor sells a tea for a price twice as much as the price in China, he is already doing an excellent job (either operating smartly, or not making much profit). It's not rare to mark up the price up to 3 times, especially if the product itself is not expensive, vendor's corporate operation is high profile, and many other factors...

Buying from the source also depends on the need of the buyer. Usually it's worth it for higher end tea or large group purchase. When I just want to take a quick bite of some specific regular tea, I would rather pay the marked up price and buy it here from an US vendor, instead of paying the $15 per lb. shipping. For large purchases, or some specific expensive tea (which I don't consume or afford much) I would rather buy it from the source.

[Herb_Master]

"So do we worry about it arriving too early - or just trust our favoured vendors again. "

It's not so much a problem of it arriving too early, as poor quality tea being passed off as higher quality, based on 'name recognition'.

This is a really big problem for oolongs from Taiwan and Anxi, China, for example.

This reality came home in a major way when I purchased oolongs from reputable vendors that paled in comparison to substantially less expensive 'no-name' oolongs. These noteworthy teas were obtained from a local organic food coop in the first case and a very large tea and coffee on-line vendor in the second. Neither of these sources was touting their teas as exception - I spoke to their buyers out of curiosity. They did have relatively fast turnover, however, relying on suppliers they had used for years.

I now opt to 'shop around', not necessarily because these big name vendors are deliberately misleading their customers. but more likely because the supply chain has quite a bit of corruption. Where these vendors don't keep a tight fist on quality (due to volume of sales and mass of product they move), and where customers don't put up a fuss when suboptimal product is received, you can't count on purchasing the best teas based on vendor name and reputation.

As I am now in a Ti Guan Yin phase I thought I would probably be in the area most likely to suffer inaccurate and misleading labelling and description.

Great when you find a superb little tea, but I would prefer to know what I was drinking and be in a position to order something similar from other sources.

Of course my initial posting was covering 2 topics at the same time, and Time to Market was the 2nd, the Supply Chain issue intrigued me for the very reasons that you have observed. My use of the word Romantic on a separate thread was only partly poetic, if one can find an extended 'family' run business that owns tea bushes AND serves tea to knowledgeable tea drinkers in a Chinese Metropolis then one can hope that the whole Supply Chain is much more controlled.

Another view of yours that sits firmly and squarely within my own standpoint is where vendors have huge customer bases AND cater for all kinds of tea drinker from bag, and added flavours to loose leaf of supposed quality.
Would a regular drinker of the former complain of a foray into higher priced loose leaf or be content to revert to their previous purchasing pattern?
Would a more experienced drinker of higher priced teas complain, or just make a mental not to trouble that supplier with a further order?

[Herb_Master]

As for the pricing, Intuit, I agree with you that there are large mark-ups. But I don't think most reputable tea vendors just use their names to make huge profit by marking up the price. There may be some vendors that make good money easily. But I believe generally the serious tea market (not including tea bags) in the west is still so small, that many vendors have no choice but selling for high prices, in order to cover all the costs.

Like you I do not worry too much about the Mark Up. I tend to believe that Market Forces will have their way in the end. If a vendor is obtaining excessively 'unfair' profits from his business then other entrepreneurs will (jealously or altruistically depending on their motives) join the supply side and bring down the price.
However in a 'Young Market' - would anyone disagree that quality oolong sold in the west is still a 'Young Market'? - the opportunity for excessive profits is greater.

And as a 'Young Market' one further argument to add you others is that a supplier is taking a gamble on the amount he orders and does not know if he will be left with the bulk of his purchase remaining unsold.

Chapter 2 of Gardella's book covers some interesting points in this area. The Merchants at the treaty ports had exclusive rights over export of teas and when other ports in Fujian were allowed to start exporting they made quick investments in the newly developing Fujian ports. Local warehousing hongs would buy the tea inland and make it available to the Merchants. External Merchants principally from America and Britain would come armed with great funds used to grease the wheels of tea production. Both the Existing Merchants who were branches of the [Chinese but not Fujian) Treaty port Merchant empires and the International Merchants had to pay up front to ensure there would be tea available the following year. This money went in part to the Warehousing hongs, in part to the Finishing factories that turned Mao Cha into the final product and some even to the peasant tenants for rents and tools and new tea plantings.

This of course meant that the Merchants had first say on the forthcoming crop.

But Chinese Banking systems were growing and institutions further up the Chain were able to finance themselves from loans. The profit and jealousy motives and rumours were rife. When times were hard everyone suffered and 'Foreign' merchants suffered the greatest criticism, when times were good Jealousy of the 'Foreign' merchants was at it's greatest.

Gardella argues that the Merchants (Chinese and International) shared equally the profits from a good year and the losses from a bad year.

And of course the Intermediate Institutions would suffer no loss at all in a bad year if they had merely received advances from the Merchants rather than taking loans from the banks.

[Intuit]

Couple of points made in the last 2 posts worth commenting on further.

1. With the exception of a minority of tea vendors who specialize in quality teas, tea sales have been altered by a rapid expansion in customer base. These newer customers are interested in the health aspects, after a series of articles with research citations were published in the popular press that documented benefits of tea drinking, for antioxidants, calming effects, and weight loss.

2. These tea drinkers have no real concept of quality tea, and do not have an clue of how to properly prepare it. They are satisfied with tea bags and tend to prefer flavored teas.

3. Thus, the vast majority of new customer sales are in flavored/fruits/flowers tea blends. The teas used in these popular mixtures aren't very good, but then again, the predominant flavoring overwhelms the taste of the tea, be it black, green, white or oolongs.

Highly fragranced oolongs (traditional processing techniques) are easily sold to new tea drinkers who want them for weight loss, because they are naturally pleasant on the untrained palate, presuming they aren't overbrewed.

4. Many vendors that formerly peddled high quality teas have cut back on stocking activities dedicated to these teas, and instead have sought to compete for the newbies who are willing to pay premium price for lesser quality teas in popular flavored blends.

5. The quality tea vendors now have a larger customer base as a result and are able to command higher pricing than recently boosted supply out of India and China would otherwise fetch on the wholesale and retail market.

6. Some of these tea vendors are purchasing lesser quality teas from newer tea growing areas and selling them as highly sought after teas. We know this happens, Ten Ren is a clear example, but there are many others out there who have young purchasing agents that are not as knowledgeable as one might like, and they are easily duped by slick distributors who peddle teas that are either (a) old, (b) quality teas heavily diluted with inferior teas from adjacent areas, or (c) teas produced from entirely different areas (Sumatra, Vietnam) that aren't really that bad, but they are deliberately mislabeled to garner higher prices and dedicated marketshare among undereducated and inexperienced retail vendors.

Indeed, during the hype and con era (last 5 yrs) of the bubble pu'erh market in China, many teas were sold as venerable aged "rare" teas, when in fact they were catalytically aged/seasoned. At issue was the fact that overseas and even regional buyers were unfamiliar with these teas, but on name alone, they could fetch very handsome prices within the trade.

I have mentioned internet sales decoupling from normal market dynamics. Nowhere is this truer than for pu'erh teas sold outside of SE Asia, where they STILL command high dollar value, despite plunging to their fomerly low value ($3 rather than $30-60).

7. Let me once again point out that the newest cadre of tea drinkers have quite a bit of disposable income and are willing to spend it on teas by name, have no earthly idea if their tea is the real deal, and are...shall we say, not exactly willing to do their homework regarding their teas. It's all about impressing others with cash and flash. The majority of them can be typified as either young Asians or White Bread Boomers. They are the customers who helped initiate a craze for collecting exotic looking (but not masterly) yixing teapots in which to brew and serve their 'rare' (boutique) teas.

Where middle men and vendors can and do collude to artificially stabilize the market to keep profits high, while base costs (fuel costs in production and shipping)and actual demand have plummeted in recent months as the global economy tightens.

This is certainly NOT restricted to teas, for you see it amply demonstrated in gasoline prices at present. Crude is still less than $40/barrel, but deliberate reduction in refining has boosted pricing at the pump back to $2.25 and more, as though the crude price were DOUBLE it's present value. The Middle East is Happy and so is Exxon, Mobile and Shell - looking forward to near record profits by the end of 2009, if the present trend in pricing continues.

Meanwhile, the automotive oil and lubricant distributor middlemen have colluded across the US and Europe to keep the pricing of their products at ALL TIME highs, right through the recent precipitous drop on crude prices and fall in consumer demand. Supply was rich, but the pricing was TOTALLY decoupled from supply and demand.

Ditto the case for food pricing, despite major influx of government funds to supposedly drive prices down. Nope, middlemen collusion again.

Nobody is listening in Washington, London, Berlin or Amsterdam. (they remain) Deaf, dumb and blind to the plight of the average Joe and Jane who are shelling out a substantially higher fraction for food and once again for fuels, in lean times, than they did in the last decade of booming global economic trade and mass surplus of goods.

And the economic pundits wonder why consumer spending is tight??

Hello??

See how you can be royally screwed over by this new market dynamic?

[Intuit]

system hiccuped during the last post.