Tea trade starts to find the right blend
DATE:2015-09-07 SOURCE:China Daily
Wuhan plans to invest 100 billion yuan in the industry as new business policies are rolled out to help sell products across the world
Before there were high-speed rail networks and airports, Wuhan used to be the epicenter of the tea trade. In the 19th century, camel caravans packed with an assortment of "tea bricks" would wind their way from the capital of Hubei province toward Moscow, Ekaterinburg and Irkutsk in Russia.
Back then, the journey could take months. Today, it takes just days as the camel caravans have been replaced by massive cargo jets and new rail services heading west.
"With the advantage of regional logistics and transport, the city once dominated half of China''s tea trade 300 years ago," Wang Xueling, a professor of agricultural products consumption at Huazhong Agricultural University in Wuhan, said. "But because of development elsewhere, the city faces challenges from other tea-producing provinces in South China."
Even so, the key ingredients are still there as the climate is ideal for storing tea. Processing facilities are also extensive, while the Wuhan-Xinjiang-Europe international rail cargo terminal and new air routes from Wuhan Tianhe International Airport make it a vital transportation hub.
By speeding up the distribution network, tea growers such as Zhang Yuxin are starting to reap the benefits.
His Huazhishan village farm in Hubei''s Enshi Tu and Miao autonomous prefecture is surrounded by a stunning mountainous landscape. But in the past he had limited access to sell his green tea to large companies that cater for the international market. Most of his crop was for domestic consumption, while the export sector tended to be for low-end teas.
"We also had to find outlets for the domestic market as one fifth of our profit was being swallowed up by middlemen," Zhang, 47, who cultivates around 13.5 hectares of land, said.
"They used to drive their trucks to various tea-producing villages during the picking season because major companies were not interested in dealing with small tea growers."
But times are changing as new business policies are rolled out to help tea growers sell their products and e-commerce platforms sprout up online. Major logistics operators are also moving into the sector to help farmers expand into global markets.
"Big tea companies now call us direct to buy our products," Zhang said. "They are keen to expand their export markets."
Funded by the Ministry of Commerce, local governments and large-scale tea companies, Wuhan plans to invest 100 billion yuan ($15.52 billion) in the industry during the next five years.
The aim is to expand exports via the old Russia-to-Western Europe trading route by increasing processing plants, logistics and storage capacity. Key to that will be the Belt and Road Initiative, proposed by China in 2013.
This trade and infrastructure network includes the Silk Road Economic Belt and the 21st Century Maritime Silk Road. The network connects Asia, Europe and Africa and passes through more than 60 countries and regions with a population of about 4.4 billion.
"As China promotes the Belt and Road Initiative, Wuhan will expand the ancient tea trading route with Russia and western Europe through well-developed rail and air transportation services," Wan Haiyang, head of the economic cooperation division at Hubei provincial agriculture department, said.
Last year, Hubei''s global tea exports reached $90 million, up 33 percent from 2013. This year, it could climb to $100 million.
But overall, China''s tea exports dropped by 7.5 percent to $1.27 billion last year, compared to 2013 because of falling demand in the European Union and Japan, two key overseas markets.
Surging production costs were also blamed for the decline, according to the Chamber of Commerce of Foodstuffs and Native Produce in Beijing.
"Except Russia, other major tea importing countries such as the United Kingdom, France and the Netherlands are economically developed with strong purchasing power and higher sales prices," Wan said.
To deal with this new economic landscape, Hubei''s tea sector has shifted its focus from Southeast Asia to emerging markets in Central Asia and Russia. Nations in western Europe, such as France, the UK, Ireland and Sweden, are also being targeted with upmarket products.
Annual tea drinking per capita in the UK is three times higher than in China at 2.4 kilograms. This makes the UK market attractive to Hubei growers, research released in May by Wuhan University showed.
Eager to promote the industry in Hubei, British brand Twinings, Liptons, owned by Unilever Plc, and TWG Tea, a gourmet label based in Singapore, are in talks to set up processing facilities, warehouses and offices in Wuhan. They already have a Chinese presence in Beijing.
"Favorable conditions will not only attract well-known international companies to set up businesses here, but also provide more opportunities for them to purchase tea from local markets and growers," Xiong Shuanglin, president of Hubei provincial tea industry association, said.
Tapping into new business opportunities will be important for tea growers in Hubei. Last year, the average profit for a farming family in the sector was only 72,000 yuan a year as labor and production costs soared.
On top of dwindling profit margins, tea growers faced tougher competition from competitors in Anhui, Jiangxi and Fujian provinces.
Relevant industries, including warehouse infrastructure, packaging, cold-chain logistics, e-commerce, finance and related tourism activities, will all benefit from the establishment of this new industry initiative in Hubei, Xiong said.
Companies are also playing their part in boosting trade.
Zhang Yuefeng is chairman of Hubei Yellow Crane Tower Tea Co, one of the largest in the industry in Wuhan. His company is planning to build three new storage terminals in Moscow, Ekaterinburg and Irkutsk at a cost of 170 million yuan. The terminals will supply black and dark green tea bricks to the Russian market in the next three years.
With annual sales of 300 million yuan, Hubei Yellow Crane Tower Tea aims to ship more high-end products from Hubei''s five major tea-producing regions.
"It is still impossible for organic green teas to be produced on a huge industrial scale," Zhang said. "The leaves have to be handpicked and you need sophisticated staff in the roasting process. But I hope this high-value product will become a pillar of our operation in Russia in the future."
Another move to increase exports involves establishing a national commodity exchange for tea in Wuhan. This will strengthen Chinese companies in the sector against established foreign rivals in Europe, Japan and Turkey.
"Even though China is the world''s biggest tea producer, it has a highly fragmented domestic market. To change this, the 71,400 producers need to form a bigger union," Zhang said.
In Hubei, less than 30 companies in the sector have reported annual revenue of over 100 million yuan. This has promoted the famous line in tea circles: "More than 70,000 domestic companies joined together can not beat Lipton tea."
To move the industry forward, the province will also need to diversify tea products.
"Although it is one of the few provinces that can mass produce tea, the global market is dominated by black tea, including English breakfast, Earl Grey, Empress Grey and Turkish varieties," Chen Zhi, a researcher at Hubei Academy of Social Sciences in Wuhan, said.
Contact the writers at zhongnan@chinadaily.com.cn