BLACK TEA MARKET VALUE CHAIN PROFILE
BLACK TEA MARKET VALUE CHAIN PROFILE
1.
DESCRIPTION OF THE INDUSTRY
Black tea production in South Africa has been uneconomic and under severe financial difficulties since 2003/04. Most of the tea estates were established in areas of high unemployment during the 1970s and 1980s to dissuade people from migrating to urban areas. Beginning in 2003 most of the tea estates in the country went out of production and those that remain are in a very precarious financial position and survive partly because they produce a product of high quality but mainly because they receive funding from the state. The key reasons for the price un-competitiveness of the black tea industry are the following: • • • • •
Relatively high production costs ascribed mainly to the introduction of minimum wages in the agricultural sector, Low world market prices for black tea and the fact that black tea is a US dollar traded commodity, The dominance of tea packers; two major tea packaging companies dominate more than 80% of the Southern African black tea market, The difference between the producer prices and retail prices for black tea is alarmingly higher than most other agricultural commodities, Black tea producers in South Africa have no mechanism to negotiate better prices with tea packers; they are price takers as the packers determine the prices. South African tea packers use the South African tea price as a negotiating position when negotiating tea prices with our SADC partners. As a result South African tea packers seem to be the only ones who benefited from the abolishment of the Trade Related Investment Measure (TRIM) and the phasing out of tariffs in terms of the SADC Free Trade Agreement.
The contribution of the black tea industry to the gross value of agricultural production is depicted in Figure 1.
1
Figure 1: Black Tea- Gross Value of Agricultural Production 180000000 160000000
Gross Value (R'000)
140000000 120000000 100000000 80000000 60000000 40000000 20000000 0 1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Period (Years)
Source: Agricultural Statistics
The contribution of the black tea industry to the gross value of agricultural production experienced a decline from 1999 until 2000, followed by a slight increase between 2000 and 2001 and then experienced a steep decline until the lowest level attained in 2005. Very marginal increases in the contribution of the black tea industry to the GVP were later experienced between 2006 and 2007, followed by a decline in 2008. The continuous decline in the contribution of the black tea industry to the gross value of agricultural production can be attributed to the decline in the domestic production of black tea due to a decline in competitiveness of the black tea estates. Production of black tea came to a stand still in December 2004 when Sapekoe stopped its operations due to high minimum wages for farm workers, no protection against tea imports from the Southern African Development Community (SADC), high production costs structure (Electricity, Nitrogen, diesel and wages), the strong rand against US Dollar and UK Pound Sterling, and land claims (loss of title deed by Sapekoe-Pty Ltd). In the four provinces that are suited to production of black tea only six tea estates are in production as indicated in Table 1.
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Table 1: Tea Estates in the Republic of South Africa ESTATE
PROVINCE
SIZE
STATUS
(Ha) Tshivhase Sapekoe
577
Producing
504
Producing
451
Not producing
501
Not producing
100
Not Producing
500
Not producing
522
Not producing
325
Producing
Magwa
1784
Producing
Majola
385
Producing
225
Not producing
550
Not producing
75
Producing
Mukumbani Sapekoe Grenshoek Sapekoe Middelkop Sapekoe Outgrowers
Limpopo
Ngome Sapekoe Richmond Sapekoe Ntingwe
KwazuluNatal
Paddock
Eastern Cape
Senteeko Gradely Total
Mpumalanga
6 499
Of the tea estates listed in Table 1 above it is very clear that only six of the twelve are currently under production while the rest of the tea estates have ceased their operations. Only two tea estates in the Vhembe region of the Limpopo Province are still in production while in the Kwazulu-Natal Province Ntingwe is the only one still producing tea. The Eastern Cape Province is left with two tea estates while in the Mpumalanga Province only one tea estate is under production.
3
1.1.
Production trends
On average approximately 7.4 million kilograms of tea is produced locally each year. Figure 2: Black Tea Production in South Africa 14000
Production (Tons)
12000 10000 8000 6000 4000 2000 0 1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Period (Years)
Source: Agricultural Statistics
Figure 2 clearly indicates that during the period under review black tea production in South Africa has experienced a substantial decline in volume terms. Between 1998 and 2001 the country’s tea estates produced volumes above 12 thousand tons and this declined significantly between the years 2002 and 2005, with the lowest quantity produced in 2005, slightly above 2 thousand tons. These substantial declines in the volumes of tea production are attributable to the closure of most tea estates that produced black tea. With government intervention efforts in various teas producing provinces the production of black tea began to experience a marginal increase between the years 2006 and 2007, followed by a decline in 2008. 1.2.
Employment
Traditionally tea estates used to be the biggest employers of people in rural provinces of South Africa, providing both permanent and seasonal employment opportunities. With the crisis that the industry is facing employment has declined as most of these tea estates are out of production. Ntingwe Estate employs more than 200 permanent staff and 550 seasonal workers with total employment envisaged to grow to approximately 1 200 at full production. Table 2 below illustrates the employment potential of the various tea estates when they are in full production.
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Table 2: Employment potential of the various tea estates in South Africa Estate
Employment
Tshivhase Sapekoe Mukumbane Sapekoe Grenshoek Sapekoe Middelkop Sapekoe Outgrowers Ngome Sapekoe Richmond Sapekoe Ntingwe Magwa Majola Paddock Senteeko Gradely
1 137 748 4 103 886 518 1 265 173
Total
14 949
1 489 1 233 1 013 1158 230 1 045
Table 2 indicates that the tea estates in the country are capable of employing more than 14 thousand people when in full production. As of 2004 Magwa and Sapekoe tea estates were the major employers in the black tea industry. Taking into account that tea estates such as Grenshoek, Middelkop, Ngome, Richmond, Paddock and Senteeko have gone out of production, more than 6 thousand employees have lost employment.
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2.
MARKET STRUCTURE
2.1.
Domestic market and Prices
Tea, like most other commodity products, is a US Dollar traded commodity across the world. Movements in the US Dollar exchange rate compared to other currencies affect price competitiveness of such commodities. South Africa is a net importer of tea. Free market principles determine that domestic market prices will fluctuate in a price range between import parity and export parity levels. The level of competition in the domestic market ensures that prices are set as close as possible to import parity levels, whilst over supply, exchange rates and world market prices determine export parity price levels. In net import situations such as in the case of black tea (SA currently imports more than 50 percent of its black tea), domestic market prices should, according to normal free market principles, be close to or even higher than import parity levels. Pure Ntingwe tea is currently sold under the estate’s name in tea bags marked Zulu Tea, while Yorkshire Gold, a blend of Ntingwe tea and other varieties, is a second retail blend sold in overseas markets. Since 2004 the tea has also been sold locally at Woolworths under the Ntingwe Estate brand name. Figure 3: Black Tea Producer Prices 16000.00 14000.00
Price (Rand/ton)
12000.00 10000.00 8000.00 6000.00 4000.00 2000.00 0.00 1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Period (Years)
Source: Agricultural Statistics
During the period between 1999 and 2008 black tea producer prices have, on average experienced a decline from levels above R14 000/ton in 1998 to levels slightly above R12 000/ton in 2008. Black tea producer prices decreased substantially between the years 1999
6
and 2000 with a similar decline experienced between the years 2002 and 2004. Producer prices for black tea remained relatively stable between the periods 2004 and 2008. 2.2.
Black Tea Exports
South Africa’s black tea export market is worth about R20 million a year, while the country imports about 16 million kilograms of tea a year for domestic use. Figure 4: Value of Black Tea exports to various regions 90000000 80000000
Value (Rands)
70000000 60000000 50000000 40000000 30000000 20000000 10000000 0 1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Period (Years) Africa
Americas
Asia
Europe
Oceania
Source: Quantec easy data
During the period between 1999 and 2008 South Africa exported black tea to the African region, Americas, Asia, Europe and Oceania. Greater values of black tea exports were destined to Europe between the period 1998 and 2004 followed by exports to the African region and to Asia. However, on average the value of black tea exports from South Africa to all the aforementioned regions declined substantially between the years 2005 and 2008.
7
Figure 5: Value of Black Tea exports to Eastern Asia 4000000 3500000
Value (Rands)
3000000 2500000 2000000 1500000 1000000 500000 0 1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Period (Years) China
Hong Kong Special Administrative Region of China
Japan
Republic of Korea
Taiwan Province of China
Source: Quantec Easy Data
Black tea exports from South Africa to Asia were destined to countries in Eastern Asia, Western Asia and South Central Asia. In Eastern Asia Japan was the major export destination of black tea from South Africa between the years 1998 and 2005, after which most of the black tea from South Africa went to China between 2006 and 2008. Figure 6 : Value of Black Tea exports to Western Asia 10000000 V alue (Rands)
8000000 6000000 4000000 2000000 0 United Arab Emirates Bahrain Israel Kuw ait
1998
1999
2000
2001
2002
2003
2004
2005
2006
0
10000
118024
436
63994
394579
31818
262
768344
2007
2008
1198631 9438544
0
0
0
0
0
2961
4344
23182
17760
0
16536
107144
0
50000
835010
1555722
310000
0
0
0
0
171172
0
147300
444871
373813
250360
184564
164000
160392
334560
0
243076
Period (Years) United Arab Emirates
Bahrain
Israel
Kuw ait
Source: Quantec Easy Data
8
Between the years 1998 and 2005 very small values of black tea exports were recorded to countries in Western Asia, far below 2 million rands per annum. However, black tea exports increased in value terms from 2006 to 2008 when more exports were destined to the United Arab Emirates. Figure 7 : Value of Black Tea exports to South Central Asia 12000000 V alue (Rands)
10000000 8000000 6000000 4000000 2000000 0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
India
0
370
0
29044
0
8334
0
2190
123644
0
0
Iran (Islamic Republic of)
0
270067
145000
259134
0
0
0
0
0
0
0
Sri Lanka
0
634953
146105
0
10
21933
0
97448
52014
66553
Pakistan
0
3635154 11031057 4338361 3044696
287799
1199272
1355
3636843 3223428
0 9692555
Period (Years) India
Iran (Islamic Republic of)
Sri Lanka
Pakistan
Source: Quantec Easy Data
Pakistan has consistently served as an export destination for black tea originating from South Africa during the period between 1998 and 2008 with peak values recorded during the years 2000 and 2008. The value of black tea exports to Pakistan experienced a substantial decline between 2002 and 2006 when domestic production of this commodity suffered a decline due to the crisis that the industry faced. Intermittent exports of black tea were also destined to other countries in South Central Asia such as India, Iran and Sri Lanka.
9
Figure 8 : Value of Black Tea exports to NAFTA 2500000
Value (Rands)
2000000 1500000 1000000 500000 0 1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Period (Years) Canada
United States
Source: Quantec Easy Data
In the North American Free Trade Area (NAFTA) black tea exports originating from South Africa were destined to Canada and the United States as the two key markets. The value of black tea exports to both countries experienced a sharp decline between 2001 and 2004 but recovered slightly in later years when export values increased above 500 thousand rands. Figure 9 : Value of Black Tea exports to SADC countries 16000000
Value (Rands)
14000000 12000000 10000000 8000000 6000000 4000000 2000000 0 1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Period (Years) Angola
Democratic Republic of the Congo
Mauritius
Malaw i
Mozambique
Seychelles
United Republic of Tanzania
Zambia
Zimbabw e
Source: Quantec Easy Data
In the SADC region South Africa exports its black tea mainly to Mozambique and the Democratic Republic of Congo. During the period under review greater values of black tea
10
exports were recorded to Mozambique with substantial increases recorded between 2002 and 2006. 2.3.
Black Tea Imports
With annual consumption at around 20 000 tons per annum and domestic production (excluding Magwa) at approximately 10 000 tons, South Africa is a net importer of black tea. Black Tea is imported from Malawi, Zimbabwe, Kenya and Sri Lanka and Mozambique. Tea imported from our SADC partners is mostly secondary grade tea suitable only for blending purposes. Premium quality teas are imported from Sri Lanka and Kenya.
Figure 10 : Value of Black Tea imports from various regions 250000000
Value (Rands)
200000000 150000000 100000000 50000000 0 1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Period (Years) Africa
Americas
Asia
Europe
Oceania
Source: Quantec Easy Data
South Africa imports its black tea from the five regions as depicted in Figure 10 with greater imports derived from the African regions followed by Asia. Imports of black tea originating from the African region have experienced a substantial increase during the period under review owing mainly to decreased competitiveness in the domestic black tea industry as opposed to most African countries that produce tea.
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Figure 11 : Value of Black Tea imports from SADC 120000000 Value (Rands)
100000000 80000000 60000000 40000000 20000000 0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
32651169307379964363097654247854729931676301115867304683903233591.02E+08 978550331.07E+08
Malaw i
0
Mozambique
0
United Republic of Tanzania 1276593 924132 557490
Zambia
0
0
913981
0
0
0
0
0
166442
2414448 356715
388022
147233
0
0
195169
1942177 3014250 12982959335477762529658446944071 0
0
0
0
127839
0
1726302529014574414136654026050251746878338741982902398423144560265654901816657019829929
Zimbabw e
Period (Years) Malawi
Mozambique
United Republic of Tanzania
Zambia
Zimbabwe
Source: Quantec Easy Data
In the SADC region South Africa imported most of its black tea from Malawi as the main market, which has substantially increased its exports of black tea to South Africa between 1998 and 2008. Black tea is also imported from Zimbabwe and Tanzania, with Tanzania having increased its black tea exports to South Africa between 2005 and 2008, overtaking Zimbabwe. Figure 12 : Value of Black Tea imports from Eastern Africa
Value (Rands)
20000000 15000000 10000000 5000000 0 Burundi Kenya Uganda
1998
1999
2000
563023
1037656
0
16549413 13101536 6767055 0
28306
0
2001
2002
2003
0
0
0
8494898 11112423 3674728 0
0
2004 0 6147927
149
0
2005
2006
2007
2008
0
0
0
0
6578776 10916604 8834508 15064296 0
0
0
0
Period (Years) Burundi
Kenya
Uganda
Source: Quantec Easy Data
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In Eastern Africa imports of black tea originate mainly from Kenya which has consistently served as a supplier of tea to South Africa between the years 1998 and 2008. Between 1998 and 1999, South Africa also imported black tea from Burundi and Uganda but these countries completely lost their share of the South African black tea market from the year 2000. 2.4.
Market Value Chain
TEA PRODUCERS
2.5.
TEA PACKERS/ BLENDERS
TEA TRADERS
RETAILERS
CONSUMERS
Processing
There are fourteen tea packers in South Africa who blend and pack tea. All black tea brands are blends of teas sourced from various localities. Medium to superior quality teas contain higher proportions of better quality teas. With respect to the middle and upper end teas of Unilever and National Brands, which together hold 95% of the black tea market, these are blends of relatively high quality teas from estates such as Ntingwe (KZN) and Magwa (Eastern Cape) and lower quality filler from the SADC countries. Despite serving the domestic high quality tea demand and exporting of the remainder of their output, South African black tea producers are unable to obtain a high enough market price to ensure a sustainable profit. 2.7.1. Tea Picking and Harvesting In most tea-producing countries, the labor-intensive method of picking, drying, crushing and fermenting tea has been used for centuries. The plucked leaves are collected in a basket or bag carried on the back of the plucker and when this is full it is taken to a collection point where the plucked leaves are weighed. It is then taken to the factory for processing, or "making", as tea manufacture is known in the tea trade. In Australia, the industry has been forced to mechanize because tea production, especially tea plucking (harvesting), is extremely labor intensive. As a result, tea is harvested all year round with the use of mechanical harvesters. A harvester moves in between rows of tea bushes and operates like a giant lawn mower cutting off only tender new growth. A harvester can collect up to 1,500 kilograms of green tea leaves at a time at a rate of 4,000 kilograms an hour. On average, 1,000 kilograms of green leaf are required to make just over 200 kilograms of black tea. The productivity of a tea plantation is measured by its yield of black tea per annum per hectare planted. A good yield is between 1,000 to 2,500 kilograms per hectare for hand picked plantations and 3,000 to 4,000 kilograms per hectare for mechanically harvested plantations.
13
2.7.2. At the Factory On arrival at the factory, the plucked leaves are weighed and assessed for quality before being put in withering bins attached to huge air vents. The moisture in the leaf evaporates in the warm air leaving the leaves flaccid. This process can take between 10 to 16 hours, depending on the wetness of the leaf. Some factories will gently hasten the process with the aid of warm air fans. The withered leaf is broken down by machine so that the natural juices, or enzymes, are released and on contact with the air will oxidize. The shredded leaves, called dhool, are then crushed and fed through the CTC (cut, tear and curl) or Rotovane machine. Its sharp teeth cut the leaf then tear it to release the juices that contain the tea flavor. The traditional process of manufacturing tea is known as Orthodox. It begins with withering freshly picked tea leaves which lose approximately half their moisture within 12 to 18 hours. At the end of this process, the leaf is flaccid. The flaccid leaves then enter a process known as "rolling" which ruptures the leaf cells to release enzymes, and then twists or curls the leaves. Thereafter, to stop fermentation, the leaves are exposed to hot air by passing it through a chamber with perforated moving trays in a process known as "firing". This chamber is known as the drier. This dries the leaves and turns it into a black color. After the fired leaf is cooled, it is sorted by sieves. The next process is known as "CTC" because the tea leaf is crushed, torn and curled. The process is similar to orthodox tea-making. In CTC manufacture, after rolling, the tea leaves are passed through a machine, known as the CTC machine, where the leaves are cut or crushed to a greatly reduced size and most of their cells are ruptured. This intensifies the process of fermentation. 2.7.3. Fermenting The broken leaves are laid out either on trays or in troughs in a cool, humid atmosphere for up to two hours to ferment, or more correctly, oxidize. The trays are gently turned so often throughout the period until all the leaves turn a golden russet color and fermentation is complete. This remains one of the most challenging stages of tea processing. 2.7.4. Drying After fermentation, the leaves are dried or fired. This is done by passing the broken fermented leaves slowly through hot air chambers where all the moisture is evaporated and the leaves turns dark brown or black. It is at this stage that the aroma changes from that of a pungent plant to the familiar earthy tea perfume. The black tea is ejected from the hot chamber into chests. Next it is sorted into grades, or leaf particle sizes, by being passed through a series of wire mesh sifts of varying sizes into containers. It is then weighed and packed into chests or "bags" for loading onto pallets. The bigger curly leaves are used for loose-leaf packet tea while the finer particles are used for tea-bags.
14
Factory tea-tasters will taste the finished "make" to ensure that no mistakes have been made during the manufacture or that the tea has not been tainted by anything within the factory. After each make the tea factory is washed from top to bottom to ensure that the character of the completed make does not transmit to the next make of tea.
15
Figure 13: Flow chart of Tea processing
16
3.
MARKET INTELLIGENCE
3.1.
Performance Analysis
Table 3: South Africa’s exports of Black tea & partly fermented tea (HS 090240) in 2008 Importers
Exported value in 2008 (thousand US$)
World 9.03 UK 1 936 Mozambique 1 729 Pakistan 1 234 United Arab 1 191 Emirates Zimbabwe 503 China 435 USA 423 Netherlands 369 Zambia 278 Germany 268 Canada 76 Switzerland 59 Kenya 55 Ireland 54 Mauritius 53 Malawi 45 Egypt 45 Australia 37 New 36 Zealand Israel 30 Kuwait 30 Angola 26 Poland 25 Ship stores 25 and bunkers Source: ITC Trade Map
Share in South Africa’s exports (%)
Exported quantity in 2008 (tons)
Unit Value (US$/unit)
Exported growth in value between 2004 and 2008 (% p.a.)
Exported growth in quantity between 2004 and 2008 (% p.a.)
Exported growth in value between 2007 and 2008 (% p.a.)
Tariff equivalent ad valorem faced by South Africa
100 21.4 19.1 13.7 13.2
8 776 1 092 392 685 790
1 030 1 773 4 411 1 801 1 508
5 -10 -15 169 404
24 2 -32
13 -19 279 169 540
0.00% 20.00% 10.00% 0.00%
5.6 4.8 4.7 4.1 3.1 3 0.8 0.7 0.6 0.6 0.6 0.5 0.5 0.4 0.4
179 4 324 308 243 104 137 18 81 162 27 26 14 48 21 9
2 810 101 1 373 1 519 2 673 1 956 4 222 728 340 2 000 2 038 3 214 938 1 762 4 000
71
103
116 54 -12 -10 21
291 69 9 1 41
93 245 -68 -60 187 -1 -83
0.3 0.3 0.3 0.3 0.3
35 3 1 49 7
857 10 000 26 000 510 3 571
73
1 275
36 126
67 49
-8 56
-5
-25 -33 30 105
-65 56
342 -21 -84 131 89
189 -73 19
40.00% 15.00% 0.00% 0.00% 25.00% 0.00% 0.00% 0.00% 25.00% 0.00% 30.00% 25.00% 2.00% 0.00% 0.00% 0.00% 0.00% 5.00% 0.00%
During 2008 South Africa exported a total of 8 776 tons of black tea to the world. In world terms exports of black tea from South Africa to the world have increased by 5% and 24% in both value and quantity respectively between the periods 2004 and 2008. The major export destinations for black tea originating from South Africa during 2008 were the United Kingdom, Mozambique, Pakistan, United Arab Emirates, Zimbabwe, China and the USA. During the year 2008, UK alone have absorbed 21.4% of the total black tea exports originating from South Africa followed by Mozambique and Pakistan with 19.1% and 13.7% respectively. The South African black tea exports to the UK declined by 10% in value and increased by 2% in volume between the years 2004 and 2008. In terms of access to various
17
international markets for South African black tea, countries such as Zimbabwe, Mauritius, Malawi, Kenya, Zambia and Mozambique heavily protect their black tea industries with higher tariffs ranging from 20% ad valorem to 40%.
18
Source: ITC Trade Map
19
United Kingdom is the largest importer of black tea. However, South Africa’s exports of black tea to the UK declined by 10% while the UK’s imports from the world increased by 18% between 2004 and 2008. South Africa has doubled its exports of black tea to USA, Pakistan, and Malawi between the years 2004 and 2008. South Africa’s black tea exports to the above-mentioned countries have outgrown these countries’ growth in imports from the world between 2004 and 2008. Furthermore, South Africa has increased its black tea exports to a declining market of Kenya by above 70% over the past five years.
20
Source: ITC Trade Map
21
If South Africa is to diversify its exports of black tea the biggest markets exist in the United Kingdom and the United States of America because these countries have increased their share in South Africa’s black tea exports during 2008. Other big markets exist in Pakistan, Germany and United Arab Emirates. During the year 2008, United Kingdom alone absorbed 21.4% of South Africa’s black tea exports, followed by Mozambique, Pakistan and United Arab Emirates with 19.1%; 13.7% and 13.2% respectively.
22
Table 4: South Africa’s imports of black tea & partly fermented tea (HS 090240) in 2008 Exporters
World Malawi Tanzania Zimbabwe Kenya Sri Lanka Indonesia Rwanda UK Congo Zambia USA China India
Imported value in 2008 (thousand US$)
Share in South Africa’s imports (%)
Imported quantity in 2008 (tons)
Unit Value (US$/unit)
Imported growth in value between 2004 and 2008 (% p.a.)
Imported growth in quantity between 2004 and 2008 (% p.a.)
Imported growth in value between 2006 and 2008 (% p.a.)
26 248 12 859 5 643 2 401 1 811 1 666 800 721 103 73 18 15 11 8
100 49 21.5 9.1 6.9 6.3 3 2.7 0.4 0.3 0.1 0.1 0 0
20 483 12 599 2 771 3 145 733 526 370 259 10 3 24 1 1 1
1 281 1 01 2 036 763 2 471 3 167 2 162 2 784 10 300 24 333 750 15 000 11 000 8 000
7 4 74 -15 16 -5
4 3 67 -9 7 -15
11 -5 57 -5 44 -10 18
13
9
-5
25 72
-7
450 14
Tariff equivalent ad valorem applied by South Africa
0 0 0 24.01 24.01 42.9 24.01 24.01 24.01 0 42.9 42.9 42.9
Source: ITC Trade Map and Macmap
The table above clearly indicates that South Africa is a net importer of black tea. During 2008 the country imported a total of 20 483 tons of black tea versus its exports of 8 776 tons. In world terms imports of black tea into South Africa have increased by an average of 7% and 4% in value and volume terms between the years 2004 and 2008. Black tea imports originate mainly from Malawi, Tanzania and Zimbabwe, with Malawi commanding 49% share in South Africa’s imports while Tanzania commands 21.5% and Zimbabwe 9.1%. Other small markets for black tea imports are Sri Lanka, Kenya and Indonesia. Of importance to note is that imports of black tea originating from Malawi have increased by 4% and 3% in value and volume terms between 2004 and 2008 while those originating from Tanzania have increased by 74% and 67% in volume and value terms during the same period. Black tea imports originating from Zimbabwe have experienced a decline of 15% and 9% in value and volume terms during the period between 2004 and 2008. Malawi, Tanzania and Zimbabwe have duty-free access to the South African black tea market an ad valorem tariff of 42.9% is applied to black tea originating from countries such as Sri Lanka, Indonesia, USA, China and India.
23
Source: ITC Trade Map
24
During the period between 2004 and 2008 imports of black tea from countries such as Tanzania, India, China, United Kingdom and Malawi into South Africa grew at a rate that is faster than these countries’ exports to the rest of the world. Conversely imports of black tea from Mozambique and Zimbabwe into South Africa declined substantially while these countries’ exports of black tea to the rest of the world also experienced a decline. Imports of black tea originating from Kenya (the biggest supplier of black tea) to South Africa have increased by 16% in value terms between the period 2004 and 2008.
25
Source: ITC Trade Map
26
If South Africa is to diversify its suppliers of black tea the biggest market exist in Kenya; even though during 2008 this country commanded a smaller share in South Africa’s black tea imports and its black tea exports to the rest of the world have not grown substantially. The major impediment is that South Africa applies a tariff of 24.01% to black tea imports originating from Kenya. Other small markets (in world terms) for black tea exist in Malawi, Tanzania and Zimbabwe.
27
4.
ORGANIZATIONAL ANALYSIS
It is difficult to generate profits with black tea in South Africa. The key challenges facing the South African black tea industry are the following: • • • • • 5.
In 1999 South Africa’s 11 tea estates suffered a blow when the quantitative import control system was abolished and tea packers no longer had a financial incentive to pack local tea, In 2003 the increase in the minimum wage also dented the industry; because tea picking is a labor intensive operation which requires about four labor units per hectare, pushing production costs to about R16/kg, Production costs in tea producing countries such as Malawi, Kenya, and Sri Lanka have low production costs of between R8/kg and R10/kg and their labor costs are also lower, Beginning in 2003, South Africa’s tea estates shut down. Magwa Tea Estate in the Eastern Cape closed its doors followed by South Africa’s largest tea producer, Sapekoe and several other tea estates in Limpopo during 2004, In 2005, the Paddock Tea Company also closed its doors. GOVERNMENT INTERVENTION IN THE BLACK TEA INDUSTRY
A number of private sector and government partnerships have led to the revitalization of the black tea industry and currently five estates are in operation. •
• • •
•
In the Eastern Cape Province, an attempt was made to put Lusikisiki’s Magwa Tea Estate back in operation with financial assistance to the tune of R26.7 million from the provincial government and a joint partnership between the Asia Tea giant Gokal and the German submarine manufacturer Ferrostaal, spearheaded by the Eastern Cape Development Corporation (ECDC). Currently, both the Magwa and Majola tea estates in the Eastern Cape are kept afloat through provincial government subsidies, Tshivhase and Mukumbani tea estates in the Vhembe district of Limpopo Province were resuscitated from the Sapekoe group with a R74 million injection from the Limpopo provincial government, Ntingwe tea estate in the Kwazulu-Natal Province was set up in 1993 with R40 million from Ithala Development Finance Corporation and later R40 million from the provincial government, Tanzanian Tea Blenders have been roped in as a strategic investor to market Limpopo’s black tea regionally and globally and a market has already been established in the United Arab Emirates and discussions have already been started to conclude deals with Iran, The Limpopo Department of Agriculture has reached a cooperative agreement with its Northern Cape counterpart to develop market access relations with Rooibos growers in Nieuwoudtville and Calvinia with the objective of blending and packaging a special Rooibos collateral brand along with Limpopo’s black tea.
28
6.
NEW DEVELOPMENTS IN THE BLACK TEA INDUSTRY
As a way of revitalizing tea production in Kwazulu-Natal the production of green tea has been investigated in the Ntingwe tea estates and it was decided to produce very healthy Low caffeine Green Tea (LCGT) using Japanese technology. The KZN Department of Agriculture and Environmental Affairs provided funding totaling R17 million and Ntingwe commenced with production of LCGT in December of 2008. The high quality of the green tea produced has already convinced the Japanese to place orders at a higher retail price than what Ntingwe gets for its black tea. Ntingwe LCGT also plans to penetrate the European and American markets. 7.
ROLE PLAYERS IN THE BLACK TEA INDUSTRY
AFRO INDIA TRADING cc P.O. Box 1996 TZANEEN O850 Tel: (015) 307 3802
LC PACKAGING P.O. Box 28607 SUNRIDGE PARK 6001 Tel: (041) 4563003
A J PRODUCTS & CO LTD P.O. BOX 38120 GATESVILLE 7766 Tel: (021) 699 1030
MASTERTON'S P.O. Box 12206 CENTRAHILL 6006 Tel: (041) 585 4044
BACK TO BASICS cc P.O. Box 3299 FLORIDA 1710 Tel: (011) 472 1922
NATIONAL BRANDS LTD TEA PROCUREMENT P.O. BOX 2196 DURBAN 4001 Tel: (031) 335 1340
BARBIZON TEA & COFFEE LTD P.O. Box 1735 SOUTHDALE 2135 Tel: (011) 433 1908
PADDOCK TEA PROCESSORS (PTY) LTD P.O. BOX 72 PADDOCK 4244 Tel: (0396) 791 620
BARNES TEA & COFFEE P.O. Box 302 JOHANNESBURG 2000 Tel: (011) 793 7037
PEACOCK TEA & COFFEE COMPANY P.O. Box 38011 HOWARD PLACE 7450 Tel: (021) 762 5067
BUTLERS
ROYAL TEA PACKERS cc
29
P.O. Box36746 CHEMPET 7442 Tel: (021) 551 5815
P.O. BOX 3312 PIETERMARITZBURG 3200 Tel: (0333) 979 264
COLOMBO TEA & COFFEE COMPANY P.O. BOX 1243 DURBAN 4001 Tel: (031) 205 3283
SOUTHALLS (PTY) LIMITED P.O. Box 518 CAPE TOWN 8000 Tel: (021) 534 2271
H M H MARKETING cc P.O. BOX 405 ROODEPOORT 1735 Tel: (011) 763 5696
TEA & COFFEE DISTRIBUTORS P.O. Box 3643 NORTH END 6056 Tel: (041) 374 0033
HODGSON DISTRIBUTORS P.O. BOX 3607 NELSPRUIT 1200 Tel: (01311) 55 8960
TEA BLENDERS COMPANY LTD P.O. BOX 35405 NORTHWAY 4065 Tel: (031) 579 2894
JOEKELS TEA PACKERS cc P.O. BOX 10455 ASHWOOD 3605 Tel: (031) 709 1409
UNIFOODS (PTY) LIMITED P.O. BOX 922 PIETERMARITZBURG 3200 Tel: (0333) 355 8100
KINGS TEA & COFFEE P.O. BOX 217 NORTH RIDING 2162 Tel: (011) 474 4601
30
8.
ACKNOWLEDGEMENTS •
Directorate Agricultural Statistics Tel: (012) 319 8453 Fax: (012) 319 8031 www.nda.agric.za
•
Quantec Easy Data www.quantec.co.za
•
ITC Market Access Map http://www.macmap.org/SouthAfrica
•
ITC Trade Map http://www.trademap.org.
Disclaimer: This document and its contents have been compiled by the Directorate Marketing of the Department of Agriculture for the purpose of detailing the black tea industry. Anyone who uses the information as contained in this document does so at his/her own risk. The views expressed in this document are those of the Department of Agriculture with regard to the industry, unless otherwise stated. The Department of Agriculture therefore accepts no liability that can be incurred resulting from the use of this information.
31
1.
DESCRIPTION OF THE INDUSTRY
Black tea production in South Africa has been uneconomic and under severe financial difficulties since 2003/04. Most of the tea estates were established in areas of high unemployment during the 1970s and 1980s to dissuade people from migrating to urban areas. Beginning in 2003 most of the tea estates in the country went out of production and those that remain are in a very precarious financial position and survive partly because they produce a product of high quality but mainly because they receive funding from the state. The key reasons for the price un-competitiveness of the black tea industry are the following: • • • • •
Relatively high production costs ascribed mainly to the introduction of minimum wages in the agricultural sector, Low world market prices for black tea and the fact that black tea is a US dollar traded commodity, The dominance of tea packers; two major tea packaging companies dominate more than 80% of the Southern African black tea market, The difference between the producer prices and retail prices for black tea is alarmingly higher than most other agricultural commodities, Black tea producers in South Africa have no mechanism to negotiate better prices with tea packers; they are price takers as the packers determine the prices. South African tea packers use the South African tea price as a negotiating position when negotiating tea prices with our SADC partners. As a result South African tea packers seem to be the only ones who benefited from the abolishment of the Trade Related Investment Measure (TRIM) and the phasing out of tariffs in terms of the SADC Free Trade Agreement.
The contribution of the black tea industry to the gross value of agricultural production is depicted in Figure 1.
1
Figure 1: Black Tea- Gross Value of Agricultural Production 180000000 160000000
Gross Value (R'000)
140000000 120000000 100000000 80000000 60000000 40000000 20000000 0 1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Period (Years)
Source: Agricultural Statistics
The contribution of the black tea industry to the gross value of agricultural production experienced a decline from 1999 until 2000, followed by a slight increase between 2000 and 2001 and then experienced a steep decline until the lowest level attained in 2005. Very marginal increases in the contribution of the black tea industry to the GVP were later experienced between 2006 and 2007, followed by a decline in 2008. The continuous decline in the contribution of the black tea industry to the gross value of agricultural production can be attributed to the decline in the domestic production of black tea due to a decline in competitiveness of the black tea estates. Production of black tea came to a stand still in December 2004 when Sapekoe stopped its operations due to high minimum wages for farm workers, no protection against tea imports from the Southern African Development Community (SADC), high production costs structure (Electricity, Nitrogen, diesel and wages), the strong rand against US Dollar and UK Pound Sterling, and land claims (loss of title deed by Sapekoe-Pty Ltd). In the four provinces that are suited to production of black tea only six tea estates are in production as indicated in Table 1.
2
Table 1: Tea Estates in the Republic of South Africa ESTATE
PROVINCE
SIZE
STATUS
(Ha) Tshivhase Sapekoe
577
Producing
504
Producing
451
Not producing
501
Not producing
100
Not Producing
500
Not producing
522
Not producing
325
Producing
Magwa
1784
Producing
Majola
385
Producing
225
Not producing
550
Not producing
75
Producing
Mukumbani Sapekoe Grenshoek Sapekoe Middelkop Sapekoe Outgrowers
Limpopo
Ngome Sapekoe Richmond Sapekoe Ntingwe
KwazuluNatal
Paddock
Eastern Cape
Senteeko Gradely Total
Mpumalanga
6 499
Of the tea estates listed in Table 1 above it is very clear that only six of the twelve are currently under production while the rest of the tea estates have ceased their operations. Only two tea estates in the Vhembe region of the Limpopo Province are still in production while in the Kwazulu-Natal Province Ntingwe is the only one still producing tea. The Eastern Cape Province is left with two tea estates while in the Mpumalanga Province only one tea estate is under production.
3
1.1.
Production trends
On average approximately 7.4 million kilograms of tea is produced locally each year. Figure 2: Black Tea Production in South Africa 14000
Production (Tons)
12000 10000 8000 6000 4000 2000 0 1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Period (Years)
Source: Agricultural Statistics
Figure 2 clearly indicates that during the period under review black tea production in South Africa has experienced a substantial decline in volume terms. Between 1998 and 2001 the country’s tea estates produced volumes above 12 thousand tons and this declined significantly between the years 2002 and 2005, with the lowest quantity produced in 2005, slightly above 2 thousand tons. These substantial declines in the volumes of tea production are attributable to the closure of most tea estates that produced black tea. With government intervention efforts in various teas producing provinces the production of black tea began to experience a marginal increase between the years 2006 and 2007, followed by a decline in 2008. 1.2.
Employment
Traditionally tea estates used to be the biggest employers of people in rural provinces of South Africa, providing both permanent and seasonal employment opportunities. With the crisis that the industry is facing employment has declined as most of these tea estates are out of production. Ntingwe Estate employs more than 200 permanent staff and 550 seasonal workers with total employment envisaged to grow to approximately 1 200 at full production. Table 2 below illustrates the employment potential of the various tea estates when they are in full production.
4
Table 2: Employment potential of the various tea estates in South Africa Estate
Employment
Tshivhase Sapekoe Mukumbane Sapekoe Grenshoek Sapekoe Middelkop Sapekoe Outgrowers Ngome Sapekoe Richmond Sapekoe Ntingwe Magwa Majola Paddock Senteeko Gradely
1 137 748 4 103 886 518 1 265 173
Total
14 949
1 489 1 233 1 013 1158 230 1 045
Table 2 indicates that the tea estates in the country are capable of employing more than 14 thousand people when in full production. As of 2004 Magwa and Sapekoe tea estates were the major employers in the black tea industry. Taking into account that tea estates such as Grenshoek, Middelkop, Ngome, Richmond, Paddock and Senteeko have gone out of production, more than 6 thousand employees have lost employment.
5
2.
MARKET STRUCTURE
2.1.
Domestic market and Prices
Tea, like most other commodity products, is a US Dollar traded commodity across the world. Movements in the US Dollar exchange rate compared to other currencies affect price competitiveness of such commodities. South Africa is a net importer of tea. Free market principles determine that domestic market prices will fluctuate in a price range between import parity and export parity levels. The level of competition in the domestic market ensures that prices are set as close as possible to import parity levels, whilst over supply, exchange rates and world market prices determine export parity price levels. In net import situations such as in the case of black tea (SA currently imports more than 50 percent of its black tea), domestic market prices should, according to normal free market principles, be close to or even higher than import parity levels. Pure Ntingwe tea is currently sold under the estate’s name in tea bags marked Zulu Tea, while Yorkshire Gold, a blend of Ntingwe tea and other varieties, is a second retail blend sold in overseas markets. Since 2004 the tea has also been sold locally at Woolworths under the Ntingwe Estate brand name. Figure 3: Black Tea Producer Prices 16000.00 14000.00
Price (Rand/ton)
12000.00 10000.00 8000.00 6000.00 4000.00 2000.00 0.00 1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Period (Years)
Source: Agricultural Statistics
During the period between 1999 and 2008 black tea producer prices have, on average experienced a decline from levels above R14 000/ton in 1998 to levels slightly above R12 000/ton in 2008. Black tea producer prices decreased substantially between the years 1999
6
and 2000 with a similar decline experienced between the years 2002 and 2004. Producer prices for black tea remained relatively stable between the periods 2004 and 2008. 2.2.
Black Tea Exports
South Africa’s black tea export market is worth about R20 million a year, while the country imports about 16 million kilograms of tea a year for domestic use. Figure 4: Value of Black Tea exports to various regions 90000000 80000000
Value (Rands)
70000000 60000000 50000000 40000000 30000000 20000000 10000000 0 1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Period (Years) Africa
Americas
Asia
Europe
Oceania
Source: Quantec easy data
During the period between 1999 and 2008 South Africa exported black tea to the African region, Americas, Asia, Europe and Oceania. Greater values of black tea exports were destined to Europe between the period 1998 and 2004 followed by exports to the African region and to Asia. However, on average the value of black tea exports from South Africa to all the aforementioned regions declined substantially between the years 2005 and 2008.
7
Figure 5: Value of Black Tea exports to Eastern Asia 4000000 3500000
Value (Rands)
3000000 2500000 2000000 1500000 1000000 500000 0 1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Period (Years) China
Hong Kong Special Administrative Region of China
Japan
Republic of Korea
Taiwan Province of China
Source: Quantec Easy Data
Black tea exports from South Africa to Asia were destined to countries in Eastern Asia, Western Asia and South Central Asia. In Eastern Asia Japan was the major export destination of black tea from South Africa between the years 1998 and 2005, after which most of the black tea from South Africa went to China between 2006 and 2008. Figure 6 : Value of Black Tea exports to Western Asia 10000000 V alue (Rands)
8000000 6000000 4000000 2000000 0 United Arab Emirates Bahrain Israel Kuw ait
1998
1999
2000
2001
2002
2003
2004
2005
2006
0
10000
118024
436
63994
394579
31818
262
768344
2007
2008
1198631 9438544
0
0
0
0
0
2961
4344
23182
17760
0
16536
107144
0
50000
835010
1555722
310000
0
0
0
0
171172
0
147300
444871
373813
250360
184564
164000
160392
334560
0
243076
Period (Years) United Arab Emirates
Bahrain
Israel
Kuw ait
Source: Quantec Easy Data
8
Between the years 1998 and 2005 very small values of black tea exports were recorded to countries in Western Asia, far below 2 million rands per annum. However, black tea exports increased in value terms from 2006 to 2008 when more exports were destined to the United Arab Emirates. Figure 7 : Value of Black Tea exports to South Central Asia 12000000 V alue (Rands)
10000000 8000000 6000000 4000000 2000000 0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
India
0
370
0
29044
0
8334
0
2190
123644
0
0
Iran (Islamic Republic of)
0
270067
145000
259134
0
0
0
0
0
0
0
Sri Lanka
0
634953
146105
0
10
21933
0
97448
52014
66553
Pakistan
0
3635154 11031057 4338361 3044696
287799
1199272
1355
3636843 3223428
0 9692555
Period (Years) India
Iran (Islamic Republic of)
Sri Lanka
Pakistan
Source: Quantec Easy Data
Pakistan has consistently served as an export destination for black tea originating from South Africa during the period between 1998 and 2008 with peak values recorded during the years 2000 and 2008. The value of black tea exports to Pakistan experienced a substantial decline between 2002 and 2006 when domestic production of this commodity suffered a decline due to the crisis that the industry faced. Intermittent exports of black tea were also destined to other countries in South Central Asia such as India, Iran and Sri Lanka.
9
Figure 8 : Value of Black Tea exports to NAFTA 2500000
Value (Rands)
2000000 1500000 1000000 500000 0 1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Period (Years) Canada
United States
Source: Quantec Easy Data
In the North American Free Trade Area (NAFTA) black tea exports originating from South Africa were destined to Canada and the United States as the two key markets. The value of black tea exports to both countries experienced a sharp decline between 2001 and 2004 but recovered slightly in later years when export values increased above 500 thousand rands. Figure 9 : Value of Black Tea exports to SADC countries 16000000
Value (Rands)
14000000 12000000 10000000 8000000 6000000 4000000 2000000 0 1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Period (Years) Angola
Democratic Republic of the Congo
Mauritius
Malaw i
Mozambique
Seychelles
United Republic of Tanzania
Zambia
Zimbabw e
Source: Quantec Easy Data
In the SADC region South Africa exports its black tea mainly to Mozambique and the Democratic Republic of Congo. During the period under review greater values of black tea
10
exports were recorded to Mozambique with substantial increases recorded between 2002 and 2006. 2.3.
Black Tea Imports
With annual consumption at around 20 000 tons per annum and domestic production (excluding Magwa) at approximately 10 000 tons, South Africa is a net importer of black tea. Black Tea is imported from Malawi, Zimbabwe, Kenya and Sri Lanka and Mozambique. Tea imported from our SADC partners is mostly secondary grade tea suitable only for blending purposes. Premium quality teas are imported from Sri Lanka and Kenya.
Figure 10 : Value of Black Tea imports from various regions 250000000
Value (Rands)
200000000 150000000 100000000 50000000 0 1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Period (Years) Africa
Americas
Asia
Europe
Oceania
Source: Quantec Easy Data
South Africa imports its black tea from the five regions as depicted in Figure 10 with greater imports derived from the African regions followed by Asia. Imports of black tea originating from the African region have experienced a substantial increase during the period under review owing mainly to decreased competitiveness in the domestic black tea industry as opposed to most African countries that produce tea.
11
Figure 11 : Value of Black Tea imports from SADC 120000000 Value (Rands)
100000000 80000000 60000000 40000000 20000000 0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
32651169307379964363097654247854729931676301115867304683903233591.02E+08 978550331.07E+08
Malaw i
0
Mozambique
0
United Republic of Tanzania 1276593 924132 557490
Zambia
0
0
913981
0
0
0
0
0
166442
2414448 356715
388022
147233
0
0
195169
1942177 3014250 12982959335477762529658446944071 0
0
0
0
127839
0
1726302529014574414136654026050251746878338741982902398423144560265654901816657019829929
Zimbabw e
Period (Years) Malawi
Mozambique
United Republic of Tanzania
Zambia
Zimbabwe
Source: Quantec Easy Data
In the SADC region South Africa imported most of its black tea from Malawi as the main market, which has substantially increased its exports of black tea to South Africa between 1998 and 2008. Black tea is also imported from Zimbabwe and Tanzania, with Tanzania having increased its black tea exports to South Africa between 2005 and 2008, overtaking Zimbabwe. Figure 12 : Value of Black Tea imports from Eastern Africa
Value (Rands)
20000000 15000000 10000000 5000000 0 Burundi Kenya Uganda
1998
1999
2000
563023
1037656
0
16549413 13101536 6767055 0
28306
0
2001
2002
2003
0
0
0
8494898 11112423 3674728 0
0
2004 0 6147927
149
0
2005
2006
2007
2008
0
0
0
0
6578776 10916604 8834508 15064296 0
0
0
0
Period (Years) Burundi
Kenya
Uganda
Source: Quantec Easy Data
12
In Eastern Africa imports of black tea originate mainly from Kenya which has consistently served as a supplier of tea to South Africa between the years 1998 and 2008. Between 1998 and 1999, South Africa also imported black tea from Burundi and Uganda but these countries completely lost their share of the South African black tea market from the year 2000. 2.4.
Market Value Chain
TEA PRODUCERS
2.5.
TEA PACKERS/ BLENDERS
TEA TRADERS
RETAILERS
CONSUMERS
Processing
There are fourteen tea packers in South Africa who blend and pack tea. All black tea brands are blends of teas sourced from various localities. Medium to superior quality teas contain higher proportions of better quality teas. With respect to the middle and upper end teas of Unilever and National Brands, which together hold 95% of the black tea market, these are blends of relatively high quality teas from estates such as Ntingwe (KZN) and Magwa (Eastern Cape) and lower quality filler from the SADC countries. Despite serving the domestic high quality tea demand and exporting of the remainder of their output, South African black tea producers are unable to obtain a high enough market price to ensure a sustainable profit. 2.7.1. Tea Picking and Harvesting In most tea-producing countries, the labor-intensive method of picking, drying, crushing and fermenting tea has been used for centuries. The plucked leaves are collected in a basket or bag carried on the back of the plucker and when this is full it is taken to a collection point where the plucked leaves are weighed. It is then taken to the factory for processing, or "making", as tea manufacture is known in the tea trade. In Australia, the industry has been forced to mechanize because tea production, especially tea plucking (harvesting), is extremely labor intensive. As a result, tea is harvested all year round with the use of mechanical harvesters. A harvester moves in between rows of tea bushes and operates like a giant lawn mower cutting off only tender new growth. A harvester can collect up to 1,500 kilograms of green tea leaves at a time at a rate of 4,000 kilograms an hour. On average, 1,000 kilograms of green leaf are required to make just over 200 kilograms of black tea. The productivity of a tea plantation is measured by its yield of black tea per annum per hectare planted. A good yield is between 1,000 to 2,500 kilograms per hectare for hand picked plantations and 3,000 to 4,000 kilograms per hectare for mechanically harvested plantations.
13
2.7.2. At the Factory On arrival at the factory, the plucked leaves are weighed and assessed for quality before being put in withering bins attached to huge air vents. The moisture in the leaf evaporates in the warm air leaving the leaves flaccid. This process can take between 10 to 16 hours, depending on the wetness of the leaf. Some factories will gently hasten the process with the aid of warm air fans. The withered leaf is broken down by machine so that the natural juices, or enzymes, are released and on contact with the air will oxidize. The shredded leaves, called dhool, are then crushed and fed through the CTC (cut, tear and curl) or Rotovane machine. Its sharp teeth cut the leaf then tear it to release the juices that contain the tea flavor. The traditional process of manufacturing tea is known as Orthodox. It begins with withering freshly picked tea leaves which lose approximately half their moisture within 12 to 18 hours. At the end of this process, the leaf is flaccid. The flaccid leaves then enter a process known as "rolling" which ruptures the leaf cells to release enzymes, and then twists or curls the leaves. Thereafter, to stop fermentation, the leaves are exposed to hot air by passing it through a chamber with perforated moving trays in a process known as "firing". This chamber is known as the drier. This dries the leaves and turns it into a black color. After the fired leaf is cooled, it is sorted by sieves. The next process is known as "CTC" because the tea leaf is crushed, torn and curled. The process is similar to orthodox tea-making. In CTC manufacture, after rolling, the tea leaves are passed through a machine, known as the CTC machine, where the leaves are cut or crushed to a greatly reduced size and most of their cells are ruptured. This intensifies the process of fermentation. 2.7.3. Fermenting The broken leaves are laid out either on trays or in troughs in a cool, humid atmosphere for up to two hours to ferment, or more correctly, oxidize. The trays are gently turned so often throughout the period until all the leaves turn a golden russet color and fermentation is complete. This remains one of the most challenging stages of tea processing. 2.7.4. Drying After fermentation, the leaves are dried or fired. This is done by passing the broken fermented leaves slowly through hot air chambers where all the moisture is evaporated and the leaves turns dark brown or black. It is at this stage that the aroma changes from that of a pungent plant to the familiar earthy tea perfume. The black tea is ejected from the hot chamber into chests. Next it is sorted into grades, or leaf particle sizes, by being passed through a series of wire mesh sifts of varying sizes into containers. It is then weighed and packed into chests or "bags" for loading onto pallets. The bigger curly leaves are used for loose-leaf packet tea while the finer particles are used for tea-bags.
14
Factory tea-tasters will taste the finished "make" to ensure that no mistakes have been made during the manufacture or that the tea has not been tainted by anything within the factory. After each make the tea factory is washed from top to bottom to ensure that the character of the completed make does not transmit to the next make of tea.
15
Figure 13: Flow chart of Tea processing
16
3.
MARKET INTELLIGENCE
3.1.
Performance Analysis
Table 3: South Africa’s exports of Black tea & partly fermented tea (HS 090240) in 2008 Importers
Exported value in 2008 (thousand US$)
World 9.03 UK 1 936 Mozambique 1 729 Pakistan 1 234 United Arab 1 191 Emirates Zimbabwe 503 China 435 USA 423 Netherlands 369 Zambia 278 Germany 268 Canada 76 Switzerland 59 Kenya 55 Ireland 54 Mauritius 53 Malawi 45 Egypt 45 Australia 37 New 36 Zealand Israel 30 Kuwait 30 Angola 26 Poland 25 Ship stores 25 and bunkers Source: ITC Trade Map
Share in South Africa’s exports (%)
Exported quantity in 2008 (tons)
Unit Value (US$/unit)
Exported growth in value between 2004 and 2008 (% p.a.)
Exported growth in quantity between 2004 and 2008 (% p.a.)
Exported growth in value between 2007 and 2008 (% p.a.)
Tariff equivalent ad valorem faced by South Africa
100 21.4 19.1 13.7 13.2
8 776 1 092 392 685 790
1 030 1 773 4 411 1 801 1 508
5 -10 -15 169 404
24 2 -32
13 -19 279 169 540
0.00% 20.00% 10.00% 0.00%
5.6 4.8 4.7 4.1 3.1 3 0.8 0.7 0.6 0.6 0.6 0.5 0.5 0.4 0.4
179 4 324 308 243 104 137 18 81 162 27 26 14 48 21 9
2 810 101 1 373 1 519 2 673 1 956 4 222 728 340 2 000 2 038 3 214 938 1 762 4 000
71
103
116 54 -12 -10 21
291 69 9 1 41
93 245 -68 -60 187 -1 -83
0.3 0.3 0.3 0.3 0.3
35 3 1 49 7
857 10 000 26 000 510 3 571
73
1 275
36 126
67 49
-8 56
-5
-25 -33 30 105
-65 56
342 -21 -84 131 89
189 -73 19
40.00% 15.00% 0.00% 0.00% 25.00% 0.00% 0.00% 0.00% 25.00% 0.00% 30.00% 25.00% 2.00% 0.00% 0.00% 0.00% 0.00% 5.00% 0.00%
During 2008 South Africa exported a total of 8 776 tons of black tea to the world. In world terms exports of black tea from South Africa to the world have increased by 5% and 24% in both value and quantity respectively between the periods 2004 and 2008. The major export destinations for black tea originating from South Africa during 2008 were the United Kingdom, Mozambique, Pakistan, United Arab Emirates, Zimbabwe, China and the USA. During the year 2008, UK alone have absorbed 21.4% of the total black tea exports originating from South Africa followed by Mozambique and Pakistan with 19.1% and 13.7% respectively. The South African black tea exports to the UK declined by 10% in value and increased by 2% in volume between the years 2004 and 2008. In terms of access to various
17
international markets for South African black tea, countries such as Zimbabwe, Mauritius, Malawi, Kenya, Zambia and Mozambique heavily protect their black tea industries with higher tariffs ranging from 20% ad valorem to 40%.
18
Source: ITC Trade Map
19
United Kingdom is the largest importer of black tea. However, South Africa’s exports of black tea to the UK declined by 10% while the UK’s imports from the world increased by 18% between 2004 and 2008. South Africa has doubled its exports of black tea to USA, Pakistan, and Malawi between the years 2004 and 2008. South Africa’s black tea exports to the above-mentioned countries have outgrown these countries’ growth in imports from the world between 2004 and 2008. Furthermore, South Africa has increased its black tea exports to a declining market of Kenya by above 70% over the past five years.
20
Source: ITC Trade Map
21
If South Africa is to diversify its exports of black tea the biggest markets exist in the United Kingdom and the United States of America because these countries have increased their share in South Africa’s black tea exports during 2008. Other big markets exist in Pakistan, Germany and United Arab Emirates. During the year 2008, United Kingdom alone absorbed 21.4% of South Africa’s black tea exports, followed by Mozambique, Pakistan and United Arab Emirates with 19.1%; 13.7% and 13.2% respectively.
22
Table 4: South Africa’s imports of black tea & partly fermented tea (HS 090240) in 2008 Exporters
World Malawi Tanzania Zimbabwe Kenya Sri Lanka Indonesia Rwanda UK Congo Zambia USA China India
Imported value in 2008 (thousand US$)
Share in South Africa’s imports (%)
Imported quantity in 2008 (tons)
Unit Value (US$/unit)
Imported growth in value between 2004 and 2008 (% p.a.)
Imported growth in quantity between 2004 and 2008 (% p.a.)
Imported growth in value between 2006 and 2008 (% p.a.)
26 248 12 859 5 643 2 401 1 811 1 666 800 721 103 73 18 15 11 8
100 49 21.5 9.1 6.9 6.3 3 2.7 0.4 0.3 0.1 0.1 0 0
20 483 12 599 2 771 3 145 733 526 370 259 10 3 24 1 1 1
1 281 1 01 2 036 763 2 471 3 167 2 162 2 784 10 300 24 333 750 15 000 11 000 8 000
7 4 74 -15 16 -5
4 3 67 -9 7 -15
11 -5 57 -5 44 -10 18
13
9
-5
25 72
-7
450 14
Tariff equivalent ad valorem applied by South Africa
0 0 0 24.01 24.01 42.9 24.01 24.01 24.01 0 42.9 42.9 42.9
Source: ITC Trade Map and Macmap
The table above clearly indicates that South Africa is a net importer of black tea. During 2008 the country imported a total of 20 483 tons of black tea versus its exports of 8 776 tons. In world terms imports of black tea into South Africa have increased by an average of 7% and 4% in value and volume terms between the years 2004 and 2008. Black tea imports originate mainly from Malawi, Tanzania and Zimbabwe, with Malawi commanding 49% share in South Africa’s imports while Tanzania commands 21.5% and Zimbabwe 9.1%. Other small markets for black tea imports are Sri Lanka, Kenya and Indonesia. Of importance to note is that imports of black tea originating from Malawi have increased by 4% and 3% in value and volume terms between 2004 and 2008 while those originating from Tanzania have increased by 74% and 67% in volume and value terms during the same period. Black tea imports originating from Zimbabwe have experienced a decline of 15% and 9% in value and volume terms during the period between 2004 and 2008. Malawi, Tanzania and Zimbabwe have duty-free access to the South African black tea market an ad valorem tariff of 42.9% is applied to black tea originating from countries such as Sri Lanka, Indonesia, USA, China and India.
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Source: ITC Trade Map
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During the period between 2004 and 2008 imports of black tea from countries such as Tanzania, India, China, United Kingdom and Malawi into South Africa grew at a rate that is faster than these countries’ exports to the rest of the world. Conversely imports of black tea from Mozambique and Zimbabwe into South Africa declined substantially while these countries’ exports of black tea to the rest of the world also experienced a decline. Imports of black tea originating from Kenya (the biggest supplier of black tea) to South Africa have increased by 16% in value terms between the period 2004 and 2008.
25
Source: ITC Trade Map
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If South Africa is to diversify its suppliers of black tea the biggest market exist in Kenya; even though during 2008 this country commanded a smaller share in South Africa’s black tea imports and its black tea exports to the rest of the world have not grown substantially. The major impediment is that South Africa applies a tariff of 24.01% to black tea imports originating from Kenya. Other small markets (in world terms) for black tea exist in Malawi, Tanzania and Zimbabwe.
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4.
ORGANIZATIONAL ANALYSIS
It is difficult to generate profits with black tea in South Africa. The key challenges facing the South African black tea industry are the following: • • • • • 5.
In 1999 South Africa’s 11 tea estates suffered a blow when the quantitative import control system was abolished and tea packers no longer had a financial incentive to pack local tea, In 2003 the increase in the minimum wage also dented the industry; because tea picking is a labor intensive operation which requires about four labor units per hectare, pushing production costs to about R16/kg, Production costs in tea producing countries such as Malawi, Kenya, and Sri Lanka have low production costs of between R8/kg and R10/kg and their labor costs are also lower, Beginning in 2003, South Africa’s tea estates shut down. Magwa Tea Estate in the Eastern Cape closed its doors followed by South Africa’s largest tea producer, Sapekoe and several other tea estates in Limpopo during 2004, In 2005, the Paddock Tea Company also closed its doors. GOVERNMENT INTERVENTION IN THE BLACK TEA INDUSTRY
A number of private sector and government partnerships have led to the revitalization of the black tea industry and currently five estates are in operation. •
• • •
•
In the Eastern Cape Province, an attempt was made to put Lusikisiki’s Magwa Tea Estate back in operation with financial assistance to the tune of R26.7 million from the provincial government and a joint partnership between the Asia Tea giant Gokal and the German submarine manufacturer Ferrostaal, spearheaded by the Eastern Cape Development Corporation (ECDC). Currently, both the Magwa and Majola tea estates in the Eastern Cape are kept afloat through provincial government subsidies, Tshivhase and Mukumbani tea estates in the Vhembe district of Limpopo Province were resuscitated from the Sapekoe group with a R74 million injection from the Limpopo provincial government, Ntingwe tea estate in the Kwazulu-Natal Province was set up in 1993 with R40 million from Ithala Development Finance Corporation and later R40 million from the provincial government, Tanzanian Tea Blenders have been roped in as a strategic investor to market Limpopo’s black tea regionally and globally and a market has already been established in the United Arab Emirates and discussions have already been started to conclude deals with Iran, The Limpopo Department of Agriculture has reached a cooperative agreement with its Northern Cape counterpart to develop market access relations with Rooibos growers in Nieuwoudtville and Calvinia with the objective of blending and packaging a special Rooibos collateral brand along with Limpopo’s black tea.
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6.
NEW DEVELOPMENTS IN THE BLACK TEA INDUSTRY
As a way of revitalizing tea production in Kwazulu-Natal the production of green tea has been investigated in the Ntingwe tea estates and it was decided to produce very healthy Low caffeine Green Tea (LCGT) using Japanese technology. The KZN Department of Agriculture and Environmental Affairs provided funding totaling R17 million and Ntingwe commenced with production of LCGT in December of 2008. The high quality of the green tea produced has already convinced the Japanese to place orders at a higher retail price than what Ntingwe gets for its black tea. Ntingwe LCGT also plans to penetrate the European and American markets. 7.
ROLE PLAYERS IN THE BLACK TEA INDUSTRY
AFRO INDIA TRADING cc P.O. Box 1996 TZANEEN O850 Tel: (015) 307 3802
LC PACKAGING P.O. Box 28607 SUNRIDGE PARK 6001 Tel: (041) 4563003
A J PRODUCTS & CO LTD P.O. BOX 38120 GATESVILLE 7766 Tel: (021) 699 1030
MASTERTON'S P.O. Box 12206 CENTRAHILL 6006 Tel: (041) 585 4044
BACK TO BASICS cc P.O. Box 3299 FLORIDA 1710 Tel: (011) 472 1922
NATIONAL BRANDS LTD TEA PROCUREMENT P.O. BOX 2196 DURBAN 4001 Tel: (031) 335 1340
BARBIZON TEA & COFFEE LTD P.O. Box 1735 SOUTHDALE 2135 Tel: (011) 433 1908
PADDOCK TEA PROCESSORS (PTY) LTD P.O. BOX 72 PADDOCK 4244 Tel: (0396) 791 620
BARNES TEA & COFFEE P.O. Box 302 JOHANNESBURG 2000 Tel: (011) 793 7037
PEACOCK TEA & COFFEE COMPANY P.O. Box 38011 HOWARD PLACE 7450 Tel: (021) 762 5067
BUTLERS
ROYAL TEA PACKERS cc
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P.O. Box36746 CHEMPET 7442 Tel: (021) 551 5815
P.O. BOX 3312 PIETERMARITZBURG 3200 Tel: (0333) 979 264
COLOMBO TEA & COFFEE COMPANY P.O. BOX 1243 DURBAN 4001 Tel: (031) 205 3283
SOUTHALLS (PTY) LIMITED P.O. Box 518 CAPE TOWN 8000 Tel: (021) 534 2271
H M H MARKETING cc P.O. BOX 405 ROODEPOORT 1735 Tel: (011) 763 5696
TEA & COFFEE DISTRIBUTORS P.O. Box 3643 NORTH END 6056 Tel: (041) 374 0033
HODGSON DISTRIBUTORS P.O. BOX 3607 NELSPRUIT 1200 Tel: (01311) 55 8960
TEA BLENDERS COMPANY LTD P.O. BOX 35405 NORTHWAY 4065 Tel: (031) 579 2894
JOEKELS TEA PACKERS cc P.O. BOX 10455 ASHWOOD 3605 Tel: (031) 709 1409
UNIFOODS (PTY) LIMITED P.O. BOX 922 PIETERMARITZBURG 3200 Tel: (0333) 355 8100
KINGS TEA & COFFEE P.O. BOX 217 NORTH RIDING 2162 Tel: (011) 474 4601
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8.
ACKNOWLEDGEMENTS •
Directorate Agricultural Statistics Tel: (012) 319 8453 Fax: (012) 319 8031 www.nda.agric.za
•
Quantec Easy Data www.quantec.co.za
•
ITC Market Access Map http://www.macmap.org/SouthAfrica
•
ITC Trade Map http://www.trademap.org.
Disclaimer: This document and its contents have been compiled by the Directorate Marketing of the Department of Agriculture for the purpose of detailing the black tea industry. Anyone who uses the information as contained in this document does so at his/her own risk. The views expressed in this document are those of the Department of Agriculture with regard to the industry, unless otherwise stated. The Department of Agriculture therefore accepts no liability that can be incurred resulting from the use of this information.
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