By: Justin Harper
Drinking tea is a tradition long associated with the Chinese. But planting tea is a different matter, with many other countries producing their fair share of tea leaves. With so much supply, predominantly from Asia, the big question is whether it’s being matched by demand? The answer to this could help assess whether investing in tea is a wise decision or just plain tea-potty.
Global tea consumption rises by about four percent annually. While middle-aged consumers and senior citizens form the bulk of the consumer base, recent trends have seen a younger crowd embrace the tea culture, seeking out new blends and flavours. Green tea is a particular favourite among health-conscious drinkers. Observing such trends is just one area a would-be investor needs to look at. Before you invest in a specific tea plantation or pool your money with others to buy a share of a plantation, you really need to make a detailed analysis of new plantations coming on-stream in the region, government incentives and any regional development.
Investing in tea plantations also involves studying the topography and geology of a location, along with analysis of the altitude, climate and natural environment to determine if it’s suitable for certain types of tea leaf. Constant temperatures and humidity are ideal conditions for the tea plant to grow; such conditions can be found in the tropical and subtropical climates of Asia where currently more than 60 percent of global tea production is cultivated (see table). In particular, the cooler highlands will produce a good quality of tea leaves.
Two countries that dominate the global tea production are China and India; they’re also among the world’s biggest tea drinkers. Together these two countries account for almost half of global tea production. Nearby Indonesia currently ranks number eight on the list of largest global tea producers. In the past, Indonesia has been higher up that list but many farmers have given up tea products for the lucrative business prospects of palm oil instead. Tea estates have also been given up for the production of vegetables and other crops that are considered more profitable.
The provinces that produce most of Indonesia’s total tea output are West Java (around 70 percent of national tea production), Central Java and North Sumatra. Approximately 65 percent of the Indonesian tea production is exported. The main countries of export destination are Russia, Great Britain, and Pakistan. One thing to note is that Indonesia’s domestic tea consumption is rising at a much higher level: more than 20 percent annually in recent years. As Indonesia’s tea production is showing a decreasing trend and exports account for around 65 percent of tea production (mostly the premium quality), the country needs to import tea to satisfy domestic demand.
Tea imports comprise about 25 percent of Indonesia’s domestic tea consumption. Imports will have to be increased if the government provides no incentives to develop the country’s tea industry. This could be seen as an opportunity for tea plantation investors if more favourable incentives are offered to boost Indonesia’s production capacity. The country is also close to Singapore, giving investors the chance to visit any plantations they invest in.
Another factor to consider is people. Like any business, if you invest in a tea plantation, it’s important to know the right people are running it. This may entail employing locals such as experienced tea farmers to manage the plantation. You may also want to use modern technology and scientific research to increase harvests. Two important points to bear in mind with any investment are your time frame and the return you’re looking for. Investing in tea plantations is not for the short-term, and different plants have different rates of return. The tea plant can be first harvested when it is around four years of age. When harvesting, only young leaves are selected, implying that manual picking is more efficient than using mechanical equipment. Tea production is therefore a labour-intensive business. Costs can be higher than expected as a result while returns depend on world tea prices, something out of an investor’s control.
If investing directly in a tea plantation is not your cup of tea, then you could invest in the shares of major tea producer companies; many are traded on the world’s stock exchanges. For example Unilever produces PG Tips while Tetley and Tata Tea are owned by Tata Global Beverages. Tea is a commodity in which you cannot buy futures shares, unlike other crops such as cocoa and coffee. There is no established trading market.
Top eight tea producers*
1. China – 1,640,310
2. India – 966,733
3. Kenya – 377,912
4. Sri Lanka – 327,500
5. Turkey – 221,600
6. Vietnam – 206,600
7. Iran – 162,517
8. Indonesia – 142,400
* in metric tonnes
Five quick tea facts
1. Tea is the second most consumed drink in the world, behind water.
2. A 3,200-year-old tea tree in China’s Yunnan Province is still being cultivated today.
3. “The agony of the leaves” is an expression that describes tea leaves unfurling as boiling water is poured over them.
4. Tea bags, made of silk, were invented in 1908.
5. The four main types of tea – black, green, white and oolong – all come from one plant, Camellia sinensis; the leaves are treated differently to create the separate types of tea.