Tea Industry Fears Export Price Squeeze

Dr Nguyen Quoc Thinh, a branding specialist, said, Vietnam currently has no international tea exchange as in Kenya, Sri Lanka and India. The absence of an international quality appraisal facility such as the tea exchange makes it hard for Vietnamese tea producers to value Vietnamese tea. As a result, Vietnamese tea always faces price squeeze from foreign importers

From production to export

With a thousand years of history, Vietnam is proud to be one of the origins of tea. According to the Ministry of Industry and Trade, in tea growing, farmer households account for more than 70 per cent and large farms/plantations make up nearly 30 per cent. The latter usually hires workers to grow and tend tea farms. These workers sell green tea buds to companies according to contracts previously signed. Free farmer households usually grow tea on much smaller scale.

At processing stage, Vietnam has about 500 tea processors capable of processing more than 500,000 tonnes of dried tea a year, not counting thousands of small individual processing facilities. This results in overcapacity. Factories fall short of inputs and they have to accept to purchase uncertified materials for factory operation. This is one of major causes resulting in poor quality and spoils the prestige of Vietnamese tea. Even some biggest companies with vast tea farms can source about 50 per cent of inputs.

At the export stage, Vietnam has more than 250 tea traders which specialise in purchasing tea from producers and processors to sell to foreign customers. Currently, at least 4 giant foreign firms are active in Vietnam and accounting for 20 per cent of total export volume.

According to a report by the Vietnam Trade Promotion Agency (Vietrade) under the Ministry of Industry and Trade, about 60 - 70 per cent of Vietnamese tea output is for export. Hence, export has a very important role and position of the tea industry. In 2017, Vietnam exported 140,000 tonnes of tea earning US$229 million, up 7.2 percent in volume and up 5.6 percent in value over 2016.

About 90 per cent of exports are raw. In 2016, the average export price was US$1,659 per tonne, down 2.8 per cent over 2015. Although the price gap between Vietnam and the world is shrinking, it remains quite wide.

Traditional importers of Vietnamese tea are Pakistan, Russia, Indonesia, Taiwan, China and the United States, according to the 2016 data. These six markets bought 74.7 per cent of Vietnam’s exports and accounted 76.5 per cent of its export value in 2017.

The global market is welcoming premium tea. However, local tea processors are facing big obstacles with input sources. As a matter of fact, a company does not own and manage input sources, it will have weaker production capacity, lower competitiveness and smaller profit margin.

Applying standards, building brands

To win customers in demanding markets such as the US, the EU and Japan, Vietnamese tea products must meet high quality standards such as food safety, taste and colour. They must comply with Vietnamese standards and voluntary standards for sustainable production such as VietGap (Good Agricultural Practices of Vietnam) and international standards such as GlobalGap (Global Good Agricultural Practices, Rainforest Alliance, Fair Trade and Organic.

To avoid export price squeeze, the first and foremost measure is to have serious and persistent investment in promoting and improving tea quality. Fertiliser and pesticide residue must be eradicated because it is the main reason for Vietnam tea to lose its prestige in the world market. It is important to increase the knowledge of tea growers so that they can produce good quality and hygienic products. Processors must ensure production technology, output quality standards, nice-looking packages that fit consumer cultures in target export markets.

Furthermore, Vietnamese companies must penetrate more deeply into value chains and seek out suitable trading partners in target markets. With the support of such partners, they must understand consumer tastes and trends there to have best designs, products and packages.

To build brand names in the international market, Vietnamese companies need to organise and launch exciting and effective media campaigns that catch the fancy of target audience and convince them to buy tea. This is one of the hardest and costliest jobs in export brand management.

VCCI News