SMALLHOLDER TEA FARMING AND VALUE CHAIN DEVELOPMENT … · SMALLHOLDER TEA FARMING AND VALUE CHAIN DEVELOPMENT IN CHINA Intersessional Meeting of the Intergovernmental Group on Tea

SMALLHOLDER TEA FARMING AND VALUE CHAIN DEVELOPMENT IN CHINA

Intersessional Meeting of the Intergovernmental Group on Tea Rome, 5-6 May 2014 Cheng Fang, Economist, Trade and Markets Division, FAO Yanjiong Wang , Tea research Institute (TRI), CAAS. China Xuebian Zhang and Jieqi Huang, Ag Info Institute (AII), CAAS, China

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Acknowledgement

The presentation is based on the ongoing research project by FAO and Chinese Academy of Agricultural Science (CAAS) titled: “Study on Smallholder Market Participation and Value Chain Development in China”

Overall Research Objectives

Provide evidence based analysis on China’s experience, achievement, and constraints and challenges in market development

Analyse the determinants of smallholder market

participation

Analyse the government policies and market development with inclusive growth

Value chain analysis for selected commodities:

wheat, rice, maize, pork, mutton, beans, and tea.

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Contents of this presentation

Role of Government in China

Market Integration and Inclusive Tea Value Chain Development in China

Value Added and Farmer’s Income 2

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Overview of the Tea Production and Industry in China 1

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Overview of the Tea Production and Industry in China

1

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Tea Output in China China is the world’s largest tea producer No.1

Total output of tea in China in 2013 1.93 million tons

Tea output increased by 614.8% from 1978 to 2013 614.8%

27 30

54 54 56 60 59 59 59 61 67 68 68 70 75 77 84 93

103 117

126 135

148 162

175 193

0

50

100

150

200

250

Total Output of Tea in China（10,000 tons）

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Planting Areas and Yield

Tea output increase is due to: Increasing plating

areas Increasing yield

Technical improvement plays an important role in tea industry development

1048 1041 1061 1115 1089 1352

1970

2579

0

500

1000

1500

2000

2500

3000 19

78

1980

19

90

1991

19

92

1993

19

94

1995

19

96

1997

19

98

1999

20

00

2001

20

02

2003

20

04

2005

20

06

2007

20

08

2009

20

10

2011

20

12

2013

Total Planting Areas of Tea in China（1000 ha）

257.6 288.2

509.0 529.1 624.4

687.9 751.3 748.3

0.0 100.0 200.0 300.0 400.0 500.0 600.0 700.0 800.0 900.0

1978

19

80

1990

19

91

1992

19

93

1994

19

95

1996

19

97

1998

19

99

2000

20

01

2002

20

03

2004

20

05

2006

20

07

2008

20

09

2010

20

11

2012

20

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Per hectare tea output (kg/ha)

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Tea Producing Areas Main tea producing counties:

Main tea producing areas

Since 2005, China overtook India and became the world’s largest tea producer.

Four main tea planting areas in China: South China; Southwest China; South of Yangtze River; North of Yangtze River

Biggest tea planting area: Yunnan Province

Largest tea production: Fujian Province

More than 2/3 of the tea is consumed in the domestic market.

China India Kenya Sri Lanka Turkey Viet

Nam Iran Indonesia

Argentina

1700 1000 369.4 330 225 216.9 158 150.1 100

Tea production in 2012 (1,000 tons)

Source: FAOSTAT

Characteristics of Tea Growers (a) China has the largest tea growing population of about 80 million Tea production remains a small family business in China Per HH tea area in less then 0.3 ha., and in declining

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Characteristics of Tea Growers (b) Due to small in size, no equivalent power in

bargaining with companies in market Labor Intensive, low labor productivity, and high labor

cost Weak tea growing skills Different type of tea planting modes

Traditional mode– individual small farms Cooperative mode– farm cooperated Industrialization mode- tea company centered

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Value Added and Farmer’s Income 2

Value Added in Different Process along Tea VC

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Percentage of value added in different process of tea industry in China (%) based TRI

Profits in Different Process 55.1% of the surveyed companies get

the highest profit from Retail.

Highest profit process Percentage of companies (%)

Production 22.4

Wholesale 13.6

Retail 55.1

Others 4.2

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Data Source: TRI survey data

HH Net Income of Tea and Non-tea Farmers (real price in 1980) Non-Tea Farmer has 25% higher net income compared to Tea Farmer in 2010,

on average in China .

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Data Source: Calculated based on RCRE/MOA Survey Data

Gross net income

Household Operating

Local Wage Remittance

(out of county)

Land compensatory

Other

Non-Tea Farmer

6,049 2,042 951 1,853 376 826

Tea Farmer 4,821 1,585 416 2,109 96 616

NTF/TF in % 125% 129% 229% 88% 393% 134%

Income of Different Types of Tea Growers

There are huge income difference between different types of tea producers, depending on location and farm size in China

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Data Source: Social Resources Institute

Fresh leaves

Self- Processed Tea

Tourism service Annual Income

(US$)

Genuine x x x 10,362-32,383

Full-time x x 648-10,362

Part-time x 259-648

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Market Integration and inclusive value chain development in China

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Tea Value Chain in China

Tea Garden /farm

Planting Processing Distribution and Marketing

Self-built tea planting bases

Individual shops

Self-built stores

Traditional Channel

Chain Retail

Comprehensive tea companies

Consum

ers

Processing by factories in the tea garden

Wholesalers

Tea drinks processing companies

Chain retail shops

Drink Chain Shops

Drink Chain Shops

Refineries

Wholesalers

Retailers/ supermarkets

Processing by tea Companies

Deep processing by drink companies

Retailers/ supermarkets

Integration of Chinese Tea Industry in China(a)

Tea Companies Emerging Vertically Integrate the Upstream and Downstream of Tea Industry in China Significantly change the tea cultivation methods from conversional tea

garden planting to the ecological tea garden planting Quality of the fresh leaves can be improved significantly

No of Contract between Tea Growers and Tea Company in Fujian Province

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2002 2008 No of contracts 80,870 207,359

Integration of Chinese Tea Industry Chain (b)

Fast growing of tea growers to develop their own tea processing facility

Integration of tea growing and processing into one Popular for genuine tea growers in the famous tea areas Increasing grower’s market participation and income

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Selling Channels of Tea Grower in 2013

Channels

2013 (total hh 254)

No. of household percentage

①Sale on the tea markets 109 42.9%

②Sale to tea companies 36 14.2% ③Sale to local big

companies 69 27.2%

④through cooperatives 34 9.1%

⑤Sale directly 5 1.9%

other

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Data source: TRI survey data

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Role of Government and Civil Society Organization in China

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Roles of Government Legal framework Rights and interests of tea growers and workers Environment Product quality and safety

Standards and certification

Tax

Subsidy R&D and Training

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Role of Government In recent years, the government is expanding and

strengthening the tea industry to make it a pillar industry for local economy and build local capacity to alleviate poverty Support specialized tea growing communities, leading tea

townships and households Expand the area in west China Accelerate the process of standardization Build partnership between leading companies and growers Encourage growers to develop specialized economic

cooperatives

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Government Support Policies Policies by

central government provincial government local governments

Policies: Tax reduction: VAT reduction Subsidies: direct subsidies and input subsidies Financial support to tea growers and companies R&D and extension/training Support to cooperatives (mainly tax reduction

benefit) Market information

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Roles of Civil Society Organizations

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Tea Trade Association

Tea Growers Association Tea Cooperative

China’s Grassroots NGOs environmental protection, rural development or fair trade

promoting tea technologies and building brands, raising overall profitability of the industry Most cooperatives are initiated by companies, and major leaders are from companies or government, rights of tea growers in the cooperative remain to be questioned.

technical consultation, training, brand building and marketing

stabilizing distribution channels, setting price, protecting interest of tea growers

tea growers can hardly be part of decision making process

Promote local tea brands Collect and release market information Formulate and implement rules Balance local supply and sale Organize tea trade fairs Provide training in tea production, certification and

technology Offer policy recommendations to government on

behalf of companies

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Summary and Conclusions 5

Summary and Conclusions

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1. Smallholder tea production increase, but mainly by area expansion

2. Weak in producing technology and low productivity

3. Low income, but with big variations in tea grower income

5. Government support is the key for tea VC development

4. Rapid market integration upstream and downstream