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GP4May05: The Price of Tea in China

The Price of Tea in China.  To our great amusement, the old expression “The Price of Tea in China” denoted for economists something that is completely unrelated to the topic at hand, absolutely irrelevant to everything intelligent men and women might be talking about.  It referred to the random thought that came out of left field, a meteor from some other solar system.  See http://en.wikipedia.org/wiki/Price_of_tea_in_China.  The irony here is that both tea and China are extremely pertinent to everything that’s happening in our world, especially in the economic sphere.   

One is always searching for key indicators and prime causes—the simple little events that tell us what’s really going on in the world.  In the United States, we think the price of gasoline and mortgage rates tell you a whole lot, and that’s why we include them with this letter each week.  As well, there are certain businesses that give you tremendous insight into human behavior, one being the comings and goings of ladies of the evening.  We remember that years ago Across the Board, then an adventurous business magazine  in its infancy, did an article on the economics of a New York whorehouse, and it was for this reason that an IBM pension official brought it to our attention. 

The Glorious History of Tea.  Tea, too, is a talisman that we should not ignore, even if we think of ourselves as a nation of compulsive coffee drinkers and latte fashionistas.   We would point you to “The Tea Muse,” where you can find all sorts of snippets about tea’s place in history (www.teamuse.com/archive_history.html).  But if you are in a hurry, we recommend Marian Segal’s “Tea: A Story of Serendipity,” which appears on a FDA website, as well as “Tonic in a Teapot?,” on the same site, which will quickly immerse you in a teapot.  Segal traces tea back to Emperor Shen Nung in 2737 B.C. who apparently drank boiling water for his health, but discovered a better drink when leaves from Camellia sinensis drifted into his pot.  We would suppose that this legend holds just about as much water as Lamb’s very amusing attribution of roast pork to the accidental burning down of a peasant’s hut in which a pig was trapped, the beginning of a whole string of such fires.  (See www.fda.gov/fdac/
features/296_tea.html.)  Tea has come to be the second most important beverage in the world, only trailing water.  

Apparently the first monograph on tea was written in 758 A.D.: the “Tea Scripture” by Luyn of Tyang dynasty (www.teanet.com.cn/chinesetea_conditions.htm.) 

The Size of the U.S. Tea Market.  In 2003, according to one source, the U.S. tea market amounted to only $5.1 billion, with $1.1 billion of this coming from specialty teas.  All the market growth—both in dollars and volume—was coming from the specialty tea segment (www.nutraceuticalsworld.com/Oct041.htm).  At that time there were some heady predictions of a doubling of the market by 2010. 

Tea, in fact, exemplifies the tendencies in branding and invention we raised in “Don’t Step in the Same River Twice.”  Despite problems in the larger tea marketplace, inventive marketers are creating a bubbly specialty tea market, using a potpourri of tactics never envisioned by the former masters of the tea trade.   

In high-end black teas, the difference has often been one of quality.  Despite our association of tea with the British, we find the more interesting teas pass through other hands these days.  We have discovered that the Irish, rather than the British, seem to offer fresher, better pickings in their commercial offerings.  The Asian tea merchants, incidentally, tell us that they ship their best leaves to Germany now, not England.  Our colleagues enjoy a black put together by a small house in New York.  

The Specialty Tea Market.  Offerings in the specialty tea market are broader than you might imagine.  There is a proliferation of ready-to-drink tea beverages in bottles and cans, and a very large ice tea segment that is peculiar to the U.S. market.  Apparently, moreover, the use of tea essence in non-beverage products exceeds that of its use in drinks.  “These include … personal care products such as lotions, sun blocks and hair care products fortified with tea extracts and essences. Dietary supplements containing tea extracts standardized to specific phyto-constituents such as L-Theanine or simply total polyphenol content are also increasing in popularity.”  See www.nutraceuticalsworld.com/Oct041.htm.  

The channels of distribution for tea beverages are becoming as imaginative as the applications for which tea is used.  New-Wavish musician Moby, who is worth a listen, now is in the tea business.  “Moby and business partner Kelly Tisdale opened Teany, a teashop and vegetarian café on the Lower East Side of Manhattan, back in 2002….  The café now offers 106 different types of tea and tea/juice combinations.”  Now Teany drinks are available  at high end food merchants such as Dean & Deluca (www.beverageworld.com/beverageworld/
search/search_display.jsp?vnu_content_id=1000845715).  Also read about Moby at his site www.moby.com.  A good starter album would be his 18

Green Tea.  We find the “green tea” segment of the specialty market  to be intriguing, because the boutique houses have pumped it so handily.  The proprietor of Harney, a Connecticut speciality tea house (www.harney.com), caught our attention when he advanced the medicinal virtues of green tea in one of his road show talks 3 or 4 years ago.  When you punch “green tea” into your search engine, you will find a litany of health claims for green tea that exceed in boldness even those made by the medicine men, who traversed the Old West for their magic concoctions.  After you read all the literature and testimonials, it feels almost sinful not to be drinking the green stuff, but we find it to be so insipid that we can only be onlookers.  This, despite the endless urgings we receive in favor of the green, most recently from friend Les, a Boston novelist. 

Nonetheless, this has led us to pour through the promotion materials and the websites of the green purveyors.  It’s pretty fancy stuff, suggesting that it takes a lot of New-Age tactics to peddle New-Age nostrums.  One success story is Tazo, now a subsidiary of Starbucks.  Should you visit its website, you will not get much of the specifics on green tea, but all sort of cosmic atmospherics that suggest you are undertaking a semi-religious experience.  See www.tazo.com.  It’s sort of Rosicrucian and Buddhist rolled into one.  The teabags, packaged in paper, don’t have much of a scent to them, our test of green tea, since we don’t drink it.  An interesting sidebar on Tazo, however, is that it gives a percentage of its revenues to CHAI (Collaboration for Hope and Advancement in India, www.chaiprojectdarj.org ), basically a foundation to help poor Indian villages in the region where Tazo derives its product.   

A contrast is Stash (www.stashtea.com), also out of the Northwest, like so many alternate concoctions.  Still an independent, its site is more information packed and easier to navigate.  Wrapped in tinfoil, more compelling visually for busy people, its teabag has the scent of many spices with which Stash laces its green tea.  While we don’t know if either house provides real quality, we are more tempted by the Stash, since its message is straightforward and its packaging is more consumer friendly.  But each to his or her own taste. 

Tea of all sorts, certainly green tea, is much like wine, with only certain years and certain plantations providing a product that can delight the true connoisseur.  Eventually better green tea purveyors will tell you more about the provenance of various tea batches.  But the distributors each have added a certain individuality to their products, wrapping them in health, mysticism, spices, and other idiosyncrasies.  That’s the value added a U.S. businessman can add to commodity products bought cheaply elsewhere in a global economy.  It even helps that many providers have even experimented with the shape of their teabags to both heighten the appeal and change the brewing of the ultimate cup of tea. See www.teaandcoffee.net/0305/tea.htm

According to one source, China accounts for 20% of the world tea market, but produces an amazing 90% of the world’s green tea  (www.teanet.com.cn/chinesetea_conditions.htm).  So if you’re in the green tea business, you care very much about the price of tea in China.  And just like most of the world’s  “makers” of notebook computers—Dell, Hewlett Packard, and all their cousins—you are much concerned with how to put a very special imprint on your product.  Basically, the notebooks all come out of the same pot, owned by the 5 top manufacturers in Taiwan who account for 72% of world production, with Quanta Computer leading the way (www.itfacts.biz/index.php?id=P2727).  As we have stated previously, the challenge for American business is to create one of a kind products in a world where low-cost commodity producers outside our borders can own any product category, with the help of Wal-Mart, that relies on mass market characteristics.   

P.S.  Readers who want to dig away at fundamental economic causes should take a look at  Peter Bernstein’s new book on the Erie Canal, probably the seminal event in American nineteenth-century economic history.  It is called Wedding of the Waters: The Erie Canal and the Making of a Great Nation

P.P.S.  Green tea fanciers will also want to look at our “The Very Best: Wine, Tea, Coffee, etc.,” where we discuss finer tea books, tea houses, the best teapots, and the like.

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