Vietnam Tea Exports 2018: Falling Volumes, Value and Failing Commoditization

The February announcement by Vietnam’s Ministry of Industry and Trade that tea exports in 2018 dropped in both volume and value repeats the headlines of 2015, 2016, and 2017. The country, one of the major tea cultures of history, has been struggling to repair its modern record of poor quality, weak management, and lack of branding. Its prices are 60-70 percent below the world average. Exports halved in the five years before 2017. This is all bad news and not likely to improve for the commoditization strategy that has been the explicit marketing policy of the government in promoting the country’s trade in both tea and coffee. The priority was for this poor and rural economy, severely damaged by decades of war to earn badly need foreign currency, quickly, with low price its primary competitive driver. That came at the expense of quality, and differentiation. There is some good news, more potential than actual, but pointing to the path that just about every expert, policy maker, and industry analyst sees as vital: premiumization by building on the excellent local teas, especially green teas from Tan Cuong, highland oolongs that command high prices in Taiwan, and most of all the wild tree teas – shan tuyet snow mountain – from the Northwest region. Vietnam has been growing tea for thousands of years and tea drinking is embedded in its culture. The best stay there. Back to the bad news… 2018 exports were 120,000 metric tons, totaling $219 million. This was a drop of 8.4 percent in volume and 3.4 percent in value. Vietnam faces growing major challenges at its low end of a market where oversupply is estimated by the UN’s FAO (Food and Agriculture Organization) at 75,000 metric tons and forecast to grow to 128,000 in 2020. Its largest and strongest importer is Pakistan, where sales grew 15 percent in volume and value to 33,000 tons, on unit prices that held steady. Second in volume is Taiwan, 17,000 metric tons, with healthy growth but at 1.4 percent lower unit price. Exports to Russia and China dropped substantially by 17 percent and 9 percent respectively. Figures for previous years show the same patterns of eroding sales and prices. They make clear just how difficult it will be for Vietnam to compete in a commodity market. The core reason is that, as Nguyen Huu Tai, President of the Tea Association, stated in 2017,  the earnings are just not there for farmers and processors who are pushed by global competition to accept ever lower prices. The tea is almost entirely farmed by unskilled smallholder families. Analyses of cost structures do not include their own labor as a cost, meaning that the industry runs at a loss. Exports are mainly low-grade black tea in large bags, with no branding. These have a bad reputation because of a lack of certification, a history of overuse of pesticides and absence of innovation in processing, varieties, and supply chain. Mr. Tai commented that Vietnam stands no chance of becoming a player in the U.S. and global markets until it spends the time and money to reinvent its image through innovative products and a turnaround in quality. It has had neither time nor money. Returning to the good news. Vietnam’s artisan teas can compete with any in the specialty market, are grown in terroir that has unique properties, and are already familiar to and praised by experts. A few are available in the U.S., including the wild boar black teas gathered by nomadic villagers and named for the animals that roam the mountains. The Northern province of Thai Nguyen, home of the esteemed Tan Cuong has 22,000 hectares of plantations with its cooperative actively committed to “maintain the trademark of local tea bushes” and diversify them to produce new varieties. It’s a start along a missing innovation path. Sources: Viet Nam News, American Specialty Tea Alliance, Vietnam Plus