By John Snell, NMTeaB Consultancy
COVID-19 has been – by any measurement – a harrowing pandemic. It has impacted everyone in the tea industry, some parts more than others. This is a pick of some of the major impacts, but selected because collectively they illustrate that a single event can manifest itself differently, depending on where it lands.
Tea growing and production employs or provides livelihoods for more than 80 million people worldwide, so it was always going to be heavily impacted by the disease and by the measures imposed to control it. In this regard, tea was like any other labor-intensive industry, but suffered a unique and cruel blow based on timing alone.
Timing Is Everything
First reported in December of 2019 (earlier by some accounts), COVID-19 became an international event quickly, with cases in at least 20 countries by the end of January – but it took until March 11, 2020, for the World Health Organization (WHO) to call it a pandemic. This prevarication cost the industry dearly. That’s right, the announcement of the pandemic initiated aggressive containment strategies by governments that coincided with the most important quality harvest periods in several countries.
China: A Domestic Affair
In China, restrictions on the movement of people had some impact on the spring harvest but not so much because of the inability to farm, as the belief that domestic sales would take a beating. Indeed, this was the case, highlighted by the loss of the lunar New Year trade, when usually three billion trips are made in China over a four week period and gifting, including that of tea, is prevalent.
From an export standpoint, the country fared better. There were delays caused by CIQ and transport related issues, but overall, exports continued their upward trend in value, despite a slight decline in volume (1.65 percent to June).
India: The Epicentre of the COVID-19 Tea Crisis
In India, a national lockdown, prompted by the WHO announcement, coincided with and destroyed the first flush harvests of both Darjeeling and Assam, causing ripples throughout the tea drinking world.
In Darjeeling, where many workers were returning from hospitality jobs all over India, there was fear that they would bring the virus back to the hill country and all work was stopped. The loss of the first flush is particularly devastating for a region which generates approximately 40 percent of it’s annual revenue from this event, as does Nepal and Sikkim.
In Assam too, the first flush was lost but without such a negative effect (the second flush is the “main event” in this most north-easterly of India’s production areas).
Ironically, India had started the year with a carryover of 50 million kgs and was fearing a decrease in pricing – exacerbated by the lockdown – which reduced domestic consumption by 40 million kgs in a month. However, the lockdown also halted production and, by June, North Indian production was 113 million kgs down on the previous year, bringing supply back into alignment with demand.
A Spanner in the Works: Climate Events
This balanced market could have been maintained had typhoon Amphan not ripped through the Bay of Bengal and destroyed millions of kgs of tea in Kolkata, equating to 6 weeks of domestic consumption.
From a country fearful of a huge carry over, India swung to a nation in tea deficit, of over 100 million kgs in a 12 week period. The market reacted decisively.
The monsoon season followed – the strongest in a decade – and the rains flooded Assam, where more than 3,300 villages were inundated causing the evacuation of three million people. In these instances, controlling social distancing, mask wearing and good hygiene is impossible and logically exacerbated the spread of COVID-19 in the region, which has reported more than 800 deaths to date.
East Africa: Saved from Drowning (in Tea)
On the other side of the Indian ocean, crops were very healthy and July saw Kenya surpass 300 million kgs and the market in an unsurprising slump. Despite some weather forecasts suggesting smaller crops, the correction to a slumping market came as buyers switched buying into Kenya from the, now, much more expensive Indian markets.
Sri Lanka: Repercussions of Another World
Despite a heavily enforced lockdown, from March 20, tea and paddy were exempted as “essential services.” All well and good for tea production, but workers were – without doubt – put at some risk. The impact on production was understandably insignificant.
However, with a drop in foreign exchange earnings from overseas workers and tourism, there came a need to restrict imports to balance inflation, leading to a longer term lag on material imports for servicing value added activities, including flavors, herbs and packaging materials.
Turkey: An Issue of Border Control
In Turkey (the fifth largest producer and consumer), the usual influx of workers from Georgia and Azerbaijan in May (to harvest the tea) was impossible, due to the border closure. With 40,000 fewer workers, much of the tea went unharvested. Sri Lanka was the main beneficiary of this, as imports of Ceylon tea went up.
It will be interesting to see what happens post COVID-19, as having to harvest tea themselves, the Turkish kept $100 million in the country and gave employment to many in the south of the country. This, coupled with thoughts that the quality can be improved through the training and employment of local people, make for an attractive combination and one that might be supported in years to come
Argentina: a Single Channel Issue
Currently, in the grip of very worrying numbers, there has been little impact on tea production, thanks largely to the automation of the sector that requires very few people to harvest and produce the 80 million kgs of made tea per year. What is of more concern is the cyclical nature and timing of its contracting. Usually completed by the end January, for annual requirements, Argentina had sold and was fulfilling contracts as the Pandemic struck. With more than 70 percent of Argentine tea going to the United States for iced tea – and with much of that being consumed in food service channels – any decline in restaurant traffic is bad news. This channel declined by 80 percent and has since recovered to about 50 percent of revenue; but, the unspoken consumption of tea in foodservice is the ubiquitous free refill, so when looking at this number, we must assume a higher percentage decline in tea by weight.
The knock on effect is that packers’ stocks may last for a considerable time, resulting in deferred shipments and/or reduced new season contracts for Argentina and for other iced tea raw material countries.
Silver Lining to COVID Clouds
Not all is doom and gloom, and it is right to focus on the bright spots in such circumstances. One such “silver lining” in Assam is that of the smallholder sector. From being on the verge of collapse, based on 12Rs/kg pricing for their green leaf, the requirement to lightly prune their unplucked bushes (post first flush) meant that their second flush leaf was supple, good quality, and this – coupled with an imbalanced market – saw their returns rebound to a healthy 40 to 50Rs/kg. We can only hope that this “forced” prune has sown a few seeds for the future; a return to the two-year prune cycle from three and four years would elevate quality at the expense of some crop – just what the market doctor ordered!
E-Auctions: a Springboard for Further Digitization
They say that the mother of invention is necessity and, in this case, COVID-19 was the prod required to move tea auctions to e-platforms, based on the inability to meet in person. I will personally miss the dynamics of a good auction, but it will free-up time and allow anyone to buy from anywhere and, ultimately, enable the digitization of the supply chain, which is happening elsewhere.
COVID-9: Time for Tea
We have all enjoyed watching tea find its place in the homes of all COVID-19 constrained households, as tea really is in its element when faced with a need for comfort and health, let alone the more obvious attributes of flavor and variety. Within the repertoire from that magical camellia, no type other than green should be able to take advantage so easily, and so it is that we see several data points supporting the rise in reaction to a heightened need state.
The Prognosis for Tea in the Near to Mid-Term:
The likelihood is for some short-term pain with respect to logistics – time to market and costs. There should be no significant long-term effect on supply.
COVID-19 is a devastating virus that has killed many people, but we will find a vaccine for it and soon (perhaps 12 to 18 months), but climate change is here to stay. The timing of this event made it appropriate to talk about COVID-19 as the problem, but each situation has been exacerbated by weather, floods in India, drought and floods in China, and an un-seasonally wet monsoon. This phenomenon will be here long after COVID is passed, and we must attend to it in every aspect of our business today.
John Snell, NMTeaB Consultancy, has spent more than 30 years in the tea industry, working with everyone from global brand leaders (Tetley) to global traders (Van Rees) and private label packers (Keith Spicers Ltd, UK, and Mother Parkers Tea and Coffee Inc.). His day job is a tea and herbal buyer, blender and product developer for one of North America’s most advanced private label companies, serving a who’s who of retail and foodservice clients. Snell has spent the last 24 years in North America, where he has been an active member of the trade, sitting on the board of the Tea Association of the USA and as a regular speaker at the North American Tea Conferences. He sits on the Canadian Tea Association’s grading panel and is a contributor to trade publications. If you ask him what “floats his boat” (a relevant analogy given his earlier days in the Royal Navy), it is always about empowering others to arrive at responsibly derived beverage solutions that deliver outstanding results for the companies he works for. He is clear that sustainably sourced and produced products are more profitable. To learn more, visit nmteab.com.
By John Snell, NMTeaB Consultancy