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Tea Supply Chain

What is the supply chain?

Supply chain is like nature; it is all around us.

A supply chain refers to the sequence of processes involved in producing and distributing a commodity. ​​A critical outcome of the supply chain is to deliver profits; the supply chain’s role in business is to bring products to market effectively.

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What is the supply chain for tea?

Overview of the Tea Supply Chain

The following tea supply chain diagram demonstrates a simplified supply chain.

For tea, the supply chain includes actors such as producers, processors, auctions and wholesalers, packers, distributors, and retailers.

Tea producers may take the form of smallholder farms or large tea estates; the proportion of small to large tea producers differs within different tea-producing countries. The main tea-producing countries are China, India, Kenya, and Sri Lanka; together, these nations greatly influence the global tea market.

Tea processing is carried out in tea factories. Large tea estates often have a processing plant or are situated near a tea factory, while smallholder tea farmers may need to travel to sell their tea.

Tea auctions facilitate trade between producers and buyers; 70% of tea produced is sold at auction. Brokers communicate specific information about the tea (e.g., quality), which influences the price of tea sold at action.

Product intermediaries purchase tea through brokers. Such downstream agents add value to tea (and capture higher margins for themselves) by undertaking activities such as blending, packing, and marketing tea.

Retail brands distribute processed and packaged tea to the market. Large retailers often have direct links to blenders and packers, owing to the fact that they purchase large product volumes. Smaller companies may find bringing tea to market more challenging, as they have less bargaining power than larger tea brands.

Transportation and logistics link the supply chain of the tea industry, ultimately providing customers worldwide with tea.

Short Supply Chain

A short supply chain involves a limited number of actors and close relationships between producers and consumers. Similarly, short supply chains consist of brands dropshipping tea.

“Domestic sourcing helps eliminate the supply chain complexity.”

Christopher MacNitt,

Tea Development Lead at Starbucks

Some tea producers, such as Makaibari Tea Estate, have shortened their tea supply chain by building a stronger brand and deeper customer relationships. Makabari distributes tea from their estate to national and international consumers, meeting local demand (i.e., India’s domestic tea market) and reaching the global tea market.

“We are getting more and more customers from around the world and from within West Bengal. People within West Bengal are reaching out to us, and subscribing to our teas. They are not just buying our teas but asking for delivery once a month, or once every fifteen days. We love seeing this growth in the global and local market!”

Rudra Chatterjee,

Managing Director of the Luxmi Group.

Long Supply Chain

Long supply chains involve several actors that extend the distance between producers and consumers.

Long supply chains are more characteristic of supply chains in the tea industry; several intermediaries (e.g., producers, processors, packers) may be involved, and a network of tea supply chains emerge.

The following diagram highlights actors in the global supply chain of tea.

Links in the Tea Supply Chain

The tea industry is complex and linked together by different actors in the tea supply chain. Tea’s supply chain components include growers, factories, packers, distributors, and retailers.

Growing

Tea is made from the Camellia sinensis plant; the two main varieties are Camellia sinensis var. sinensis and Camellia sinensis var. assamica.

  • Camellia sinensis var. sinensis has narrower leaves and grows at higher altitudes; cultivars of this tea varietal are often used to make white tea and green tea.
  • Camellia sinensis var. assamica is a larger leaf varietal of the tea plant that can grow at lower altitudes and warmer temperatures; it’s most often used to make black tea.

Tea plants take three years before they produce their first harvest, and some can live for hundreds of years. They can be cultivated using natural (e.g., pesticide-free) or conventional (e.g., pesticides) farming practices.

Environmental conditions (e.g., elevation) significantly affect the tea produced, resulting in a segment of the tea market that values tea terroir.

Tactics Growers Use to Respond to Market Demand

Tea growers can react to demand forces (e.g., price increases, greater consumer demand) in the tea market with short-term, mid-term, and long-term actions.

In the short term, tea growers use two tactics to increase the tea produced in response to market demand:

  1. Tea can be picked more frequently. Tea growers increase output by shortening the time between pluckings.
  2. Coarser plucking can be used (e.g., three or four leaves picked) rather than traditional plucking standards (e.g., two leaves and a bud).

Such short-term actions improve quantity at the expense of quality.

Producers can increase their tea production in the mid-term by changing pruning cycles and increasing fertilizer use.

Tea producers can also increase their production by replacing and increasing tea plants. In such cases, growers often rely on high-yielding tea varieties that can be cloned and cultivated at scale. Tea saplings must be cultivated in a nursery and then transferred into the tea garden. Once transferred from the nursery into the tea garden, a tea plant takes at least three years to produce a crop. Tea grown at a high elevation may take longer before its first harvest. Replanting is a long-term strategy.

Smallholder Farms

Smallholder farmers own a small plot of land which they use for tea production. While the landowners may grow and harvest the tea themselves, it’s also common for them to hire labourers, tea pluckers. Such pluckers are traditionally women, and they gather leaves for delivery to a tea factory.

Both smallholder farms and tea estates often face some risks in delivering their tea leaves to tea processors:

  • Regional producers may be unable to get their raw material to a tea factory for processing within five to seven hours of harvesting, so the quality of the raw material begins to degrade. In such cases, a processor may refuse to purchase the leaves harvested.
  • The plucking technique significantly influences the quality of the raw marital; factories may refuse to purchase poorly plucked leaves, leaving the farmer to absorb the incurred costs of cultivating and harvesting the tea.

“It was quite a challenge at first to get the leaf that my team needed. It took around six months of turning leaf away before the farmers began bringing in the right quality. Now, at the end of each day, the farmers arrive at the door of the tea studio with their day’s pluckings. This new situation of respect and financial reward for good leaf has resulted in a budding pride in their work that I hadn’t anticipated. They open the sack, proud to show off the beautiful quality of their leaf.”

Kevin Gascoyne,

Co-owner of Camellia Sinensis Tea House

Farmers may receive lower prices when they supply more raw material (green leaf) in an indifferent marketplace. Yet tea innovations, such as frugal engineering, empower small-scale farmers with greater quality control.

Large tea estates can leverage economies of scale through the addition and use of machinery for harvesting and processing; they also often have an on-site tea factory.

Harvesting

Tea is harvested either mechanically or by hand. In some countries (e.g., Japan), high labour costs result in a high reliance on mechanical harvesting. In other countries (e.g., India), low labour costs allow much of the tea to be harvested by hand.

Tea processing begins shortly after plucking. Tea leaves must be delivered to a factory within 5 to 7 hours after harvesting to prevent loss of quality. This necessitates a close relationship between production and processing, a significant pressure that incentivizes brands to build their supply chain throughout the tea vertical.

“All men can see the tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved”

Will Battle,

Managing Director of Fine Tea Merchants Ltd

Processing

Tea processors have the appropriate equipment to turn green leaf, the raw material, into tea.

Some tea processors are growers with the necessary equipment. In other cases, tea processing can be a collective effort (e.g., co-ops) between multiple actors, a business entity in itself, or a process controlled by a single brand that has stretched itself across the tea vertical.

At the tea factory, the tea leaves go through tea production, producing "made tea," which can be brewed or blended. Most large tea plantations have their processing units on site. By contrast, small growers need to sell their green leaf to independent Bought Leaf Factories (BLFs) or nearby estate factories.

Made tea is sold through auctions and international traders, ending at the tea blenders, retailers, and eventually the consumer.

Tea processing involves seven basic steps:

  1. Withering: withering, or wilting, reduces the moisture content of tea leaves by up to 80%.
  2. Bruising: bruising increases the oxidation of the tea leaves. Processors can toss, roll, crush, tear, and curl the leaves to achieve leaf oxidization.
  3. Fixation: fixation stops oxidation at the desired level by applying heat. Tea leaves are steamed, baked, or fired in a pan.
  4. Shaping: shaping or rolling, involves crafting the tea into its final form; tea is often shaped into balls, pellets, cakes, or flattened spears.
  5. Drying: drying finishes the tea for sale, and can be done in several ways (e.g., panning, sunning, baking).
  6. Ageing: some teas (e.g., pu'er tea) benefit from ageing, which can be artificial or natural. For example, raw pu'er tea ferments naturally with the passage of time, while ripe pu'er is artificially aged with wet piling.
  7. Sorting: tea sorting can remove physical impurities, such as stems and seeds.

Roughly five pounds of raw leaf are required to produce one pound of dried tea. The input to output ratio of the raw material to the finished product (5:1) necessitates that tea factories sell made tea at a higher price per pound. Tea processors must also sell made tea at a price that allows them to cover other production costs.

Production Costs Incurred By Tea Factories

  • cost of purchasing tea leaves
  • cost of delivering green leaves to the factory
  • factory worker wages
  • power and utilities incurred for processing the leaf
  • packing materials for shipment
  • certifications required for operating the factory

Grading

Tea leaf grading evaluates the quality and condition of the tea leaves. Pekoe tea grades are determined by how many adjacent young leaves (e.g., none, one, two) were picked with the leaf bud. "Flowery orange pekoe" is the highest grade of Western and South Asian teas; it consists of only the leaf bud. The lowest grade is "fannings" or "dust".

Tea market segmentation means customers can purchase tea products at different quality grades, ensuring consumers purchasing at different price points have access to tea.

Blending

Tea blending is the blending of different teas and herbal ingredients to produce a final product. Herbal ingredients can include fruits (e.g., orange peel), flowers (e.g., rose), essential oils (e.g., bergamot), roots (e.g., ginger), and barks (e.g., cinnamon). Common tea blends include Earl Grey, English Breakfast, Genmaicha, and Irish Breakfast.

Packaging

There are several types of tea packaging, and all forms of the packaging must ultimately meet three goals:

  1. protect product quality
  2. increase the tea product’s perceived value
  3. communicate key product information (e.g., ingredients)

Transportation

Transportation and logistics connect each link in the global tea supply chain.

The transportation of tea relies heavily on shipping, yet other means of transportation, such as vehicles, trains, and airplanes are also used.

Shipping represents about 80% of global trade; it’s an efficient means of transporting large quantities of goods over long distances. Tea is shipped from producing countries (e.g., China, Kenya) to consuming countries (e.g. Morocco, Russia, UK) in standard shipping containers.

Such containers must be watertight, uncontaminated, and stowed below the deck to prevent exposure. Exposure to water (e.g., rain, seawater), aromas, and the elements (e.g., high humidity, excessively hot or cold temperatures) during shipping can damage the product.

Tea logistics brings goods to end customers. Tea is transported by truck and train throughout countries for domestic consumption. Some tea is transported from tea-producing countries to consuming countries by air; products flown into these markets have a higher retail price, and quality is perceived as perishable (e.g., quality degrades with time).

For example, the tea supply chain in India uses a combination of tea transportation:

  • first flush Darjeeling tea is air frightened into tea consuming markets
  • India’s high domestic demand for CTC tea places a heavy reliance on transporting tea by train and truck

Retailer

A tea retailer sells goods to the public in relatively small quantities for consumption. Tea retailers have a presence (e.g., bricks and mortar, online) whereby they bring their products to market. Tea retailers may be part of a large conglomerate (e.g., Tata Global Beverages), a specialized chain (e.g., DavidsTea), cafes (e.g. tea rooms), or independent businesses.

The Journey From Leaf to Cup

Here is the general process of how tea goes from leaf to cup.

  1. Tea is cultivated and harvested by the growers
  2. Tea is then sent for processing at a tea factory, which can be in the tea garden or elsewhere. The tea factory processes the green leaves into a finished product, “made tea”. The methods of tea production differ based on the type of tea being made (e.g., white, green, yellow, oolong, black, or dark).
  3. After the tea is processed it’s sold to exporters or directly to retailers. Exporters sell the tea to various actors in the tea industry, such as blenders, packers, or retailers.
  4. Blenders then combine tea with other ingredients (e.g., flowers, fruit) to create infusions with a desired flavour, appearance and aroma. Such tea blends are then packaged and shipped to various destinations, typically in bulk.
  5. Retailers package tea for distribution to consumers. Tea packaging, marketing and fulfilment are added forms of value retailers provide to tea consumers.

Supply Chain Management of Tea

Supply chain management in the tea industry involves six steps: planning, sourcing, storage and packing, delivery and logistics, optimising, and returns.

    1. Planning: involves organizing and managing resources required to meet customer demand for a tea company’s product line.
    2. Sourcing: choose suppliers to provide the goods (e.g., tea blends, teapots) your tea company needs. Key components of sourcing involve ordering, receiving, managing inventory, and authorizing supplier payments.
    3. Storage and Packaging: tea suppliers often provide items in bulk (e.g., pellets, large bags). Retailers may need to pack these items into smaller containers (e.g., loose leaf tea tins) and store some inventory.
    4. Delivery and logistics: coordinate orders and schedule deliveries, dispatch products, invoice customers, and receive payments.
    5. Optimizing: determine metrics to measure whether the supply chain is efficient, effective, and delivers value to customers. Tea supply chain management must adjust to meet company goals.
    6. Returns: create a process for receiving back defective or unwanted products.

These six various stages of supply chain management allow tea companies to profitably bring their products to market.

The Evolving Tea Supply Chain

Sustainability: Demonstrating Virtue

Sustainability, avoiding the depletion of natural resources to maintain an ecological balance, is a topic of growing interest.

Some large conglomerates stand for sustainability. The entire Unilever tea supply chain is sustainable, and the supply chain of Lipton tea has transformed. Today, all Unilever’s tea products are Rainforest Alliance certified, and the Lipton tea supply chain meets many sustainability demands.

Sustainable tea production involves considering a triple bottom line - people, planet, and profits.

Sustainable tea brands may take a stand to protect the people who are vulnerable to exploitation in the tea industry. Such actions may involve taking a stance against exploitative labor practices (e.g., modern slavery statement), or proving the integrity of their brand's actions (e.g., Fairtrade, B Corp).

Similarly, tea companies may differentiate their brand’s products in the market with environmentally friendly actions. Such actions may involve becoming carbon neutral (e.g., Adango) or proving their products are environmentally conscious (e.g., Rainforest Alliance).

Tea companies that seek to demonstrate environmental consideration may choose to invest in developing the best sustainable tea packaging, which can become a point of differentiation in marketing tea.

Other tea companies may demonstrate that the brand's profits are in the interest of the globe (e.g., 1% for the planet).

Supplier Transparency: Showcasing Tea’s Origin

A growing consensus believes that supply chain transparency may become the accepted norm of the global tea industry.

Some major tea brands (e.g., Tetley, Twinings) publish a list of their suppliers, strengthening brand reputation.

Some specialty tea providers go so far as to voluntarily showcase details of the tea’s origin on their product pages. O5 Rare Tea, for example, showcases the region of origin, elevation, longitude and latitude, elevation, garden manager, and cultivar on their product page.

Technology is making a tea's origin more transparent through artificial intelligence.

Artificial intelligence (AI) develops computer systems to perform tasks normally requiring human intelligence, such as visual perception, speech recognition, and decision-making.

AI can be trained to identify the tea's origin and group classification (e.g. varietal, clonal tea, processing method), with a 95% accuracy rate. As tea industry trends, such as AI, continue to shape the tea industry, brands and consumers will have access to greater product information, creating win-win dynamics for growers, retailers, and consumers.

Growers can command greater price premiums by demonstrating product quality and heritage. Retailers gain a reliable tea supply, and consumers benefit with greater product integrity. Fraud, misinformation, and uncertainty are reduced for the consumer, lowering their barriers for purchasing.

Blockchain Technology: Product Traceability

Blockchain is a shared, unchangeable ledger facilitating transaction recording, and tracking assets in a business network.

Blockchain technology (BCT) has the potential to impact and benefit the tea supply chain, particularly in transparency and reliability. Blockchain technology may lead to more sustainable supply chain performance, and encourage compliance in the tea sector. Shared access to information potentially reduces product fraud and transfer data errors.

When blockchain is applied to the supply chain it provides all parties, within the supply chain, access to the same information. Supply chain members such as auction buyers, customs agents, food safety inspectors, importer test labs, retailers, and even consumers can access information about a tea’s provenance.

Researchers Tripti Paul, Sandeep Mondal, Nazrul Islam, and Sandip Rakshit developed a conceptual model of a tea supply chain rooted in blockchain technology. This blockchain tea supply chain is depicted below:

Implementation of such traceability is complex, yet it meets the demands of a segment of the tea market - highly engaged consumers - who demand product information as a mark of quality.

“If tea companies aren't traceable, I don't think they will exist in the next decade, which is why we're using blockchain for some of our tea.”

Nishchal Banskota,

Founder of Nepal Tea Collective

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