Tea businesses need restructuring to add value

The Government should build corporations with financial resources to help the domestic tea industry add value, branding and sales, said Chairman of Vietnam Tea Association Nguyen Huu Tai.

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An ethnic minority woman harvests tea in the northern province of Thai Nguyen, which is a tea hub of Vietnam. (Photo: VNA)
Tea is one of the agricultural commodities greatly affected by the COVID-19 pandemic. In the first five months of this year, tea exports reached about 46,000 tonnes, worth about US$72 million, down more than 10% in value compared to the same period in 2019.

Tai said traditional markets of Vietnam such as Taiwan (China), Pakistan and Russia were closed. In other markets, businesses could not sign new contracts, while previously signed contracts now would require deep discounts, delays to delivery times or had been cancelled.

“The global COVID-19 pandemic has put many domestic tea producers in a tough situation as they have to choose between restructuring or leaving the industry,” Tai said.

According to the prediction of the East Africa Tea Trade Association, world tea prices will fall in the near future, while restrictions on shipping of goods will reduce demand for tea in many countries. This will cause difficulties for the export of Vietnamese tea.

Long Dinh Joint Stock Company in the Central Highland province of Lam Dong has 50 hectares of high-quality tea certified for export. Each year, more than 90% of the company's products are exported to Taiwan as raw materials at low prices.

But Tran Phuong Uyen, the company’s Deputy Director, told nhipcaudautu.vn that the company’s export volume of raw tea decreased by 30% in March compared to previous months.

“To make a change, we are stepping up the restructuring of markets, targeting more premium products through the production of organic tea (True Organic) for domestic consumption,” Uyen said.

She said the company had so far sold three tonnes of finished organic tea. It currently suffers losses but still maintains its product prices so that consumers gradually get used to organic products.

About 90% of domestic tea consumption comes from small establishments with unstable quality. Vietnamese tea businesses have created brands, such as Cozy, Phuc Long, Cau Tre, Cau Dat and Vinatea. Although there have been many more attractive product lines, Vietnamese tea businesses are still struggling to find ways to bring products to consumers.

Chairman Tai said the Government’s policies have only focused on tea production development rather than consumption, so many producers have sold raw tea to businesses, and are not interested in selling directly to customers.

“Meanwhile, it is not easy for Vietnamese businesses because the cost to open a tea distribution network is three times higher than that of a production factory,” Tai said.

Tea production in Vietnam has returned to normal, so output will not be affected by the pandemic. The major tea exporting countries such as India, Kenya and Sri Lanka are still in the stage of disease control, so their harvesting and cultivation activities are restricted, affecting tea production.

Insiders have said that the coronavirus pandemic is an opportunity for many tea companies to change and improve product value instead of chasing output. Most Vietnamese tea has been exported as raw materials, which are then processed and packaged for consumption in the local market or exported to a third country. Vietnamese tea only accounts for about 5-20% of the finished product value, while brands usually account for 40-60%. This is why Vietnam is among the countries with the lowest tea export prices in the world.

Domestic enterprises need to focus on investment in improving quality, raising export prices, and especially increasing price for tea growers to help them improve living standards.

VNA

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