Argentine Tea Growers Challenged by Market Complexities

January 8, 2020 No Comments Data ctma

MISIONES, Argentina

Argentina, one of the world’s top tea exporters and a primary supplier of black tea for U.S. consumption, is experiencing a troublesome harvest now well underway. In 2018, Argentina was the largest supplier of tea by volume to the United States.

During the first eleven months of the year imports to the U.S. from Sri Lanka grew 22% by volume and 12% in value; imports from India increased 10% in value and tea imported for consumption from Canada increased 32% in volume to 2.4 million kilograms. During these months black tea volume from Argentina declined by 11% to 41 million kilograms. Year-to-date the percentage of Argentine black tea decreased to 36.7% of all black tea imports, according to statistics compiled by the USDA Foreign Agricultural Service (FAS).

The value of tea imports from Argentina declined 12% to average $1.33 per kilogram, a trend dating to 2014 when the average value of imported Argentine teas was $1.71 per kilogram, according to USDA’s Foreign Agriculture Service data. The U.S. imported $54.7 million through November compared to $62.4 million through November 2018.

In 2018, Argentina was the largest supplier of tea by volume to the United States at 49 million kilograms, down from 55 million kilograms in 2015, 53 million kilograms in 2016 and 52 million kilograms in 2017.

Black tea imports from Argentina declined during the first ten months of the year.

Since the 1960s Argentine growers have produced CTC (cut, tear, curl) black tea grades used to make iced tea for the U.S. market. The U.S. consumes about 98% of Argentina’s production. Argentina’s tea industry retains significant capacity, but domestic consumption is low. As the average export price per kilogram has declined many growers have abandoned tea. Multinationals operating in Argentina, including James Finlays, are no better situated than cooperatives, some of which represent hundreds of smallholders. Finlays, which acquired Casa Fuentes SACIFI, Argentina’s largest tea estate in 2014, has since cut staff. The estate operates five processing plants with annual output of 27 million kilograms of which 90% is exported.

Like most of the world’s top producing countries, Argentina is experiencing a highly competitive export market awash in tea at prices at or below the cost of production. However, Argentina is at a greater disadvantage than China, India, Japan, Kenya or Sri Lanka. Since the Falklands War closed the UK to trade, virtually all the tea grown there is produced for North American consumers drinking iced tea blends in tea bags and ready-to-drink teas.

José Luis Garay, Argentina’s Minister of Agriculture and Production, explained the current situation reduces competitiveness of the nation’s “tealera” (supply chain) “making our tea more difficult to place in certain markets.”

“In addition, we produce a lot of tea, but we consume little in the country. While in Chile one kilogram of tea is consumed per inhabitant per year, in Argentina only 160 grams (per inhabitant per year) are consumed,” said Garay. “That implies that only 2% of the crop is destined to serve the domestic market,” he told Bichos de Campo.

A review of the FAS Global Agricultural Trade System (GATS) data shows five-year declines in both volume and value. During the first ten months of the year imports for consumption in the U.S. declined to $55 million, compared to the same period in 2018. In 2015 imports were valued at $85 million. Volume for U.S. consumption has since declined by more than 6 million kilograms annually.

Last year the U.S. purchased $71 million of the $90.5 million of Argentina’s tea exports ($69.7 of the $71 million was consumed domestically, and the remainder re-exported as blended tea). This represents a sharp decline of 20.5% since 2014.

Globally Argentina ranks No. 16 on the list of top tea exporting countries, accounting for 1.2% of global production in 2018. The nine tea producing countries on the South American continent, including the nations of the Caribbean, export 1.3% of the world’s tea.

Argentina’s tealera exports about the same amount of teas as Malawi (ranked No. 15 at $91.5 million) and is ahead of Uganda which exported $88.8 million worth of tea in 2018 according to The World’s Top Exports which draws its data from the U.S. Government, the United Nations and FAO and the International Trade Center.

Tea Imported from Argentina to U.S.

Complex Crisis

Argentina’s Tea Regions (Image by Dan Bolton)

Misiones and adjacent Corrientes are hilly landlocked provinces, located about 1,000 kilometers north of Buenos Aires. The Misiones plateau is bordered by Paraguay and Brazil to the north, east and south and is home to one million people, many of whom are indigenous.

Roberto Swier, manager of the Picada Libertad cooperative, in Misiones province, Argentina’s primary tea-growing region, explained that weather conditions, while not ideal, are the least of the industry’s worries.

In an email to World Tea News, Swier wrote, “The situation of tea in Argentina is very complicated, I think it is the worst crisis since I can remember.”

“Our peso devalued strongly against the dollar, but contrary to what was expected due to government-imposed export taxes,” he said.

“There is a lot of tea and few sales. Prices fell and the small and medium producers are disappearing. It is estimated that of the initial 8,000 producers only 4,000 remain,” Swier explained. “Each year there are less and less. More than 4,000 hectares of tea is abandoned by small producers or eradicated.”

“As you can see, everything is very bad and we have a hard time associating to develop new ideas and look for new markets,” he wrote.

To compete, growers have enlarged their estates and certified much of their crop as sustainable. Half of the tea grown in Argentina is third-party certified by organizations that advocate conservation and the reduction of pesticides, herbicides and heavy use of commercial fertilizer.

Halted Expansion

Eclaire Pedro Alperowicz, left, and Roberto Swier at Picada Libertad tea cooperative. (Photo courtesy of Roberto Swier)

London-based James Finlays in 2014 purchased Argentina’s largest tea estate company. The estate grows tea on 2,000 hectares and operates five factories where they process, grade, blend, and pack 27 million kilograms of black tea, mainly to North America where Finlays has offices and research facilities in Rhode Island.

Casa Fuentes tea is all Rainforest Alliance certified, pesticide-free, and particularly well suited to the production of tea extracts for the ready-to-drink sector in the U.S. according to a company press release issued at the time of the acquisition. Finlay’s group managing director Ron Mathison said “Finlays is already a market leader in the delivery of tea and coffee extract solutions to the food and beverage business sector in the U.S. This acquisition will not only provide assurance of supply of suitable raw material, it will provide Finlays with a platform for research and development, new product development, and innovation in delivering custom specific tea blends.”

“When Finlays bought Casa Fuentes, the largest tea producing and processing company in Argentina, we thought things would balance out among the four largest multinationals. However, they closed a plant, many people were fired, and prices fell to unacceptable levels,” wrote Swier.

Finlays operates tea estates in Kenya, Sri Lanka as well, earning $545 million through December 2018, an increase of 7.8%. During a recent earnings session officials said restructuring was carried out in Argentina to reduce costs. “The resultant cost savings are expected to return Argentina to profit in 2019,” the directors said.

Transition to quality

Harvesting tea at Picada Libertad cooperative, in Misiones province, Argentina. (Photo courtesy of Picada Libertad)

Independent growers and small cooperatives like Picada Libertad are now focusing on growing better quality tea.

Cultivars suited to iced tea produce bright colors and do not cloud when chilled. These teas are ideal for mixing with fruit flavors like foodservice favorites raspberry and peach. Hot tea producers prefer highly aromatic cultivars and tea processing that maximizes taste. Argentina is a terroir in which many different cultivars thrive.

Asia Sherman, writing in Food Navigator, describes a partnership between the Solidaridad Network and S&D coffee and tea, a U.S. based supplier of foodservice beverages. More than 100 smallholder Argentine tea farmers supplying S&D are Rainforest Alliance certified, writes Sherman.

“One of the focus points for Solidaridad and its partners is to create awareness among farmers and provide support to preserve forested areas within farms as 84% of the native forest is on privately owned land. The Misiones project includes the preservation of 1,175 acres (475 hectares) of it,” ​according to Solidaridad.

Arnoldo Holzmeister, one of the tea farmers who produces sustainable tea for S&D, told Solidaridad that farmers using traditional methods of cultivation tilled annually, emphasized monoculture plantings and relied heavily on fertilizers and pesticides.

Growers now sow grass between plots to prevent erosion and retain soil additives.

“At the beginning of the certification process five years ago, Arnoldo averaged about eight tons per hectare per season,” ​said Solidaridad. “Producers who adopt good fertilization and land management plans can double those yields in five years.”

Picado Libertad employs the same best practices but Swier observes compliance is costly. High yields are not as critical as higher prices at the farm gate.

“We are required to maintain Rainforest Alliance certifications and we do it with great effort, but nobody pays the increase in costs that it means,” wrote Swier.

He applauds Solidaridad’s efforts to encourage sustainable practices. “The people of the Tea 2030 program were also around, and the conclusions are very interesting, but certification is obviously for another world. The producers of tea in this part of the world are having a bad time and the difference in profit is being left in a few large ones and especially in the marketing sector,” he wrote.

Swier explains small exporters are trying to associate to achieve volumes and consistent quality essential for export, “but the international market is very complicated, even more so because they are all selling to the United States, which is the best known and theoretically the easiest.”

“Germany is very demanding and concerned with the presence of alkaloids,” wrote Swier. Planting ground cover to hold soil can encourage undergrowth that is accidentally incorporated in the harvest. Germany then rejects the loads if they rise above acceptable minimums. The result is increased labor costs from the start,” he said.

In recent years comprehensive analyses of tea sampled in the Berlin retail market revealed unexpected high amounts of pyrrolizidine alkaloids in herbal and teas and brewed camellia sinensis. Studies later included spices and honey. Alkaloids are produced by a wide range of organisms including bacteria, fungi and plants. Alkaloids uniformly evoke a bitter taste, a few are toxic.

Clean Sustainable Tea

Argentina produces some of the cleanest tea in the world.

“Misiones has 52% of the country’s biodiversity at 30,000 square kilometers, with protected areas in almost two thirds of the provincial territory, and in that rest of the third we do productive activities developing afforestation, yerba mate and the tea, all activities that link production with our people in small plots,” said Garay.

The Ministry of Agro and Mission Production guarantees a price of $3.15 per kilogram at the dryer (processing factory) with an additional 0.30 cents from lots certified under the Good Agricultural Practices (BPA).

Prices are tied to the currency value of U.S. dollars so that variations of 5% automatically raise the price guarantee. “If the dollar undergoes a modification greater than 5%, during the period Jan. 1 to Feb 28, the base price will be updated as of March 1 and this price is in force until the end of the harvest, which is May 31,” according to Garay.

In 2016 Argentina announced a major project to implement food quality management for tea making at the five cooperatives and eight Argentine SMEs (small and medium enterprises) that make up a tea cluster that harvests about 90% of the tea grown in South America.  Last December Misiones promoted “Argentine Tea Week” both in Puerto Iguazú and in Buenos Aires.

According to Garay, the objective is to revalue the properties of tea and to promote its consumption. “People must know the benefits of missionary tea and consume it more,” he emphasized.

Garay highlighted the quality and positioning of Argentine tea in the world and added that “the great challenge we have as a government and with an important group of industrialists is to see how we operate with our product in the international market.”

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