Apr 29, 2010

2010 Shincha News (7) - Da Fo Long Jing Price Index

2010 Shincha News (6) is here.

News is from Xin Chang International Tea Expo. Xin Chang, the Geographic Patent production region of Da Fo Long Jing, launched its Price Index Bulletin. This is something ever new to Chinese green tea! I am both amazed and delighted by it.

The direct outcome is, prices of tea become ever most transparent to farmers, dealers, retailers and, of course, tea drinkers. There will be more confidence and less guessing in tea trades. Although the Price Index is for Da Fo Long Jing only, many tea professionals believe this will serve as an important reference index to other tea varieties. Da Fo Long Jing is one of the top ten famous teas of Zhejiang province. Zhejiang is the largest green tea province in China. And green tea has more market coverage in China than other teas. Therefore, the Price Index can be influential in various tea markets in China.

The Price Index is based on Da Fo Long Jing daily trades carried out by the 21 largest providers in Xin Chang County, computed with statistical formulas. The Price Index is computed daily, weekly, monthly, and then an annual Index will be computed based on records in May. For example, the bulletin in the photo shows wholesale prices of #43 cultivar Da Fo Long Jing of different grades on April 21, 2010.

* What does this mean to tea farmers?
- Tea farmers will know what the fair market price is. Small farmers can refer to the Price Index when they sell their tea. They may not get the best price, but they won't get lost and sell their tea for too low price to a dealer.

* What does this mean to tea dealers?
- Tea dealers will have a better idea about what is the best price they can get. When they buy large amounts from large providers, the price should be quite consistent with the Index. When they buy smaller amount, the price will be higher, but with the Index serving as a reference.

* What does this mean to retailers?
- Retailers will pay more than dealers. But they will be looking at the Index and decide how much more they are willing to pay. In addition, a current trend is more and more retailers deal with tea farmers directly, and the Index provides useful price information.

* What does this mean to consumers?
- Consumers know the product price has to include operational costs of the retailer and the dealer. But with the Price Index, consumers will know much better how much the retailer markup is. There should be some profits earned by the retailer. But if the markup is too high, then the consumers will know the retailer either stretch for too much profit or doesn't have the best supply source. And they will look for other retailers that provide more reasonable price.

* What does this mean to international retailers and consumers?
- Theoretically it helps when international buyers know about domestic market prices. For some products (such as electronics, and, maybe, puerh), this is not hard, thanks to the modern information technology. But for many tea products, when the domestic market is highly disordered, and even domestic buyers are  not sure of the "real" price, it will be even harder for international buyers to know the market. Inevitably, international buyers will have to pay markups due to shipping and other operational costs. But it helps a lot knowing what percentage of their payment comes from the cost of tea and how much everything else costs them.

The system is brand new and we have yet to see how well it works and how precise the Price Index is. But I believe this is a good start, and the application of Price Index may extend to other regions and for other teas. Most Chinese tea products are completely manufactured in hands of tea farmers. That means, all the rest of the tea trade chain, dealers, distributers and retailers, mainly provide service of trading, distributing, packaging and selling, without any value-added processing to the tea itself. Therefore the Price Index reflect key information on the cost of the tea. (- with some tea blends and flavored teas as exceptions, but tea blends are generally rare in Chinese teas, and most naturally flavoring of tea, such as Jasmine flavoring, is done by farmers or local factories.)

One Price Index can't provide a consumer everything she needs in tea shopping. Many retailers strive to offer excellent customer service, user friendly shopping system and nice service environment. All of these will be rewarded by the market. The Price Index can't possibly cover products with extremely small amount (which may not be the case in Da Fo Long Jing but possibly for some other teas). The Price Index will not likely help markets of "the most famous teas" such as Xi Hu Long Jing and Bi Luo Chun (basically they are so hot and almost nobody can predict or control their prices). But still, I believe the Price Index can be a powerful tool for both consumers and tea professionals, because in today's market, very often tea is more mysterious than what most people would love it to be, and the price index promotes the transparency of tea market.

In recent years, some tea drinkers, including me, almost miss the era of state-owned tea companies, when there was consistent standards on grading of almost every tea, when the best tea professionals in the country worked for state-owned companies, when the price was consistent across board and proportional to quality. But it's only fair to say there were also a lot of problems at that time, and top quality teas are more accessible nowadays. In all these years of market chaos, tea business is actually thriving. But now for the "tea industry" to further thrive, probably it's time to use some market tools like the Price Index to keep the trade in order.

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