Apr 29, 2011

a few guesses about 2011-2012 prices of tea

Recently I've had discussions with a few friends about prices of tea. There are concerns about market hype, investment speculation and increasing labor costs. Will these factors affect tea prices? Here are some of my thoughts.

My guesses are about the source prices of high quality tea in China. International market prices are only remotely, if at all, correlated to source prices. But eventually, I believe modern information technology will make prices more transparent at every level of the trade chain, as discussed in a previous blog post about the newly developed price index of tea.

The following discussion doesn't include those $10k per pound auction teas, as you and I are not likely to ever put our hands on them :-p

Will Long Jing price soar?
I don't think so. How much higher can it go? There is not much space for price to further rise, as the current price is already high. Long Jing is a tea that has been having the market hype - and therefore inflated price - in the past a few hundred years. The consumers can just take that much. In small, elite auctions, the price could increase like there is no tomorrow. But that doesn't reflect market price. If the market price were to further increase, who would take it? Even the expensive, vanity brands of Long Jing need to find a balance between their prices and market sizes.

(However, inflated price is not the worst thing. There are teas that can't be easily bought with money. Although I have managed to get a little bit of both, I have to admit it was by far easier to get authentic Long Jing than authentic Tai Ping Hou Kui made with traditional processing method.) 

Will puerh price be bid up?
Not much, I guess. It has been investigated and reported by mainstream media in China that hot money has entered puerh market. It's true that tea of some famous puerh villages has been bid up even more crazily than in 2007. Prices of some big factory products have increased a lot too. But luckily Yunnan is a big province. Besides, after years of development of puerh industry, the few big factories and expensive companies are no longer the only sources of good puerh. People who are after specific village products or specific brands may have to pay higher prices. But I don't think the average market prices will change dramatically.

I am also optimistic about prices of aged sheng. I personally find some dry-aged sheng over 10 years very enjoyable. (I've seen people talking about dry-aged sheng must be older than a few decades to be drinkable, and maybe their taste preference is different from mine.) In future years, I expect to see more aged sheng coming out of Yunnan, where storage costs are much lower than Taiwan, Hong Kong or Guangzhou. 

Besides, according to export reports, Malaysia has imported puerh at the scale of thousands of tons annually since 2005. Most of these products have been stored away in modernly equipped mega-warehouses with strictly monitored humidity. Maybe in several years, there will be abundant supply of Malaysia-aged puerh. Abundance will lead to reasonable price - I think so, optimistically. 

Will price of Yan Cha be bid up?
It will, to some degree, I believe. It has been investigated and reported by mainstream media in China that hot money has entered Yan Cha market too. Wuyi is a relatively small region, and therefore tea prices are more likely to be impacted by the speculation. 

I think it's very unfortunate that puerh, Da Hong Pao and some other teas have become targets of investment speculation. This can potentially harm the entire tea industry. But possibly, when things cool down, inferior producers will be weeded out (possibly with some good producers being sacrificed too), and some good producers will be left more development space.  

Labor cost is another factor that contributes to price raise. In Fujian and a few other relatively developed provinces of China, increasing labor costs have been, and will be, affecting tea prices to certain degree. But then, I am trying to be optimistic again - increased production costs and leaf material costs will eventually let producers with high quality and reasonable price stand out. The market may become more ordered (or less disordered) after it calms down.

Unlike price increase caused by speculation, price raises caused by increased labor costs usually promote the income of farmers and first-hand producers, and therefore will contribute to promoting the quality of tea products. 

If the prices increase too much and don't drop down soon, I guess we can always consider drinking more Shui Xian and less of other varieties with more inflated prices :-D

Overall, I wouldn't worry much about fluctuation of prices. Whether you are a fan of green tea, oolong, puerh or other tea genres, there are so many choices within each given tea category, and no need to stay attached to the most expensive ones. If the price of a tea is inflated too much to be bearable, stay away from it and drink other teas. Chances are, its price will eventually come down.

1 comment:

Chris said...

Regarding Wuyi mountain Da Hong Pao, I think the price may stay fairly stable this year. The factors you've mentioned push it up, but there are other reversing factors. Firstly, consider that most of the 'hype' and inflation of prices has been for another type of Wuyi tea (Jin Jun Mei) which has been THE gift to give this year, and consequently prices are stupidly high. It's not really been the case for Da Hong Pao.

Also, last year saw massive floods in the Wuyi Shan area which ruined a fair amount of low-altitude (and lower price) Da Hong Pao teas. This year, harvests are roughly back to normal, quality is good and quantity is good.