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SMALLHOLDER TEA FARMING AND VALUE CHAIN DEVELOPMENT IN CHINA
Intersessional Meeting of the Intergovernmental Group on Tea Rome, 5-6 May 2014 Cheng Fang, Economist, Trade and Markets Division, FAO Yanjiong Wang , Tea research Institute (TRI), CAAS. China Xuebian Zhang and Jieqi Huang, Ag Info Institute (AII), CAAS, China
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Acknowledgement
The presentation is based on the ongoing research project by FAO and Chinese Academy of Agricultural Science (CAAS) titled: “Study on Smallholder Market Participation and Value Chain Development in China”
Overall Research Objectives
Provide evidence based analysis on China’s experience, achievement, and constraints and challenges in market development
Analyse the determinants of smallholder market
participation
Analyse the government policies and market development with inclusive growth
Value chain analysis for selected commodities:
wheat, rice, maize, pork, mutton, beans, and tea.
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Contents of this presentation
Role of Government in China
Market Integration and Inclusive Tea Value Chain Development in China
Value Added and Farmer’s Income 2
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Overview of the Tea Production and Industry in China 1
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Overview of the Tea Production and Industry in China
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Tea Output in China China is the world’s largest tea producer No.1
Total output of tea in China in 2013 1.93 million tons
Tea output increased by 614.8% from 1978 to 2013 614.8%
27 30
54 54 56 60 59 59 59 61 67 68 68 70 75 77 84 93
103 117
126 135
148 162
175 193
0
50
100
150
200
250
Total Output of Tea in China(10,000 tons)
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Planting Areas and Yield
Tea output increase is due to: Increasing plating
areas Increasing yield
Technical improvement plays an important role in tea industry development
1048 1041 1061 1115 1089 1352
1970
2579
0
500
1000
1500
2000
2500
3000 19
78
1980
19
90
1991
19
92
1993
19
94
1995
19
96
1997
19
98
1999
20
00
2001
20
02
2003
20
04
2005
20
06
2007
20
08
2009
20
10
2011
20
12
2013
Total Planting Areas of Tea in China(1000 ha)
257.6 288.2
509.0 529.1 624.4
687.9 751.3 748.3
0.0 100.0 200.0 300.0 400.0 500.0 600.0 700.0 800.0 900.0
1978
19
80
1990
19
91
1992
19
93
1994
19
95
1996
19
97
1998
19
99
2000
20
01
2002
20
03
2004
20
05
2006
20
07
2008
20
09
2010
20
11
2012
20
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Per hectare tea output (kg/ha)
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Tea Producing Areas Main tea producing counties:
Main tea producing areas
Since 2005, China overtook India and became the world’s largest tea producer.
Four main tea planting areas in China: South China; Southwest China; South of Yangtze River; North of Yangtze River
Biggest tea planting area: Yunnan Province
Largest tea production: Fujian Province
More than 2/3 of the tea is consumed in the domestic market.
China India Kenya Sri Lanka Turkey Viet
Nam Iran Indonesia
Argentina
1700 1000 369.4 330 225 216.9 158 150.1 100
Tea production in 2012 (1,000 tons)
Source: FAOSTAT
Characteristics of Tea Growers (a) China has the largest tea growing population of about 80 million Tea production remains a small family business in China Per HH tea area in less then 0.3 ha., and in declining
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Characteristics of Tea Growers (b) Due to small in size, no equivalent power in
bargaining with companies in market Labor Intensive, low labor productivity, and high labor
cost Weak tea growing skills Different type of tea planting modes
Traditional mode– individual small farms Cooperative mode– farm cooperated Industrialization mode- tea company centered
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Value Added and Farmer’s Income 2
Value Added in Different Process along Tea VC
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Percentage of value added in different process of tea industry in China (%) based TRI
Profits in Different Process 55.1% of the surveyed companies get
the highest profit from Retail.
Highest profit process Percentage of companies (%)
Production 22.4
Wholesale 13.6
Retail 55.1
Others 4.2
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Data Source: TRI survey data
HH Net Income of Tea and Non-tea Farmers (real price in 1980) Non-Tea Farmer has 25% higher net income compared to Tea Farmer in 2010,
on average in China .
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Data Source: Calculated based on RCRE/MOA Survey Data
Gross net income
Household Operating
Local Wage Remittance
(out of county)
Land compensatory
Other
Non-Tea Farmer
6,049 2,042 951 1,853 376 826
Tea Farmer 4,821 1,585 416 2,109 96 616
NTF/TF in % 125% 129% 229% 88% 393% 134%
Income of Different Types of Tea Growers
There are huge income difference between different types of tea producers, depending on location and farm size in China
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Data Source: Social Resources Institute
Fresh leaves
Self- Processed Tea
Tourism service Annual Income
(US$)
Genuine x x x 10,362-32,383
Full-time x x 648-10,362
Part-time x 259-648
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Market Integration and inclusive value chain development in China
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Tea Value Chain in China
Tea Garden /farm
Planting Processing Distribution and Marketing
Self-built tea planting bases
Individual shops
Self-built stores
Traditional Channel
Chain Retail
Comprehensive tea companies
Consum
ers
Processing by factories in the tea garden
Wholesalers
Tea drinks processing companies
Chain retail shops
Drink Chain Shops
Drink Chain Shops
Refineries
Wholesalers
Retailers/ supermarkets
Processing by tea Companies
Deep processing by drink companies
Retailers/ supermarkets
Integration of Chinese Tea Industry in China(a)
Tea Companies Emerging Vertically Integrate the Upstream and Downstream of Tea Industry in China Significantly change the tea cultivation methods from conversional tea
garden planting to the ecological tea garden planting Quality of the fresh leaves can be improved significantly
No of Contract between Tea Growers and Tea Company in Fujian Province
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2002 2008 No of contracts 80,870 207,359
Integration of Chinese Tea Industry Chain (b)
Fast growing of tea growers to develop their own tea processing facility
Integration of tea growing and processing into one Popular for genuine tea growers in the famous tea areas Increasing grower’s market participation and income
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Selling Channels of Tea Grower in 2013
Channels
2013 (total hh 254)
No. of household percentage
①Sale on the tea markets 109 42.9%
②Sale to tea companies 36 14.2% ③Sale to local big
companies 69 27.2%
④through cooperatives 34 9.1%
⑤Sale directly 5 1.9%
other
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Data source: TRI survey data
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Role of Government and Civil Society Organization in China
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Roles of Government Legal framework Rights and interests of tea growers and workers Environment Product quality and safety
Standards and certification
Tax
Subsidy R&D and Training
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Role of Government In recent years, the government is expanding and
strengthening the tea industry to make it a pillar industry for local economy and build local capacity to alleviate poverty Support specialized tea growing communities, leading tea
townships and households Expand the area in west China Accelerate the process of standardization Build partnership between leading companies and growers Encourage growers to develop specialized economic
cooperatives
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Government Support Policies Policies by
central government provincial government local governments
Policies: Tax reduction: VAT reduction Subsidies: direct subsidies and input subsidies Financial support to tea growers and companies R&D and extension/training Support to cooperatives (mainly tax reduction
benefit) Market information
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Roles of Civil Society Organizations
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Tea Trade Association
Tea Growers Association Tea Cooperative
China’s Grassroots NGOs environmental protection, rural development or fair trade
promoting tea technologies and building brands, raising overall profitability of the industry Most cooperatives are initiated by companies, and major leaders are from companies or government, rights of tea growers in the cooperative remain to be questioned.
technical consultation, training, brand building and marketing
stabilizing distribution channels, setting price, protecting interest of tea growers
tea growers can hardly be part of decision making process
Promote local tea brands Collect and release market information Formulate and implement rules Balance local supply and sale Organize tea trade fairs Provide training in tea production, certification and
technology Offer policy recommendations to government on
behalf of companies
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Summary and Conclusions 5
Summary and Conclusions
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1. Smallholder tea production increase, but mainly by area expansion
2. Weak in producing technology and low productivity
3. Low income, but with big variations in tea grower income
5. Government support is the key for tea VC development
4. Rapid market integration upstream and downstream