Cost increases in Global tea production and sharp rises in import prices.

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1 Newsletter 06/2012 A report from sustainable fairbiotea projects: Cost increases in Global tea production and sharp rises in import prices. The more expensive production costs and cost increase in distribution channels are not only in the tea sector. All agricultural products are affected by cost increase. More and more young farmers in the developing countries leave their homes and their fields to find a better life and more income in the factories of the big cities. Fewer and fewer young farmers are available to maintain the agricultural land and to manage them. Some of these farmers can be replaced by seasonal workers, but without higher payment it is not possible to find enough seasonal workers and take over the hard work. The seasonal workers rarely have the necessary know-how that was passed down through generations in farming families. The older farmers are not as productive anymore as they used to be in their younger days. If there are not enough skilled workers available, it will reduce crop yields, increase costs and reduce the quality -especially in organic farming. Urgent modernization methods that could save labor and reduce the working hours and labor cost are not implemented sufficiently, because the low income does not allow these investments. Globalization has brought more income and wealth to many people. Especially in China and India, but also in many other countries, partly great wealth and a new, wealthy and growing middle class have emerged. The vast majority of the population in the country remained poor or became poorer. With increasing global prosperity and a higher consumption, food products became more expansive due to the higher demands, none more so than for the rural poor. The prices of food and basic supplies are rising much faster than the incomes of farmers. The result is renewed exodus. Newsletter 06/ Page 1 / 5

2 If at a dramatically increasing world population, fewer and fewer farmers are able to feed their families from the farm income, and therefore give up the farm work to find better payment somewhere else. It will be certainly more difficult in future to secure the global supply of these goods. Why is sustainable thinking and action in the EU market not enforceable? Why can t we pay product prices, which would be sufficient to persuade the farmers to stay in their homes and have a decent payment? This question must be faced by all market participants, because only if all are willing to pay for sustainable development, sustainability is possible. The world s rapid economic development, organic farming, certification systems, training, quality improvement, social development, fair trade and fair prices, sustainability and so on cannot be gained by requesting for the lowest price. Even though this might be the attempt of many market participants in the West and therefore block sustainable development by their conduct. This development is expensive and increasingly so. If the market does not contribute the costs of sustainable development, there will be no truly sustainable products. The new Tea season in fairbiotea projects in China has begun and the purchase contracts for the upcoming crop tea, at guaranteed prices, was launched this time under very difficult conditions to completion. Production costs have increased and organic sustainable development costs additionally, but it seems that the European consumers are not willing to pay for these additional costs and may not have enough understanding for the situation. Therefore we want to publish the reasons for cost increases in China. The cost increases for the Fairbiotea development and quality management in Europe, funded by the importer, have not been considered here. Transport costs: in 40ft container, about 16000kg average per container. From the tea farm the tea is being transported by truck to the port of loading and from there being shipped to Bremen. These costs have increased by 50% within 12 months: 0,10 Euro per kg. Newsletter 06/ Page 2 / 5

3 Production costs: The cost increase for machine production, including packaging materials and energy costs for green tea is 0,22 Euro per kg. In the following cost increases production costs for farmers and workers are included: The salaries of factory workers with permanent contracts increased by 12%. The daily wages for seasonal workers increased by 7%. In order to keep young farmers in the tea farm and encourage them for extra work in organic farming an extra bonus pays 10%. Certification, organic agriculture, internal training and management: The increased costs for certification, laboratory (pesticides control), organic fertilizers, manual weeding, agricultural management, etc. 0,22 Euro per kg. Newsletter 06/ Page 3 / 5

4 Compost manufacturing and research: This creates new costs (from the end of 2011). In 2012, production will be greatly increased. There are expected cost of 25,000 per year. Possible additional costs for machines for compost production are not taken into account, approx. 0,05 Euro per kg HACCP certification: In 2012, new costs due to certification will be created and must be included in the calculation. The HACCP system is well suited to detect weak points in production and to develop appropriate procedures for organic production. Approx. 0,02 Euro per kg. Exchange Rates EUR/CNY: Beginning of May 2011 = 1 EUR = 9,50 CNY May, 29 th 2012 = 1 Euro = 7,92 CNY (CNY = Chinese Yuan = Chinese Currency). Should this rate remain unchanged between June 2012 and June 2013 remain unchanged, this means an average price increase of approximately 0,75 Euro per kg. If the euro continues to lose value in the future, the price of tea in imports to the EU in the current season, between August 2012 and June 2013 will continue to increase despite agreed Purchase contracts. Should Euro increases in value it will reduces the price increase. Based on the current exchange rate (1 Euro = 7.92 CNY) and the average Import price of tea from China means an average increase of Import prices for Chinese organic tea from around 37 percent compared to the previous year s price. Similar price increases have been recorded in all other tea producing countries. The causes are similar. We hope that during the season 2012 the Euro will strengthens again, so the cost increases do not have to be passed on in full. Newsletter 06/ Page 4 / 5

5 General information about China from the web (german): erneuerbare_energien_china_investiert_27_mrd_usd_allein_in_diesem_jahr_id97958.html Newsletter 06/ Page 5 / 5