Drink Magazine

Observations on Valuation of Tea: Economics and Tea

By Dchew78

Whether a tea is ‘good’ or not often depends on how much it cost. If I’m paying $5 per 50g, my expectations will be markedly different from if I’m paying $50 for example. So while we often discuss quality tea, it bears mentioning whether the tea is worth the price.

As a retailer, it would be pointless for me to use actual prices since there is a perceived lack of independence but in this discussion, we can look at the price of tea relative to others. This would also provide a ‘hedge’ against inflation.

Naturally by the time you read this, circumstances may have altered radically in the dynamic tea market, rendering part of it irrelevant.

For example, until the past 5 years or so, black tea has never made its way into ‘premium tea’ discussions apart from a smattering of Dian Hongs and Qimens. A recent fad has rendered several black tea varieties sprouting up that are more than just the ‘export grade’ black teas. Coupled with a fall in prices of Tieguanyin, some varieties of black tea using cultivars traditionally used for Tieguanyin or Huang Jin Gui have been used for some interesting black teas such as Guanyin Hong as well as Dancong leaves used for black tea. This would have been unheard of about a decade ago.

Nevertheless if we approach valuation from simple economics the principle should remain though the application might vary.

Economics 101- Supply and Demand

Price is a function of supply and demand. That’s the first thing we ever learnt in economic class and one of the least disputed theories.

So let us look at some supply side factors:

Supply factors in determining tea pricing

Picking requirements

All else being equal, buds are lighter than buds to 1 leaf, 2 leaves and 3 leaves ratios respectively. Hence, for the same amount of work in picking and processing, you end up with a lesser quantity to sell if the tea in question is made up of pure buds.

That’s why teas like Bi Luo Chun, Jin Jun Mei, Mengding Ganlu can command a higher price. (Of course other factors come into play)

The most classic example is white tea, all 3 types can theoretically be made from the same bush but Silver Needles are made from buds only, White Peony mainly 1 bud to 2 leaf and Shou Mei is made from whatever is left over.

Hence in general, the price of Silver Needles is approximately twice or more of White Peony.

Elevation

Observations on Valuation of Tea: Economics and TeaAll else being equal, teas produced at higher elevations would cause more because if nothing else, it represents a greater distance to transport workers and tea leaves. Naturally this is oversimplifying matters, especially in China where other factors come in place such as the fame of the tea and so forth but the Taiwanese High Mountain Teas provide a perfect case study for this.

In the past 2 decades, the High Mountain obsession in Taiwan led to many of the mountains being developed as tea harvesting grounds.

With many of these mountains employing largely the same production technique and predominantly growing the Qingxin Cultivar, the difference in taste and value comes down to elevation.

Among the more popular High Mountain teas, generally the trend in pricing is Alishan < Shan Lin Xi < Lishan < Dayuling which is more or less reflective of the height of their peaks.

Naturally there is no guarantee that a ‘Lishan’ is necessarily grown at a higher elevation than a ‘Alishan’- technically a Lishan grown on the foot of the said mountain can be called a Lishan- but if we are comparing teas from the same retailer or producer, it would make more sense for their offerings to reflect the difference in height.

Cultivar

Since we are approaching this from a supply perspective let’s focus on the yields of the cultivar. For example, a tree grown from the Benshan cultivar typically can produce as much as 25% more than an equivalent tree grown from the Tieguanyin cultivar.

The Benshan cultivar is hardier than the Tieguanyin and by nature yields a larger harvest, hence from this perspective alone, you would expect all else being equal, a Tieguanyin would be more expensive than a Benshan.

Labor

Observations on Valuation of Tea: Economics and TeaMore precisely, it refers to the labor cost across different production areas. For provinces that are lesser developed such as Guizhou, labor cost is generally lower than say Guangdong or Zhejiang where the inhabitants are a train ride away from huge cities such as Guangzhou and Hangzhou or Shanghai respectively where labor opportunities are more readily available.

Hence in order to entice or retain workers in the fields, the wages bandied about must be more considerable as compared to areas like Guizhou or Sichuan.

To be continued…..

 


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