Laotian Tea and Chinese Traders

The Chinese Origins of Laos’ Tea Boom

As wages have risen in China, a mass market has developed for medium and high-end teas. At the forefront of the tea boom has been Puer tea, which has proven to have considerable staying power in the Chinese market over the last two decades. Yunnan’s uniquely large quantity of “ancient” tea trees has been a key marketing point. As Chinese tea vendors became aware of Laos’ similar natural population of tea trees, it was only a matter of time before rising prices brought merchants across the border into Laos.

Despite a widespread natural population of tea trees in Laos’ forests, consumption and production was historically limited to the Northern fringes of the countries, finding a variety of traditional uses among the minority groups of Phongsaly. The French colonizers who later conquered the country were not ignorant to the presence of tea in the country. However, they predominantly imported their tea from India and China, aborting early 20th Century attempts to develop a Laotian tea industry as part of a diplomatic deal with England. Tea production in Laos laid largely dormant again until the early 2000s. 

National tea cultivation 2006 may have been as low as 545 hectares. By 2017, this figure had exploded to 5770 hectares. Despite that fact, domestic tea consumption of Laotian tea has been limited, with some 80-90% of the tea harvested in 2016 going to exports. Since 2005, the government of Phongsaly Province, the northernmost tip of the country that borders Yunnan, has allowed Chinese merchants to directly invest in tea cultivation. From 2010 on, Phongsaly came to lead all other Laotian provinces in tea production, deepening its business connections with China.

 

Progress and Problems of the Tea Trade

The follow quotations from a 2019 Xinhua article provides an excellent panorama of the Chinese tea trade in Laos:  

 “a very capable female leader from Sichuan led her employees to transplant more than 100,000 ancient trees to a new 150 hectare tea plot, and then built a new factory, employing tea farmers to manage and pick the relocated tea trees.”

 “The tea we brought to the expo received validation and recognition from Chinese consumers, selling more than 1,500,000 RMB worth of tea in just three days.”

Under the influence of Chinese demand, Laos’ tea production is becoming more centralized and modern. It is worth noting that Laos’ average per hectacre yield of tea in 2015 was only 1,500 kg per hectacre, three times less than even Yunnan’s 2010 figure. This figure was so low precisely because it is wild tea picked from ancient forest trees that give pickers the highest returns. Nevertheless, conventional “high yield” style cultivation is only becoming more viable as Chinese Capital foots the bill of start-up costs, Chinese-built rail lines reduce transportation difficulties, and Laotian wages continue to lag behind their Chinese counterparts. The growth potential of Laotian tea has not yet been fully tapped. 

Chinese investors are not the only winners from the current market layout of Laotian tea.  Some wild tea growers in Xieng Khouang Province were bringing home a maximum annual income of USD 5,000-6,250 from tea cultivation, according to a 2015 surve. This is a figure that well exceeds the average national Laotian income as well as the 2020 average annual income generated from tea cultivation in Yunnan Province (633.42 USD). This very same 2015 survey also found that some farmers were only pocketing as little as 625-750 USD per year. While this sum is still good as a sideline source of income in rural Laos, it must be emphasized that this the experience of wild tea farmers in a province that represented only 5% of national tea production in 2017. Yield and revenue vary widely throughout the country.

 

Potential Phongsaly Tea Revenue Breakdown

Season

Pickers

Processors

Chinese Tea Merchants

Final Price

March Harvest

$2.46-5.86

$12.27-23.45

$17.91-32.19

$46.92

--

(5.3-12.6%)

(26.6%-50.8%)

(38.8-69.7%)

(100%)

 

Laotian can tea fetch a handsome price in the Chinese tea market. The Chinese tea blogger Shanzai,quotes the average Chinese market value for Phongsaly tea as around 300 RMB (46.92 USD) per KG in 2020. According to a 2017 report, the average domestic price for processed tea in Phongsaly was estimated between 14.73 and 29.31 dollars per KG during the March picking season, whereas fresh tea leaves were worth only between 2.46 and 5.86 dollars per KG. In a situation where local farmers are only responsible for picking, they will only walk away with a fraction of the final market price. The numbers above are also assuming that this 300 RMB price point is representing the March harvest, when the price for processed and picked tea is more than twice that of the raining season. The mark-up earned by Chinese merchants could be even higher.

 

New Horizons

Laotian farmers need to gain the skills to process and market their teas independently. Although the tea production has grown dramatically in the last two decades, to quote a Laotian government report from 2017, “despite relative large areas of tea, many farmers still gain little from tea production as local value-addition remains low.”The Laotian government sees the problem clearly, and is already working with its local-level party apparatus, NGOs, and farmer entrepreneurs to build up cooperative factories and cooperative marketing, potentially securing farmers better bargaining power and greater value producing capacity. As Laos continues its astounding GDP growth, necessary public investment in infrastructure and education will increase. More and more Laotian tea growers will gain the skills and capacity to process and market their tea directly to the outside world.

 


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