Winter is coming

Winter is coming and no, this has nothing to do with Game of Thrones or with the season. Yes, in both cases, winter is truly coming but in tea, you could say that.

But first we need to take a step back in time and go back to the Canton system and understand how the VOC (the Dutch East India Company), the EIC (the East India Company) and all the other companies traded with China through one of the only ports if not the only one opened to foreigners, Canton.

For different reasons, which I will not deal with, China, until the First Opium War only “traded” with Europe through merchants (the Hong Merchants) appointed for that. Trade might be a big word as for Chinese, it was all about tributes to the Emperor and gifts from him (also the trade along the Horse and Tea Road between Tibet and China). And translating the role of the Hong Merchants as simple merchants is too narrow as they were responsible for everything regarding to the trade with the foreigners from managing the warehouse, buying the goods (and selling them), dealing with the inland suppliers, paying the port charges and taxes for the foreigners and getting this money back… but detailing what these “middle men” did would bring us too far away from my topic.

What I will explain here was something that happened every year before 1833 (year of the vote of the India Act, by which the Parliament ordered the East India Company to say goodbye to its last trade monopoly: the trade with China) and probably some years after that but I couldn’t find any real evidence for the year when winter tea was no longer sold.

Yes you read it, a tea was sold that was called winter tea because they were sent from Canton to England by the first ships of the new trading season that left the Chinese coast in early autumn and arrived and were sold in London or any other port of call in winter.

Their price was lower as they were older leaves that were just the left-overs from the previous season.

But why will you ask? Why was there any left-overs?

In this time, contracts were agreed upon between the EIC and the Hong Merchants by asking each one of them for a quantity of a said quality at a fixed time and price. However for practical reasons, the quantity could vary depending on the overall production and how well each merchant did. The same went for the quality of the tea and thus its classification among the different type of teas that according to several reports from that era was rather subjective.

This meant that quite often a lot of tea boxes didn’t make it to the market on the first move and were stored for a later use (at a lower price).

Let’s explain this with a real example. In 1831-1832 season, the need in London was estimated at 17.5 millions pounds while the stocks (from winter tea) were almost at 7 millions, which meant that 10.5 millions pounds of tea (or 124,000 chests) were to be imported.

The EIC ordered 110,000 of them and received in Canton 204,000 chests; of which 140,000 were said to be of the “quality asked by contract” while the remaining 64,000 chests were said to be of inferior quality, and became the winter tea of the next season.

This can seem quite unbelievable but is partly explained by the fact that all those contracts were not written but oral and by the differences between the two countries.

For the English law, a contract was a contract be it written or oral. However, it seems that the EIC had a different approach in China by which an oral contract was more an indication of how much tea it needed and how much it was willing to pay for. This indication bounded the honour of the company but less than a written contract.

For the Chinese, the situation was even more complex as in that time, there was no commercial law in China, which meant that any conflict had to be solved through negotiation, help from other merchants and discussion.

The only things that made both parties fulfil year after year their part of the deal were the knowledge that they would be back the following year but also the money they made in that business, ensuring that they all wanted to stay in it.

From the EIC and the Hong Merchants point of view, winter tea was just a way of doing the best of a “lawless” situation, of regulating the market and being able to cope with the complexity of the supply chain and the uncertainty of the quality and of the demand.

However, only a few years after the market was deregulated, this winter tea vanished as the market found a new equilibrium after both the EIC and the Canton system were taken away and also because of the introduction of more formal contracts because of the multiplication of people involved in this business.

Xavier

My name is Xavier.

I live on the other side of the pond but you had probably found this out thanks to my “strange” English.

I am a tea addict and I studied several (and I do mean several) years ago marketing, hence this blog, which will try to combine both worlds.

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