Category: Market

According to the Times of India in its edition of October 17th of 2019, the Tea Board of India wanted to meet the producers of Darjeeling teas to “propose 100% mandatory sales […] via auction” and more importantly via e-auctions.

The reasons are threefold:
1. Traceability of this Geographical Indication product, since according to a Board official “2 million kilograms produced in a neighbouring country is unlawfully imported and mixed to be passed on as Darjeeling tea”. Forcing every grams of Darjeeling tea to be sold through e-auctions would facilitate the process of tracing them back to where they are produced, ensuring only real Darjeeling tea is being sold on the market.
2. Make the business profitable by avoiding undue competition and price undercutting by the different gardens.
3. Transparency, meaning that it is common knowledge how much a tea kilogram is being sold and if the gardens can or cannot pay bonus to the labourers.

Before seeing if these goals are “good” or not or if they are reachable, let us begin with what is an e-auction and what would be the consequences of it.

An auction is the process of selling and buying through bids and to the highest bidder. It is only one of the several ways of buying and selling goods. E-auction is the same but using the potential offered by the information technologies to open the system to more people and more often without any of them needing to move.

Now, what are the advantages of launching such a program?
Many studies exist on the peculiarities of auctions and e-auctions but most of them relate to the use of game theory or to analyse how the bids are done according to the access of the bidders to information. I found a paper by Rajiv Banker and Sabyasachi Mitra in Electronic Commerce Research and Applications Volume 6, Issue 3, Autumn 2007, Pages 309-321, on Procurement models in the agriculture supply chain: a case study of online coffee auctions in India.
After reading it, I found it quite interesting as it is a practical case study on another agricultural commodity (I didn’t know that India produced coffee) in the same country and with the same target/idea.
According to Rajiv Banker and Sabyasachi Mitra, the direct online auctions allow for increased margins for both sides due to direct purchases and to lower costs of participation as the auctions tale place more regularly. Among the drawbacks are the lack of capacity to see the product and its quality as well as the direct contacts between planters and buyers, with a bargaining power that might be unbalanced between the two of them (because of one party having more knowledge or more money or more …).

However, something else caught my attention in this paper since it went directly against the second goal set by those promoting the e-auctions (and remember we are talking about coffee beans).
The price of the beans seemed higher by 4% in the electronic auction with an even higher price difference for the grades with less trading frequency or with higher price volatility. However, the premium coffee grades, those which might need to be seen and touched to check their quality were usually sold at a lower price at the electronic auction.
Why is that important? Because we are talking about Darjeeling teas, the “champagne” of teas, which means that these teas are supposed to be of higher quality as most and sold according to this idea. If the same “problem” is found in tea e-auctions as in coffee ones, this might cause a drop in prices, leading to planters being unwilling to sell their products at these auctions (for fear of prices not being high enough) and therefore buying them back in order to be allowed to sell it to peculiar buyers after direct negotiations (this is allowed in the process).
This can be seen in a positive way as for upper grades teas to be sold through e-auctions would mean to be 100% sure of the quality, leading to a rise in the quality of the production while everyone would try to offer only the best products possible to ensure a long-lasting rise in the price even without the classical checking of the teas being sold; however, it also means that only those with a well-established “name” or with enough money will be able to do so at first. My personal opinion here is that this would go against the will of the promoters of the e-auctions.

Now that we have a clearer idea of what is going on under the name e-auction, will they help reach the three goals I mentioned at the beginning? The answers below are just my answers and nothing else.

1. Traceability: perhaps the e-auctions could help enforce it but if and only if there is a way to track the whole production chain (perhaps through an increased control on the quantity being produced in each garden). Otherwise, smugglers with the help of other partners will find ways around the controls and the situation will remains the same.
2. Profitability: yes as long as quality stays and as long as there is a demand for these type of products at a said price. If some big buyers do not want to go that way and just withdraw, the market will revert to its current practices with a higher risk of undercutting prices at the second negotiations, since the bargaining power between a big buyer and a garden is likely to be unbalanced.
3. Transparency: it will depend on how many kilograms are sold on the open market through these auctions and how many gardens buy back their teas for private negotiations (we can imagine some big buyers even lending money to gardens to do that).

Are e-auctions a good thing for tea? For me there is no definitive answer and it will all depend on what the rules of the game are and how all the players stick to the rules.

Why is Earl Grey/Green Tea/… popular and proposed/drank in most places? How do trends begin? Good questions indeed. When I was asked about it, I began doing some research and I found some information on how trends were born in fashion. After looking and thinking about it, I decided that it could translate into the tea industry.

So how are trends born? Humans being social animals, we are “victims” of several documented phenomenons that facilitate the adoption of “successful” behaviours. First, the bandwagon effect increase the probability of an individual adopting a belief, idea, trend with the proportion of people who have already done so. The other effect is named the chameleon one after the animal that is said to blend into its environment. However it is a bit trickier as some works and experiences say that some people try to follow the choices made by others, ie the norm, however some others say that some people try to do the exact opposite trying to do what no one does. This shows that the human mind is quite complex but that we always compare ourselves to others and that we are influenced by others in a way or in another.

These factors explain how trend/fashion spreads among individual people, be it for fashion, food stuff or tea and today, you could add advertising (whatever the way it takes), economical situation (with the need for ones to distinguish themselves from others be it by looking for luxury products or rather upper class ones), technology (making production available at cheaper prices, thus increasing the potential market)… and today also social media, which are in a way mega-advertising things, with several people known as influencers (celebrities, people with an audience and recognised for their expertise in a domain…). However, they don’t really explain how trends are born and what makes them appear.

First and foremost, it is important to understand that like in the spreading part, we are not alone to decide. “We” as people have tastes but sometimes we don’t know about them and companies are eager to “help” us find about them before we knew what we want, creating a market and ensuring they can sell us what we need.

To do so, companies do a lot of research on what their customers might want, either directly through market researches, asking group of people about what they want, what they value the most… or looking at researches made by others. One interesting example I found and that might be reflected in the tea industry too is the brand design agency. These people are paid to feel the air and look at what the next ideas in a certain industry might be and this at different moments in time (tomorrow, the day after tomorrow…). They produce trend books that are sold at a high price to other companies that make the fashion collections we see in the shops.

You might wonder how this is related to us and to the way trends in tea are created. If you are referring to normal brand design agencies, it is only in an indirect way as their books display not only all the things needed to create a fashion collection (colours, designs, key words and concepts) but also a lot of other things that are in the air and that can be translated in concepts for other industries. In a more direct way, some of these agencies are focusing on other industries (food, cars, cosmetics…).

Obviously, some companies are able to do this job all alone, be it because they are big enough to have a department doing the same thing or because they have someone with the talent to perceive the future trends. To quote Steve Jobs (I couldn’t write on this topic without making a reference to him), “It’s not about pop culture, and it’s not about fooling people, and it’s not about convincing people that they want something they don’t. We figure out what we want. And I think we’re pretty good at having the right discipline to think through whether a lot of other people are going to want it, too. That’s what we get paid to do. So you can’t go out and ask people, you know, what the next big [thing.] There’s a great quote by Henry Ford, right? He said, ‘If I’d have asked my customers what they wanted, they would have told me ‘A faster horse’.”

As in most things in life, there is no simple answer to any question and the way how trends begin and spread is a complex one, a non written and non spoken deal between us as consumers and the companies selling tea (or any other thing) with the addition of people trying to find out about what we might need and our unconscious trying either to make us look like all the others or trying to differentiate us. This is why there is no winning combo to ensure ones success and also why there are so many companies following the lead of others: it is easier to find out what works and do it too, rather than try to find out what is going on. However, this only works because customers are loyal to a brand or to a couple of brands and are unwilling most of the time to widen their experience and look around.

This echoes to the title of this blog, which is a quote of Mad Men, a TV show I still have to look at that focuses on the life and business of advertising agencies throughout the 1960s.

No, don’t look at me but look at him below.

Freud circa 1921

I am sure you are now really scared and ready to tell me everything and anything but don’t worry. I won’t ask too many things.

My topic today is more about clichés, “projections” or things we expect and so on.

So let’s think for one minute at your three favourite Western (by this I mean European or American) tea companies Now go on their websites or on their publications… Don’t you see a pattern or something in common (apart from the obvious teas they might have in common)?

No? Really? Well, my bet is that in 2 from these 3, you will find hints about someone exploring the wild (or not so wild) world to find the best or rarest teas. And if it is not someone exploring, it is the experience of the taster-in-chief.

You don’t need to worry, this isn’t a tropism linked only to tea, it is much worse in coffee but let’s try to stay on tracks.

What does this tell us? The obvious answer is that they really do explore the world. Let’s just assume for the purpose of my analysis that it is true. To be honest, the ideas developed afterwards are still valid even if they don’t sail the 7 seas).

Why is it so important? Because for us, it means this explorer hand-picks only the best leaves and teas for us, leading us to believe that the products of this company are the best.

However, I think it runs a little deeper than that. For me, the explorer bringing tea home is an archetype, i.e. a constantly recurring symbol that makes us think of the same things, even if it is at an unconscious level.

The explorer going in the unknown to bring the best of these countries to Europe is a cliché of colonial times when some people were doing this (or glorifying themselves about it, a bit like Tartarin de Tarason), more were thinking they could do so and even more were imagining things about these lands and the products brought to them.

All this created a mythology, which got into the collective imagination in Europe and America and that shows into this explorer image.

But you might ask ok it is a stereotype but why does it matter to companies?

It is all about trying to differentiate one brand from another but at the same time totally failing to do so because we are all excepting the same thing. But I am getting a little bit too quickly here.

The brand is the identity of a company or of a product but what are its effects? According to Kotler in Principles of marketing,. Pearson Education Australia (2009), a brand identity is built around attributes, benefits, values and personality.

Attributes are the values, things that a company wants to be identified by. Benefits are what the customers get from these attributes (the generated satisfaction), values is quite self-explicatory as is personality.

If one thinks about a company putting in the first row of its advertising or of its corporate message, the explorer getting in the wild world to bring back the best unknown products, the picture is quite obvious. Such company would want to promote exoticism, unicity, high quality and adventure. The customers buying his products from such a company would value the quality of their products but also their uniqueness, allowing them to feel like this only because of unconscious clichés going back to the old times.

If 2 out of 3 companies promote these images, why aren’t they trying to be more innovative in their branding approach? Simply because it works. It is sad but it is so. If you have something that works or that might work, you will not feel the need to go explore new territories. This protective and conservative approach is when you think about it quite opposed to the image the tea companies want to promote.

Before I conclude, you might ask: what is the link between this post and Freud. Some of you might have even thought that I was going to make a psychoanalysis of tea drinkers and you were probably disappointed. Freud came to me when I began gathering different elements before writing. He is not the inventor of the archetypes but the pictures of Carl Gustav Jung that I could find were far less scary than this one and I wanted to frighten you (no Halloween had nothing to do with that).

New World… these words reminds me of the Age of Discovery, to sails moving into the wind, to the smell of the sea or if you are more a Sci-Fi person to the travels of the spaceship Enterprise that goes where no man has gone before.

But not today. Today, I will not speak about old times or future times or about games but only about drinks and I will invoke another drink to allow you to better understand what I mean : wine. New World wines are wines that are produced outside of the traditional (ie historical) wine-growing areas of Europe and the Middle-East. The questions are “is there a New World tea question?” and if yes, are there any ideas to take from the wine industry?

As he already did several times without knowing it, a fellow blogger inspired me to move this topic on top of my to-do list with his tasting sessions from teas coming from strange places and done in “strange” ways. So thank you Lazylitteratus.

A preliminary remark is that Old World and New World mean different things depending on whether we are in the wine or the tea industry.

Regarding the definition of what an Old World tea is, I just looked at all the producing countries according to the Food And Agriculture Organization of the United Nations (FAO) and classified them.

Here is a list of what I took into account in the Old World category (obviously, this is when you are more than welcome to shoot at myself and tell me that I am wrong):

The Old World in 1961

My criteria were twofold: first, there had to be before the beginning of the 20^th Century some documented growing of tea going on in this country and when I had some doubts, I looked at their production in 1961 (first year reported in the FAO database) and if the production was non-existent or really low, I dropped them off the list.

Obviously since the world has a little changed between 1961 and 2014 (last year available for the FAO statistics), I had to make some change following the fall of the former USSR.

The Old World in 2014

Now that I have this list, what is the value of these two productions? In other words, is there anything to talk about?

Tea production in tonnes (source FAO)

I decided not to display every year but every 10 years apart from the last years which are much more interesting to see what happened in the last years.

And as you can see, there is something interesting going as over the last 14 years, the New World production has doubled to reach around 1,000,000 tons pro year, which is something that begins to count but is still far from the Old World production that over the same time period also increased by some 2,000,000 tons.

It is not that big yet but there is something going on and as some of you might have already tasted, there is something interesting going on in the tea world.

The situation is not really the same in the wine industry as illustrated in the graphic below.

Wine production in tonnes (source FAO)

I know that looking at wine production in tonnes can seem strange but this is the only unit they have. Perhaps it is easier to calculate?

But let’s go back to our topic. As seen, both the production and the weight of the New World vs the one of the Old one are on a total different level as in the tea industry. Probably because the history of this “fight” goes back way before that or because growing grapes and making wine is easier as making tea (I am just kidding)?

However, if we look back at the overall picture of the wine industry and how the New World wines managed to find a place under the sun when they were first considered as inferior wines, there are some things that could path the way for more developments in the tea industry.

This will be what I will do in my next article.