Category: Trade

This post owns much to the work done by Dr Pim de Zwart from the Wageningen University and Research that published in 2016 a paper in The Journal of Economic History on globalization in the early modern era: new evidence from the Dutch-Asiatic trade between 1600-1800.

I couldn’t access his paper (De Zwart, P. (2016). Globalization in the Early Modern Era: New Evidence from the Dutch-Asiatic Trade, c. 1600–1800. The Journal of Economic History, 76(2), 520-558. doi:10.1017/S0022050716000553) but to make it short and according to the Journal of Economic History « This article contributes to the ongoing debate on the origins of globalization. It examines the process of commodity price convergence, an indicator of globalization, between Europe and Asia on the basis of newly obtained price data from the Dutch East India Company (VOC) archives. »

This will probably not speak to a lot of people here but what got my interest were the words “price data” as the Dutch East India Company imported tea from China to Europe and I thought that perhaps some interesting data (from my point of view) were available somewhere and I did manage to find them as Dr Pim de Zwart made them freely available.

He had gathered together the prices of 16 goods imported by the VOC over the years around 1600 to 1800 and their buying price in Asia over the same period and converted them to the same monetary system, which helps comparison (even more when you are dealing with circa two centuries of data and two different geographical areas).

Sometimes, data was non existent (it happens) and sometimes my guess is that there might have been several conflicting information regarding it or for tea (which you probably understood for me explaining the ins and outs was present) as I already found out several names/quality that were shifting through the year.

I don’t know how he really dealt with that but I will present you the results below with two charts. The first will show you the selling/buying price of tea over the years (obviously for and from the company store and not for everyday life) and the second is something I called raw profitability of tea selling as Dr Pim de Zwart calculated that ratio (I don’t know why). Me calling it that is an oversimplification of reality as to know the real profitability ratio, you would have to add other costs that are not there like the transport costs, the fixed costs of the VOC for keeping its business operating (and this was a really huge business, just look there at the list of settlements and trading posts it owned and operated like a State) but it gives us some hints about the evolution of the trade as a whole.

But enough talking, let’s go to the charts (you can click on them to have a little more info).

What can we see?

At first (for circa 40 years), tea was a kind of luxury, a product that was rare with high selling prices (and therefore high potential profits). Then the price in Amsterdam began to decrease probably because of increased supply from Asia, be it from the VOC or from competitors, the other India Companies (this was a global race, see for example there or there).

In such a trade war that was raging for all products, what was the likely answer of the VOC (and obviously of the other companies at first)? I don’t know but from what I see here and from what I read elsewhere, it seems to me that they had (and bear in mind that it is my opinion centuries away from the event and with the capacity to use tools and ideas that were unknown by the people at that time, so there is for now for me no way to know if they ever followed a deliberate strategy) few options available as I don’t think (or I couldn’t find any evidence in my readings) there was a real uniqueness perceived by the customer (in other words a ton of a said quality of tea could be delivered by any of the India Companies) and due to the need to generate a lot of money, the VOC couldn’t focus on a single or a few items, which price was likely to drop in case of increased importations.

Because all these companies were focused on only one thing (to say it in simple words going to Asia and getting back from it with a lot of goods and money), because of the path dependence (“we have invested money years after years on this strategy that worked for the others and we need to take gold away from them or prevent them to do so from us”) and because it was also a question of national pride and prestige, no alternative thought on how to act could be at first formulated (once again there is no way of knowing if any deliberate strategy was really devised).

This shows that they were clearly in the conditions described by Michael Porter for his generic strategies. From the picture below that sums up the generic strategies (for a complete overview, go there) and the analysis provided above, the answer to what the VOC and the other had to do is clear

Porter’s Generic Strategies (by Denis Fadeev)

Focus on the costs and aim for the cost leadership.

Is this supported by the facts? If you look closely at the data, the price for the tea in Asia began decreasing around the 1730s (when the VOC was already declining) until it reached a floor between 0.30 and 0.50 fl. per pound.

How was this achieved? First, the Dutch imported their goods in Europe through Batavia (today Jakarta) reproducing a model from earlier empires. This meant that everything had first to go though to Batavia being stocked there before being sent to Amsterdam. However since the VOC didn’t have enough ships and people to trade on a “personal” basis, they (like the others before them) used the services of middlemen, Chinese, Indian or Muslim traders that brought goods to Batavia.

Not the optimal solution as these people would likely sell their goods at a higher price but as long as competition hadn’t increase, it was not a problem. However because the British, French and the other India Companies had not access to the network of the Dutch East India Company, they went directly to China resulting in a lower price for them and forcing the VOC to do the same in order to stay competitive.

After an initial drop, the level of price reached a new equilibrium as after getting rid of the middlemen and saving money, the competition between the European companies prevented any further decrease before other approaches were used later in the 19^th century.

With this ends for today my quest to find knowledge out of raw information and ends my travel on T.S. Eliot’s footsteps (from a philosophic point of view obviously).

Where is the Life we have lost in living?

Where is the wisdom we have lost in knowledge?

Where is the knowledge we have lost in information?

The Rock by T.S. Eliot

I have what I would call a professional bias: when I read about prices from old times, I think about how much it would be today. You might not know it but for different reasons, prices are changing over time meaning that you can buy more or less goods for the same amount of money. This is what is called inflation.
This has been going on since the human kind invented money (don’t worry, I won’t bother you much longer with details) and it explains why the real value (real in economics) is different than the nominal one (again in economics).

When I read thanks to Twitter that the oldest reference to tea in Britain had been found in a document from 1644 I was really curious but when I read that there was a price for a cup of green tea from China, I was even more.
4 shillings for a cup… How much would this amount of money be worth now? And how would it compare to our standards?

As I explained earlier, to know that, you just need to find either a table with all the figures of the yearly inflation from 1644 to nowadays or one showing the real value of the money between those two time periods.
The problem being that statistical institutes weren’t around so early and the goods making the price basket weren’t the same now and them. Both things making it quite complex to make extrapolations.
Luckily, I found two papers dealing with this topic in Great Britain. The first is Seven Centuries of the Prices of Consumables, Compared with Builders’ Wage Rate by E.H. Phelps Brown and Sheila V. Hopkins in Economica, New Series, Vol. 23, No. 92 (Nov. 1956) and the second is Inflation: the value of the pound 1750-2011, Research paper 12/31 from the House of Commons Library (29 May 2012).
With these two papers combined, it should be possible to go as far as 1244 and back to 2011. I said “should” because the method used in both papers is not really the same and the second one uses also several methods to give the members of the House of Commons an approach and a range for the oldest inflation rates.

So by mere calculation (those that followed until now will tell me that there is a gap in my years but converting pounds from 2011 to 2017 is easily done thanks to some tools found on the Internet), the 4 shillings of 1644 become between 37.22 and 46.50 pounds of today or between 42.20 and 52.72 euros.

To give you (and me) an idea, I looked at prices for 100 grams of green tea of China and I found a price between 5 and 68 euros depending on different things, which for a cup of tea with let’s say 3 grams of tea in it would make a price between 0.15 and 2.04 euros.
Even if the price would probably be a little higher (people have to make a living out of it) and if there might be a few mistakes in the conversion to real value (something quite understandable due to lapse of time under consideration), the difference shows us that in 1644, tea was really a luxurious product and that drinking a cup of tea was the sign of belonging to the upper class.

I am glad I don’t live back in these times as I wouldn’t be able to indulge in tea drinking and that would be really sad.

Tea and Japan…

A lot has been written about it and a lot could still be written on this subject but I decided to focus on a really small topic, the early Japanese tea exports.

As it happens quite often, this is merely an introduction as I am lacking access to proper sources*, either Japanese (language problems) or American ones (although I looked for long series of foreign trade statistics, I couldn’t find the detailed ones that I needed).

Why American sources? Because it seems that the USA were the main export markets for Japanese teas.

However, let’s not hurry and let’s get back to the beginning.

With the arrival of the Dutch and the VOC (Dutch East India Company) on the Japanese shores in 1609 came the first exports of Japanese teas to Europe (some post-roasted ones from Ureshino).

Things went slowly until Commodore Perry opened trade with Japan with his ships in 1854.

This event was the trigger for many things in Japan, including the move at great speed towards modernisation and the restoration of the imperial power under Emperor Meiji.

But what impact did these events had on tea exports? The first and obvious one was the opening of trade with foreigners (which is always easier to do when you are not in an isolationist mood).

This led to 181 tons of tea being exported in 1859 with 1868 and the Meiji restoration leading to more exports and active support to create national (ie Japanese) companies that would be able to deal with the whole sale chain but also with a peculiar focus on the USA for the tea exports (probably because Great Britain had already access to all the black tea it needed).

This emphasis can be seen in different things.

For example, in 1874, some samples of black tea from 12 different Prefectures were sent to Italy (why Italy?) and in 1875 other sales samples of tea were sent to the USA and other countries (China, India, Europe, America) .

Protection and encouragement were given to traders with for example, the Yokohama Kocha Shokai (a company focusing on black tea in Yokohama) being founded in 1881 or the Japanese government taking steps when branch offices of Mitsui Bussan and Okuragumi were established in London to commission them for the export of black tea and other products manufactured by the governmental factories.

The first port opened to foreigners for trade was Yokohama, followed by Kobe much later in 1868. Each port had its own hinterland (a German word meaning here the area from which products are delivered to a port for shipping elsewhere) with Uji of Yamashiro and Asamiya of Goshu going through Kobe while teas from Kawane, Honyam or Sakura from Shiuka going through Yokohama.

A “funny” thing I found out is that at first, Japanese were somehow alien to Westerners preferences, customs, money or languages and so they used Chinese experts to introduce tea-making techniques (including the artificial colouring of tea leaves with dangerous products).

Another “strange” (at least for us nowadays) thing was that Japanese teas were categorized by method of production as Basket-Fired, Sun-Dried or Pan-Fired (and not by place of production) leading to some problems during transportation as fired teas could sometimes mold.

Problem with fired teas was during the transport where it could mould in the ships but a man named Kahei Otani found a solution in 1861 by buying only well-dried Pan-fired teas and storing around 40 kg of it in large porcelain jars (leading to what was called porcelain teas)

In 1875, in an attempt to diversify their production output, more Chinese experts were hired to begin working on black teas (remember the name of these society founded in 1881. However, it was never popular in the USA and ended up representing only a small percent of their imports.

Why do I keep on talking about the USA? It is because for a long time, they were the primary customers for the Japanese tea exports with these last one becoming an important part of the American tea imports.

In 1860, 10% of tea imported to the US came from Japan becoming 25% in 1870 and 47% in 1880.

Let’s not be carried away too quickly as in 1890, only 1.3 pounds of tea were consumed per capita in the USA (a little more than today), which with a population of 62,979,766 should make the American tea consumption around 37,140 tons for that year.

But what about the production? Did it rise? Decrease?

The figures I could find out are not really complete but will give us an overview.

Tea production, exportation and consumption in Japan between 1880 and 1935

The production did rise and quite a lot while at same time, the exports were decreasing and the local price for tea (in real price, which allows us to compare the 1880 and the 1930 prices) was divided by 2 in just 50 years (the basic law of supply and demand). Because of the wage rise in Japan at that time, this led to an increased mechanisation in the Japanese tea fields and in the whole tea making, leading to whole new processes.

* For this post, my main sources were:

– Foreign Trade Policy in the Early Meiji Era by Yasuzo Horie in Kyoto University Economic Review, Volume XXII, Number 2, October 1952 published by the Faculty of Economics, Kyoto University

– Technical Progress in the Tea Manufacturing Industry in Japan by Masahiko Sintani in Hitotsubashi Journal of Economics, 32(1), 1991-06

– Japanese Tea Exports in the late 1800s by Bruce Richardson in The Book of Tea by Okakura Kakuzo, Benjamin Press, 2011

Yunnan…

Yunnan? Yes I know, you know everything about this region and its teas.

But let me surprise you. I am not going to talk to you about this but rather about a game named Yunnan, a game about tea, trade and merchant houses (yes trade and merchant houses why else would I be interested in a tea game?).

This game is about running a merchant house on the path of success along the road of tea and horses.

It is not an easy game and it seems so complex that after going two or three times through the rules and making everything ready, we did not play it.

But first things first. Here is the board with everything ready to play and you will notice the cups full of a Yunnan Imperial Tea ready to be drunk during the game.

Yunnan board game

Yunnan board game with rules

Now here are my thoughts on this game.

It is a complex game with almost no luck involved (I say almost while you do have a little bit of it in the way you find out who should play when).

You have to select carefully what your merchants (which are more or less the people acting for you) will do: travel (bringing in tea), buy improvements (which will allow you to be more efficient in a specific field).

Then you have to connect your merchants, trading posts… to avoid paying logistical costs when they bring back the tea to the main town but at the main time, you should try to avoid the ever present inspector or neutralise it thanks to your political influence.

From what I understood there is not a simple and unique path to victory. It depends on what all the players are doing and this is what I find really interesting in the concept.

After going through Internet and looking at different websites, it seems the game is best played with 3-4 players, even if rules for 2 are provided.

This might be what we missed in our game.

If you want to look for yoursefl, here is the game page http://www.argentum-verlag.de/yunnan_en.html and then the Board Game Geek one http://boardgamegeek.com/boardgame/143401/yunnan

All it took for me to think about this topic was one ship.

If only this was true, it would make a good story but the truth is that I came across the topic of this Swedish East India Company (or SOC in Swedish) through some researches on old statistics of tea trade. When I found out that this company was quite successful in spite of several problems (more on that later in this blog post) and in spite of being among the lesser known East India Companies (most people knowing only the British, Dutch and French ones), I knew I had something interesting to look at.

This was confirmed a bit later when I went to the Armada in Rouen (a famous gathering of big sailing ships) and saw the Götheborg, the sailing replica of a 18th-century ship that sank right before getting back into its harbour in Göteborg, fully loaded with goods from China.

Götheborg in full

Götheborg, a closer look

This was an obvious sign of destiny.

What is so peculiar with this company? And why not another small one like the Imperial Ostend Company (yes I know I am the best when it comes to finding obscure and unknown references or names)? First of all because it lasted longer (from 1731 to 1813, even if no ships were sent from 1807 on) and also because it was quite successful.

Successful, I hear all of you saying but we never heard of it. How can a company be successful and leave nothing but a ship in the memories of Western people?

To show how successful it was, I will give you some raw data of the number of ships sent to China (almost all those listed below were heading towards this country), the pounds of tea shipped back (mostly to be smuggled back to Great Britain) and the pounds of tea officially sold by the East India Company in the same country.

To understand these figures, you have to know that in 1784, the Commutation Act was passed in England reducing the taxes on tea from 119% to 12.5% (thanks to Richard Twining of the Twinings Tea Company) and in these times, news were slow to move from one country to another and the ships of 1785 might have been sent without any knowledge of this Act.

Ships sent to China by the SOC with the pounds of tea shipped back compared to the pounds of tea sold in Great Britain by the EIC from 1767 to 1806 (source: Oriental Commerce by William Milburn, 1813)

Now since you all know that Sweden is not the most Western or maritime country in Europe, you will probably ask why did they venture on these high seas and why were they so successful?

I heard you in the back, the answer is not “because they are Vikings”.

Money is the answer as after the Greath Northern War (1700-1721), Sweden, the former Baltic Sea major power, was impoverished and trade was seen as one of the options to help the country recover.

It didn’t go without all kinds of struggle as at first tea and porcelain were seen as “poor goods” to be traded for the traditional and well-known timber and steel. Furthermore, the nascent Swedish textile industry saw the Asian textiles as direct competitors and wanted to avoid it.

Part of the solution came from the closing of the Ostend Company as English and other foreigners who could not trade via foreign companies had to find a new “home” to help them make some profits.

Following a discussion in the Sweden Parliament, the company was formed in 1731 and was given a royal chart for at first 15 years.

What set it aside from the other Indian Companies in the different countries? First of all, secrecy was to be maintained around the shareholders and finance (ie the books were burned at the end of each trip). Why? Because all countries forbade their citizens to trade with Asia without going through their “national” companies, which were not able to satisfy every demand (and the potential profits were also hampered by high taxes).

They could also not trade in any port belonging to any State in Europe, unless they had been authorized by the local authorities to do so.

The other rules were shared by the other companies and as such I will only list them: all departures and arrivals were to be made from Gothenburg, the Swedish State taxed everything, the ships were to be built and outfitted in Sweden and at first the subscribers were only in for one trip (this changed in 1753).

The ships when at sea followed a specific trade routine. Leaving Gothenburg with iron, copper and timber, they headed towards Cadiz in Spain to trade their goods for Spanish (or should I say South American) silver (the company being prohibited to use Swedish coins, remember mercantilism?), which was the basis of the trade with Asia. From there, it sailed mostly to China, bringing back tea (and some other items like porcelain).

What made this company so successful?

My analysis (but after all if you have read up to now, it is because you want to read it or because you thought this was about Vikings selling teas) is that they made it because they had good leaders, they focused on one niche with potential and didn’t try to fight too openly those already on the market.

For the good leaders, one just has to look at its founders: you have some Scots merchants, some former Hanseatic ones and some Swedish ones. Some had experience with the former Ostend Company (and thus with Asian trade), others with European trade and others were well connected but all of them were men of experience that wanted to get more money from trading.

For example, Colin Campbell was a Scot merchant that had a huge debt to pay and that wanted to pay it (see http://en.wikipedia.org/wiki/Colin_Campbell_%28Swedish_East_India_Company%29).

The focus on the niche is obvious when looking at the value split of the cargo at Gothenburg. Most of the times, 90% of it was tea, a good that could be easily put into a ship in good quantities, had a market with people ready to pay for it (thanks to the high taxes), something that ensured a good return on investment since with less cost per pound (more on that in a few lines) you could sell it under the official price (but still with a good margin) and know that you would be able to sell everything.

The benefits of not fighting openly those already on the market part were twofold. On the one hand, by deciding not to “colonize” or create “factories”, the Swedish East India Company was probably seen as a lesser threat to the big players (see the numerous and costly fights between the Portuguese, Dutch, English and French for the control of the Indian sea and the Asian trade) and on the other hand, it avoided the extra burden of having to build fortifications, keep garrisons, wage wars… Hence the less cost per pound of cargo unloaded.

All this made the SOC, a successful and profitable company until the British government decided to drop the tax level bringing the “official” tea back into the competition and making smuggling not worth the cost.

This was one market evolution too much for the SOC, a company that had put all its eggs in the same basket and wasn’t able/willing to find new waters to swim in them.