Wednesday, March 17, 2010

Teaconomics 101

Tea Maths is fascinating, isn't it?
Let's call it 'Teaconomics'
Take Fair Trade and other 'conscience' schemes.
At source, paying workers a bit more and adding some facilities - even if the facilities are actually built and the workers actually paid more - might add about 2 cents per kilogram, based on local costs.
Further let's assume that the tea plantation should also be rewarded for its investment - and its decency - and let's give them 100% return on investment.
So we've added 4c per kilo.
Not a single other person in the transaction - not the shippers, not the wholesalers, not the tea merchants add any value to this process. They do what they do, regardless of the provenance of the tea.
So, when it arrives in a tea shop, it should be 4c per kilo more expensive.
Where's the extra gone, then?
The middlemen work on percentages, so they might argue that they need to earn more per kilo to justify their extra expenditure (a pretty dubious argument, but let's allow it) and further more the importers might make the same claim.
Let's assume that the middlemen make 100% profit, and the importers likewise - and that's a lot of profit! So 4c becomes 8c and then 16c.
Even if the tea store is also making 100% profit there's still only a price differential of 32c.
Boggles the mind, doesn't it?
So, let's change tack, and look at not where the extra money is coming from, or where it goes, but what it does.
A tea plantation can operate successfully if it makes a certain amount of money.
When prices are cheap, that's a lot of tea needed. However, if you can get more money for your tea, you need to sell less tea to make that money.
And if you need to sell less tea, you can pick less tea.
And if you pick less tea, you need to give less work to tea pickers.
There's evidence that some of these arrangements designed to help workers actually work against them.
The feel-good Fair Trade-style Teaconomics is basically a version of the old US Reagan-style 'trickle-down economics', which says if you support the very rich, some money will trickle down to the poor.
As a theory, it's pretty sound. In practice, there's a few stagnant pools that stand between the rich headwaters of this river of gold and the poor at the end of the stream.
In most tea-producing countries the gap between rich and poor - as well as the ability to access justice - is huge.
But, as I sit here and sip some delightful Chun Mee, I can't do much but hope a thin trickle of brightly coloured green tea is carrying a whisper of economic benefit to the person who picked my tea.

1 comment:

  1. Do you have anything to support your initial estimate of 2-cents per kilo for improvements and wage increases?

    I have always been VERY skeptical about this. When I asked our supplier (a well respected importer on the west coast) about sourcing fair trade teas, I was told, "Oh, yeah, sure, just add $1/pound, then it will be Fair Trade." This left a really bad taste in my mouth. I don't know where this extra money is going or how it's going to be used... for all I know our supplier just earned an extra $1/lb.

    This is, however, very difficult to explain to customers, a number of whom seem to think that if you are not dealing in Fair Trade you are some sort of Nazi industrialist profiteer. I think the idea behind Fair Trade is awesome, but I have sincere doubts that it is living up to its hype.