20200625 Dragon Spring Tea

What is This Like?

      I would not address the format of Taiwan's tea market as industry.  Instead, I would say it is just some kind of business.  My reasons are as below:

1. It does not have a standard operations procedure (SOP);

2. Its pricing mechanism is not transparent;

3. Many of its tasks can be mechanized and automated but have continued being rejected;

4. Tea masters are like artists instead of business persons;

5. Wage-paying logic on the farm and factory is by old time standard;

6. Pricing logic is based on the old-time cost-plus-profit formula.

      Because people are not pursuing industrialization, the tea sector of Taiwan is labor intensive.  Moreover, it has poor efficiency.  For example, taking care of tea farm needs labors.  Collecting matured tea leaves needs labors.  Manufacturing rough tea leaves into well-done tea needs labors.  Moreover, interacting with buyers either distributors, corporate buyers, or individual customers needs labors.  After all, I believe there are way more than necessary labors on the production/supplier's side.

      I make such judgement based on the principle of affordability.  Eventually, there are too many people in Taiwan's tea sector than it can sufficiently support economically.  In 2018, annual revenue of  Taiwan's tea related market is about 2.83 billion US dollars.  Bubble tea consists $1.16 billion, convenience stores and supermarkets tea sales consist of $0.83 billion, while specialty tea consists of the remaining $0.84 billion.  There are 25 thousand tea farming families in Taiwan.  Just looking at the specialty sector, each family only gets a share revenue of $33,400 in average.  Costs for labors and all other expenses are not yet subtracted.  As for the bubble tea sector, we know that raw materials only cost 17% of the price.  But tea is not the only raw material.  Thus, we can assume that cost of tea will not exceed 10% of the price.  Similarly, we can figure out that the share of revenue farmers get from convenience stores and supermarkets is also likely to be very low.

    

      Under these circumstances, many tea farmers in Taiwan are like facing a dead end.  The overall situation could be like a prisoner's dilemma.  There are resolutions and there must be a way out!  However, "unknown" and "uncertainty" are keeping most of the tea farmers under struggle pursuing different approaches.  I believe  there are only few whom really don't know what to do.  Most of them do but they just don't want to change their minds.  Or I should say they don't want to take risks investing in new approaches either mechanization or international marketing.

      In summary, there are many issues to be considered and evaluated for pursuing mechanization and international marketing for Taiwan's tea sector.  Necessity and capability are the first two issues that must be taken care of.  And there are more to look into.  Let's look over these topics next time.

A Story has Two Sides

      A story has tow sides.  Actually sometimes even more.  It all depends on how we look at things!  There are positive thinking, negative thinking, and others.  What I want to talk about is the situation of the tea business sector of Taiwan.

      Taiwan is an island located on West Pacific Ocean.  east to China, north to the Philippines, and south to Japan.  Moreover, the acreage of Taiwan is about 10% of Japan and Germany, and about 9% of California.  For the rest factors of Taiwan please search online.

      Instead of talking way back to the mid 19th century and talking about history, I will go straight to my topic this time and leave the history for some other time.  Briefly speaking, descriptions about the situation of the tea business sector of Taiwan are: 

1. mess of products and breeds;

2. nearly unregulated pricing;

3. dispersed of tea gardens;

4. weak bargaining power;

5. small scale of producers and most distributors; and 

6. Income below overall average line.

      Honestly speaking, these descriptions I listed seem quite negative.  I suppose that people making those descriptions believe in economy of scale and competitiveness.  I'm not against those viewpoints but I'm just wondering that if there are other resolutions for us in 2020 under a mobile age?

      For instance, would planting several kinds of tea trees more or less promote biodiversity and benefit the environment in all?  Second, shall we just leave the price checking tasks for each individual instead of investing resources in tea market regulation?  After all, specialty tea is not standardized and is very difficult to regulate.  Third, making tea gardens next to each other is artificial and nearly impossible.  Fourth, if we believe in mutual benefits, there is no need to bargain.  Fifth, there must be ways for small scale businesses making good profits.  It just takes time to discover.  Finally, perhaps we have emphasized too much on the importance of income.  Money is not the only income.  There are more and many are psychological!

      In the end, I have been working on finding the resolutions for our situation.  Hopefully, I can find my answers with you soon!

20200108-new year new vision

Reasonable profit

      I saw these from my LINE and feel very sorry and depressed.

      This writing is about partial costs of making Oolong tea sourced from tea farms located in mountain areas height between 1300 to 2000 meters.

Excluding land costs, tea farm management fee, and farmers' expenses.

1. hand pick cost: NT$250-300 per 600 grams of dried tea leaves  

2-1: make tea labor cost: NT$100-120 per 600 grams
2-2:cook tea labor cost: NT$20-30 per 600 grams
2-3:rounding tea labor cost:NT$80-100 per 600 grams
2-4:tea factory expense:NT$110-130 per 600 grams

So we can tell that the ordinary cost of 600 grams of tea is about NT$560-680.

Tea leaves' cost not included.  However, we shall be able to find the original tea saplings' cost and make some calculations.

      Nevertheless, we haven't calculate land costs, tea farm management fee, and farmers' expenses.  In fact, the later two are part of  operational costs.  "Land costs" or I should say "share of land costs" include farm land taxes, and loan and interests determine by how one acquire this farm land.  unless one inherits the land, and one does not want to sell her or his land, the return on investment of land usually sets for 20 years.  Under this principle, we can calculate the share of payment/loan and interest per year.

      I suppose "share of land costs" may be categorized in the section of "raw material cost."

      As for the tea farm management fee and farmers' expenses, I suppose we can give it a reasonable number from the production quantity of that season.  Because I don't know the real number of costs, if I sue 20/80 principle to determine the operational cost from the cost I know, which is NT$560-680, than I will get a range of cost about NT$700-850.  Then, I use the 1/3 principle (raw material cost, operational cost, gross profit) to determine the price and it turns out about NT$2100-2550.

      However, I would say that what I have mentioned above are idealistic.  The reality is that with this price at the origin of production farm, we can buy its top ranking tea, not just an ordinary tea!

      No matter what the current reality is, I will do my best establishing a new value chain system in Taiwan's business and upgrade it into industry.

To be or not to be!

       The situation of those Taiwanese who are doing tea business is quite similar to that of the Western wine industry in the mid 20th century, in which it is on a transition point of becoming highly industrialized or not.  
      Back then, the trading mode of wine industry was pretty much like auction.  Moreover, during that time the general public considered wine as a luxurious product for the upper class and the wealthy people.  However, in 1976, wine from California, USA won the world championship in Paris, France.  This caught people's attention all over the world because Californians use scientific methods producing their wine and are capable producing large number of wine relatively much easier.  According to "economy of scale," when the total number increases, the cost-per-unit goes down.  Hence, the product price should be cheaper than before.  Under these circumstance, more and more people will be capable of buying wine.
      Although my factors might seem quite persuasive for Taiwanese tea business participants to consider, there is a powerful psychological factor keeping my fellows from making changes.  That is the "prisoners' dilemma!"  briefly saying, no one knows if adopting the Californian way will better off.  Even though people are not very happy with the current auction-like trading mode, it is still more preferable to the uncertainty of changes.
      In fact, there are quite some other reasons keeping us make a difference.  For instances, Taiwan is only 1/11th of California and in average each Taiwanese farmer only have about 1 hectare of land.  In addition, it is much easier to choose one product from many stores in Taiwan.  Moreover, price is usually the first consideration.    Under these circumstances, most Taiwanese tea farmers prefer trading by themselves instead of establishing a pricing system and let the sales channels do the final tradings.
      As for myself, I am working on finding people who have similar thoughts like me and try our best establish a pricing system and hopefully soon our tea business can become highly industrialized.  

Timing

        The structure of the Phalaenopsis industry is quite weird.  This condition exists both in its international market and internal market of Taiwan. Under these circumstances, a company that wishes to join this industry can only do whatever it can to create or wait for the right timing to  enter.  

        The Phalaenopsis international market is basically business-to-business which consists of suppliers, trading companies, and corporate buyers.  Generally speaking, this is a closed system.  First of all, because of development and production of Phalaenopsis requires advanced technology, those who are capable are only a few.  On the other end, those buyers that are capable of buying Phalaenopsis counting by thousand and deliver by air are not that many either.  According to the conditions just mentioned, the number of trading companies doing Phalaenopsis export or import could not be large either.  Under these circumstances, we can infer that members of the Phalaenopsis industry more or less know each other. Careless actions will destroy corporate reputation.  Hence, no one dares to change partner unless something extremely serious and awful happens.  Therefore, the best time to enter the international Phalaenopsis industry would be when a new corporate buyer appears. 

        As for the Taiwanese Phalaenopsis market,  both business-to-business and business-to-customer are quite weird.  First of all, there are only a few wholesalers.  Those wholesalers cannot offer the sufficient total profits that those suppliers need.  Thus, suppliers must look for other clients such as none-floral corporations, floral shops, florists, and general customers.  However, "access" is the most important factor getting the chance to sell Phalaenopsis to ordinary companies.  As for floral shops, florists, and general customers, the issue is that they abuse the usage of "cost-performance ratio," in which they bargain the prices unreasonably low.  Under these circumstances, most suppliers focus on international market.  As for those wholesalers, they do what ever they can to expand their client variety.  After all, the best time to enter Taiwanese Phalaenopsis industry is when completed  collecting corporate accesses sufficient for ones total profits.

        Last but not least, right timing is a very interesting thing.  If we simply sit and wait, nothing will happen.  We must do something or anything we can in order to let the right timing appears.  Nonetheless, when will it appear is out of our control.  We can only do our best and hope it will appear soon.

        In the end, I am also working on doing everything I can to let this right timing appear.  I believe that things I have done have meanings and values.  I hope that I will meet my right timing soon!