Commodities of Tea

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Commodities of Tea

May 31, 2022

Tea is one of the world’s most consumed beverages. It is thought to originate from China where tea has been drunk for thousands of years. Indonesia currently ranks seventh on the list of the world’s largest tea producers. However, due to the lucrative business prospects of palm oil the country’s tea output has declined in recent years as some tea plantations were transformed into palm oil plantations, while other tea estates have been given up for the production of vegetables or other crops considered more profitable. Despite the resulting decrease in land acreage, tea production has remained relatively stable. This indicates that the remaining tea estates have become more productive.

The provinces that produce most of Indonesia’s tea output are:

1. West Java (accounts for around 70 percent of national tea production)
2. Central Java
3. North Sumatra

Nearly half of Indonesia’s tea production is exported abroad. The main export markets are Russia, Great Britain, and Pakistan. Indonesian tea that is exported primarily originates from the country’s large plantations, both state-owned and private (this is usually high-grade or premium tea), while the majority of smallholders are more oriented towards the domestic market (having a lower quality of tea and thus cheaper selling price). These smallholders, who mostly use older technology and poor farming methods, usually have no processing facilities. This domestic market is not big, reflected by Indonesia’s low per capita tea consumption rate. In 2014, Indonesians consumed an average of 0.32 kilogram of tea per person per year (the world average was 0.57 kilogram in 2014, while Turkey was the clear leader with 7.54 kilogram).

The big tea plantations in Indonesia are usually run by state-owned enterprises (for example Perkebunan Nusantara). Several examples of large private tea growers in Indonesia are Kabepe Chakra and Gunung Slamat. Consumer goods company Unilever Indonesia buys its raw tea materials from large state-owned or private plantations to produce its tea products.

Compared to other key tea growing countries, Indonesia’s yield (per hectare) is low as most smallholders lack the financial means and expertise to optimize production, while a large chunk of Indonesian tea is grown from seeds rather than from clones. Indonesian tea is known for having the world’s highest catechin content (a natural antioxidant). Most of the country’s tea production constitutes black tea, followed by green tea.

Similar to other commodities, Indonesia relies on the export of bulk tea, which is a primary (upstream) product. The underdevelopment of Indonesia’s downstream tea industry curtails the competitiveness of the Indonesian tea industry on the international market. The export of downstream tea products account for only around 6 percent of total tea exports.

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