Investments in ASEAN’s Tea Industry – Cup Half Full
By: Elizabeth Leclaire
With its warm climate, arable conditions, and growing consumer base, the ASEAN region is an important contributor to global tea production and trade. In recent years, development of the middle class and transition to an industrial based economy has both reshaped and revamped several ASEAN nations’ tea sectors, most notably in Thailand, Singapore, Indonesia, and Malaysia. Despite their geographical closeness, the economic climates of these four tea industries face entirely different circumstances, and foreign investors hoping to enter the ASEAN tea industry should take care to recognize the advantages and obstacles of each region.
In recent years, Thailand’s tea sector has centered largely on the production of “ready-to-drink” (RTD) teas. As of last year, Thailand’s RTD tea sector witnessed an annual growth of 18.7 percent, and total RTD tea production exceeded 497 million liters. Off-trade sales massed Bt 19.5 billion (US $540 million) last year alone, marking an annual growth rate of 22 percent. The nation’s RTD market is dominated by three top companies: Ichitan Group PCL, Oishi Group PCL, and Tc Pharmaceutical Industry Co Ltd, which own 33 percent, 27 percent, and 14 percent of Thailand’s total RTD tea market, respectively.
The rapid development of Thailand’s RTD tea sector is largely accredited to a growth in health consciousness amongst Thailand’s domestic consumer market. Within the next five years, RTD tea sales are anticipated to surpass Bt 33.9 billion (US $940 million), with a Compound Annual Growth Rate (CAGR) of 12 percent.
While Thailand focuses its attention on developing its nation’s RTD tea sector, the city-state of Singapore is concentrating on developing its tea, coffee, and spices market. With only just over 718 square kilometers of land, Singapore lacks the vast stretches of agricultural space to grow tea leave afforded to many of its ASEAN neighbors. Singapore’s imports of tea, coffee, and spices totaled US $463.2 million in 2014 alone, an increase of 144.3 percent from the year prior.
Singapore’s tea export market has also grown over the past year, with exports rising by more than 150 percent in 2014 and totaling US $409.6 million. Thailand is Singapore’s top tea, coffee, and spices export destination, with the country contributing to 16.4 percent of Singapore’s total tea export market in 2014 and accounting for US $3.36 million of the city state’s tea export profits. In 2014, China ranked second in Singapore’s top tea export destination, comprising 15.3 percent and US $3.13 million of the market. Singapore’s neighbor to the north, Malaysia, imported US $3.12 million of Singapore’s tea in 2014, totaling 15.1 percent of the total tea export market.
Currently, Singapore’s primary tea exports include fermented black tea, which comprises 38 percent of the tea market, and non-fermented green tea, at 25 percent of the market. Fermented black tea and non-fermented green tea accounted for a total profit of US $7.77 million and US $5.08 million in 2014, respectively.
According to the Food and Agricultural Organization of the United Nations, Indonesia ranked sixth in global tea production in 2013. Currently, Indonesia stands as the country with the 22nd largest population of tea drinkers, with the average individual consuming over one pound of tea annually. In 2014, Indonesia produced 146,682 metric tons of tea, with almost 71,000 metric tons as exports. Large private and state owned tea production enterprises account for most of Thailand’s tea exports, while smaller tea production companies cater to the domestic market. The nation’s top tea export destinations include Russia, Great Britain, and Pakistan.
Over sixty percent of Indonesia’s tea is grown in West Java, where the region’s tropical climate and fertile volcanic soil better suit the crop. However, Indonesia’s rising minimum wages, which range between US $95.50 per month to US $199.80 per month, paired with a consumer preference for lower cost tea imports from neighboring ASEAN countries, have posed a challenge to Indonesia’s domestic tea production market. Indonesia’s domestic tea consumption has also risen a dramatic 20 percent in recent years, compared with an average global increase of four percent. In order to satisfy its growing domestic tea demand, Indonesia imports of tea have risen by over 400 percent since the year 2000, and the nation currently imports approximately 25 percent of its teas.
Malaysia’s warm climate is well suited to year round tea growth, with 90 percent of the country’s total tea production satisfying its domestic demands. Boh Plantations, ranked among Malaysia’s top tea production companies, exported only ten percent of its total tea production last year and generated approximately US $100 million in tea sales. However, with the rise in Malaysia’s middle class, the nation’s supply of tea production workers has dropped dramatically, and 80 percent of Boh Plantation employees are non-Malaysian.
In terms of Malaysia’s tea export market, China, Malaysia’s top tea export destination by a wide margin, imported US $20 million worth of tea from Malaysia in 2014 alone, comprising 28 percent of the total export market. India ranked second as Malaysia’s top tea export locations, accounting for 17.4 percent of the nation’s total tea export profits at US $17 million. Kenya and Vietnam marked third and fourth, respectively, as Malaysia’s primary export destinations, and together amassed over ten percent of the export market and imported over six million US dollars’ worth of Malaysian teas.
As ASEAN continues to develop as a significant player in the global market, traditional industries, such as tea production, experience rapid change. While Thailand, Singapore, Indonesia, and Malaysia present a range of opportunities for foreign investors seeking to develop a foothold in Southeast Asia’s tea markets, there lie substantial differences in each region’s individual tea production market. Investors hoping to enter the market are advised to gather a thorough understanding of a particular nation’s tea market climate in order to obtain the economic opportunities that lie within the growing sector.
Further Support from Dezan Shira & Associates
With a presence in every major ASEAN economy and hands-on industry experience, the experts at Dezan Shira & Associates are well placed to advise on opportunities in the region’s tea industry at every stage of the investment process. For further information, please get in touch at firstname.lastname@example.org.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email email@example.com or visit www.dezshira.com.
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