A Bear In a Chinese Tea Shop

The Chinese economy has been in the news of late. It’s been a bit unimpressive.

‘Unimpressive’ in recent Chinese terms, that is. Sectors like manufacturing are dropping from four or five times as busy as most of the developed world down to two or three times.

And the Shanghai stock exchange is not so much a stock exchange as a casino, so that just adds to the fun.

Of course, the question that most financial reports fail to cover – a staggering indictment of their lack of focus – is “what effect will this have on tea prices?”

So, until all the financial journalists and economic commentators are sacked and replaced with people with a proper sense of perspective, we may have to work it out for ourselves.

The first thing we have to deal with is there is no relationship between Chinese economic performance and Chinese tea production.

Some tea is grown in large communal farms, some on small family farms, often as a side crop. The Chinese Government often applies subsides across a range of crops, so one year it may be more economic to rip out tea and plant wheat, only to plant something else two years later. Much of the tea is bought by the government, so the price is often political, not driven by monetary economics.

So the rise and fall of tea availability and cost is really quite independent of the trades in other commodities, in stocks and shares, in property.

Some of the biggest factors in the cost of Chinese tea are independent of China: Shipping, profit for middlemen, store pricing. Not one of those three is automatically a multiplier of the value of the tea: in each case, it may be a specified profit margin, a set amount of money or percentage, what you can get away with or what ‘seems right’.

Even in the case of our own small tea business in Australia, we only have two price levels. These are based on the average across all our sales, so if a tea has an expensive ingredient in it, you might be technically “getting a better deal” than one that consists of teas that are selling at a better price this year.

So, I’m now going to fill the void left by all those financial journalists that didn’t get the right question out:

Q. Will the current Chinese economic plunge affect the cost of my tea?

A. No. Have another cup.