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Ailing economy takes its toll on Argentine tea industry
The Tea & Coffee Trade Journal / July 2003

By Larry Luxner

Argentine tea production for the 2002-03 season is expected to total 58,000 metric tons, somewhat lower than the 62,000 or 63,000 tons processed in a normal year.

Antonio Fernández Espinosa, president of both Casa Fuentes and the 20-member Cámara Argentina del Te, said his company is Argentina's largest tea exporter, with around 50% of its black tea production going to the United States, 20% to Chile and other Latin American markets, 20% to Europe and the remaining 10% for local consumption.

"There will be a 10% reduction, mainly because the market this year had some adjustments in inventory, especially in the U.S. market," he told The Tea & Coffee Trade Journal in a recent interview in Buenos Aires. "But we knew in advance about that reduction, so we adjusted our production."

While Casa Fuentes doesn't give sales figures, Fernández said its annual production is around 20,000 tons, or a third of Argentina's total tea production. The company has just over 300 employees, mainly in the northern province of Misiones, where it has factories in the towns of Oberá, Campo Vieira, Campo Grande and Jardín América.

From Misiones, tea sacks are trucked to Buenos Aires, a 20-hour trip south. At the Port of Buenos Aires, workers load the tea onto vessels for the two-week trip to New York, New Orleans, Baltimore and other U.S. ports. Once in the United States, Argentine tea is often blended with more expensive teas from Sri Lanka, India and Kenya.

El Vasco S.A. also exports tea to the United States and in some years, it exports more to that market than does Casa Fuentes.

Argentina is currently ranks sixth or seventh in world tea exports, after India and Sri Lanka but ahead of Malawi. While the quality of Argentine tea doesn't measure up to those other countries, it's "good enough for what we need," said Fernández, 68, who has worked at Casa Fuentes since 1950.

In the 2001-02 season, Argentina exported 57,107 metric tons of tea, worth around $45 million. According to industry statistics, 37,038 tons (about 64.8% of the total) went to the United States. Other large importers of Argentine tea were Chile ( 7,613 tons); United Kingdom (3,629); Germany (1,672); Kenya (1,622); Netherlands (1,176); Switzerland (838); Canada (702); Poland (620) and New Zealand (552).

"We're focusing on the U.S. market," he said. "Americans like the characteristics of Argentine tea, especially because 80% of U.S. tea consumption is iced tea, and our tea has clarity."

Fuentes said that unlike some industries which benefitted from Argentina's recent devaluation, tea exporters have not because they must buy raw materials in dollars.

The Argentine peso, which until last year was worth exactly one U.S. dollar, is now trading at about three to the dollar. That's turned Buenos Aires, which used to be one of the world's most expensive cities, into one of the world's cheapest, and is great for the tourism industry. But at the same time, unemployment has increased and average purchasing power has dropped, forcing GDP down and sparking massive emigration to Europe and elsewhere.

"The economic situation that we went through in Argentina, and that we're going through now really doesn't help anybody," he said. "We have to consider the period. By December 2001, the Argentine Republic went into default. That means the government was no longer paying its internal and external debts. The government nearly confiscated the deposits of individuals here, and as a consequence, the currency was devalued. That caused complete chaos in the banking system. Companies now cannot obtain loans because the interest rates are too high."

Fernández said that Casa Fuentes, established in 1936, grows its own tea, "but we buy much more than we produce."

One company that's benefitted from Argentina's pre-eminence in the tea industry is Mai S.A., which makes the machines that produce tea bags.

"Business is very good," said Horacio V. Re, the company's export manager. "We developed our machine for poor countries, but now we're selling very well in Europe and the United States."

The company charges an average $30,000 per machine, and between 85% and 90% of these machines are exported — with its technology now used in 85 countries. One reason business is so good is Argentina's devaluation, which makes Argentine exports like Maisa's tea-packing machines a bargain. In dollar terms, Re says his machines are one-fifth the cost of those offered by his Italian competitors.

Re, whose company was founded in 1976, said Maisa's biggest domestic customer is Café La Virginia; internationally, it's Lipton. The Buenos Aires-based company employs 70 people and reported sales last year of around $7 million.

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