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Argentine tea report: crisis looms
The Tea & Coffee Trade Journal / June 1995

By Larry Luxner

BUENOS AIRES -- Argentina, better known to the world for its beef and leather exports, is also America's leading supplier of iced and instant tea --and has been so for the last five or six years.

In 1994, according to the Tea Assocation of the United States, Argentina shipped Lipton, Tetley and other U.S. tea packers 52.8 million pounds of off-grade tea. That placed Argentina well head of its two closest competitors, China (39.4 million) and Indonesia (31.8 million).

Yet high production costs, low world prices and continuing labor problems in the tea-growing provinces of Misiones and Corrientes threaten the future of this $40 million industry.

"We're having a very difficult year, first because prices aren't so good, and second, because there was a strike of green-leaf producers," said Antonio Fernandez Espinosa, president of Casa Fuentes S.A. in Buenos Aires. "They refused to pluck the leaves because they weren't satisfied with the prices. This year we lost nearly six weeks of production, even though the strike itself lasted only three weeks."

Alfred J. Tricarico, president of Marwick S.A., says most tea producers are losing money. Several companies, including ITA, Clemente & Cia., Gontek Singer and Te del Valle have gone bankrupt since 1991. Nearly nobody in the industry, he says, is making money.

"This year, we not only have low prices, but there's a lack of demand," Tricarico told The Tea & Coffee Trade Journal in a recent interview in Buenos Aires. Marwick has slashed its own workforce from 76 to 43 employees, though Tricarico says it's been able to increase production by 26% despite the personnel cutbacks.

Fernandez, whose company recorded $12 million in sales last year, employs 350 people -- mostly in the Misiones tea-growing towns of Oberá, Campo Grande and Campo Viera. He says Argentine tea production has dropped by 20%, and projects total tea production for 1995 at only 35 million kilograms, compared to 1994 production of around 42 million kilograms.

Complicating Argentina's problems is the country's enormously high labor costs, especially compared to its Far East rivals. In 1992, President Carlos Menem -- who was re-elected to a second term in May 1995 -- put the Argentine peso on par with the U.S. dollar, bringing inflation down to zero. He also aggressively began to pursue a policy of economic integration with the country's neighbors.

Earlier this year, the long-awaited Southern Cone Common Market (Mercosur) went into effect, transforming Argentina and its three neighbors -- Brazil, Paraguay and Uruguay -- into a trading bloc of 200 million people. That boosts Argentina's prospects for exports to fellow Mercosur nations and brings the dream of regional prosperity one step closer.

Yet Menem's peso revaluation has also made Argentina one of the world's most expensive countries.

"Our labor costs are three times the cost of production in China or India," complains Tricarico. "The cost of electricity is double, and our geographic position makes us pay 30% to 40% more for shipping."

Abel Actis, president of the Argentine Tea Exporters Association, says the average unskilled worker in Argentina now makes $400 a month, compared to $70 in Chile and only $50 in Brazil. That's one reason Argentine tea is picked by machine -- hand-picked tea would simply be outrageously expensive.

"Picking tea by hand can be done in India or Sri Lanka, where workers make the equivalent of a Coca-Cola in one day," he says. "In India, tea plantations can't even give a way a kilo of tea; everything has to be recorded by the state. Here, the state doesn't intervene. Everything is private now."

Actis is also director of Establecimiento Las Marias, which owns 1,300 hectares of tea plantations in Corrientes province. Las Marias, Casa Fuentes and a third company, Cooperativa Picada Libertad, together export more than half of Argentina's tea crop.

From Misiones and Corrientes, 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.

Besides the United States, Argentina exports tea to Chile, Russia, Great Britain, Germany, Holland and Pakistan. While Argentine tea isn't considered the world's best, it is suitable for the U.S. market, where some 80% of the tea sold is iced or instant rather than gourmet tea.

At present, Argentine producers are receiving around $1 per kilogram of tea, though they need $1.20 to break even. That's the main reason companies like Casa Fuentes and Las Marias can't pay tea-pickers the 10 cents per kilo they're demanding. This year, in fact, they're getting only 5 cents a kilo, down from the 7 cents they were getting last year.

According to Tricarico, no more than 15 Argentine companies now export tea. His own company -- which was established in 1961 as a family-owned business -- sells about $1.5 million worth of tea to Tetley, Lipton, Nestlé and Southern Tea, though its export these days is not tea but coffee.

"The world tea market is the same as before, but the number of packers is sharply down from 20 years ago, and the number of exporters has also dropped," Tricarico said. "Business has been bad for the last five or six years, so many have gone into other businesses."

According to Actis, many tea producers are feverishly trying to diversify into fruits, vegetables or tobacco, because it no longer makes sense to cultivate tea at such low prices.

"Small producers -- those with five to ten hectares -- must unite under a cooperative to mechanize everything and eliminate workers," he said, "but in my opinion, these people lack management skills."

One crop tea-growers aren't switching into is yerba mate. One reason is that the land for tea isn't particularly well-suited for growing mate. Probably a more compelling reason, Actis suggests, is that "if someone switches from tea to yerba mate, he has to wait five years [for the plant to mature], and people don't want to wait that long."

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