It's that time of the year - many major online retailers have recently increased prices on their current products. Whether you are a consumer, or tea trader, price, cost and value are all key points to consider when making a purchase. However, unlike many other drinks such major retail coffees or tea bag teas, Puer prices change often enough to raise some challenging questions.
So why do Puer prices change? Even the same production/recipe, farmer, plantation cannot provide the same price year on year. It's simple enough to say that the availability of any particular production will decrease over time due to consumption or even spoilage. Of course, rarity has a direct relationship to value. However, that doesn't explain why tea of newer boutiques or smaller, relatively unknown brands should also increase in price too. There are, in fact, many factors that relate to Puer prices.
The below graph exemplifies the actual traded market price of an aged Dayi (Menghai Tea Factory) production well into it's late teen years.
For the purpose of education, I'll share some of the main factors that I know to affect Puer price changes. Since each vendor chooses their own reasons and calculation method for price increases, I will not be able to discuss in detail which factors affect their prices more or less.
The cost of base material has increased. In 2017, average Yiwu prices haven't risen as much as in other regions, but famous garden productions have increased much more significantly with some of the best tea gardens (and specific trees) fetching in the tens or even hundreds of thousands in Chinese yuan. Inflation is also on the rise as local goods and labor continue to increase in price, with more and more investment in the local region. Tea pickers are earning twice to four times as much as what they used to. Wild arbor garden tea prices are more affected as their production is more erratic when compared to tea plantation equivalents.
Pictured: A young arbor tree garden - notice the amount of space between trees compared to tea bush plantations. No pesticides or herbicides or fertilizer here and trees will grow and produce tea indefinitely if not over-picked, but production will never match the tea bush plantations.
I shouldn't forget to mention that the quality of tea obviously affects price. Since there is no currently accepted international standard for quality-based pricing, this area remains under the control of independent marketing and company-based reputation. For aged Puer teas, proper storage will add and change the flavour profile and balance to different levels and these qualities have an added value.
An aged Puer has undergone many changes - colour, aroma, depth, body and qi. At the danger of over-simplifying this topic, it's suffice to say that collectors play hide and seek with popular teas and consumers drink up decent teas. Just like a mature cheese, wine, or whisky, the process to age and market needs to be well-managed and therefore adds value to the final product. On the other hand, ineffective ageing may cause a product to become less desirable and even reduce the value of the tea being stored, risking a potential loss to any tea investors.
Pictured: Mold growing on a compressed tuo of Puer - little or no re-sale value
Tea Market and Puer's Popularity
There is arguably limited supply of the best high-quality teas, and rising demand results in rising prices or fake/imitation teas. When we first visited Fangcun (芳村) tea market in 2007, the market was full of different teas and it still is. However, each vendor back then obviously had their own specialty. Nowadays, outside of major specialist brand retailers, every tea wholesaler has a significant Puer display, emphasizing the rising popularity and demand of Puer.
The government has invested in transport infrastructure, including the local airport in Jinghong, as well as developing Xishuangbanna as a tourist hotspot in China. These improvements have created a tourist destination that is fast becoming another key destination in extended Yunnan tours (Kunming, Dali, Lijiang, Shangri-la, Xishuangbanna). An increase in tourists, specifically tea tourists, has meant that many farmers have been able to learn more about the consumer market directly and at times even sell their teas at retail prices directly to consumers. The improved market awareness for farmers and ability to sell directly (sometimes online) with partial success have translated to relative price increases throughout the supply chain.
Pictured: The old and new airports, based just outside of Jinghong
Health and Safety Regulation
For all official tea processing in China, the tea must be processed in certified factories. Although there are clearly unregistered factories across China, more and more regulations are being put in place and enforced which means the need for more infrastructure investment. Basically, this means a dedicated spaces for tea processing, tea storage and tea preparation. However, these spaces obviously cost a lot to build, maintain and govern which are resulting in costs that consumers will need to pay for, sooner or later.
Being based in China means that I trade using Chinese currency. The US dollar has dropped from by more than 5% against the Chinese Yuan over the last 6 months. To keep customer observed prices stable, vendors like me only change their labelled prices on a periodic basis while others automatically adjust according to the current exchange rate. Either way, the fluctuating exchange rates end up being part of the cost of trading between countries.
Rent of our own storage space has more than doubled since we started six years ago. Another cost is cash flow and risk. For a long-term business, aged tea should be sold to cover costs of buying new stock, storage costs, operating costs, and an appropriate amount of profit. The recent disastrous fire in Fangcun reminds us that storing dried tea has major risks and insurance is unlikely to pay out the 'estimated value' of the tea should the worst actually happen.
These are just some of the major factors affecting the current Puer market as I know. Within each particular category, there are even more details and sub-topics to expand upon but that would require a better quality of writing and more references. For me, this is just a good general reflection on how we price our products, and I also hope it helps you learn more about or review your own understanding of pricing of teas.
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