Tea Value Chain in Vietnam

The production and distribution of tea in Vietnam involves numerous stakeholders who participate and interact with each other to create a complex value chain. These stakeholders include tea leaf producers (farmers), dry tea processors, dry tea traders, wholesalers, retailers, and exporters.

Despite having just three main activities – tea leaf production, dry tea processing, and the sale of dry tea – a significant number of actors are involved in each process. In this section, we will examine the various components of the tea value chain in greater detail. To provide an overview of the types of interactions and linkages present in the value chain for tea in Vietnam, the following figures illustrate the entire value chain and the role of its subcategories of actors.

Each stakeholder can be categorized into different groups. For example, tea leaf producers can be classified as unlinked farmers, contract farmers, worker farmers, and cooperative farmers. Likewise, processors can be differentiated as household processors, private processors, joint-venture companies, and state-owned companies.

Producers (Farmers)

The Agricultural Census (GSO 2003) report reveals that there are almost 400,000 tea-growing households in Vietnam, concentrated mainly in the Northeast (65%), Northwest (8%), North Central (9%), and Central Highlands (8%) regions. There are four types of tea producers:

• Worker farmers, who work for plantations or companies and are given land for up to 50 years to produce tea based on company guidelines.
• Contract farmers, who have their own land and sign contracts with companies to sell a portion or all of their tea output.
• Cooperative farmers, who are members of cooperatives set up to produce tea.
• Unlinked farmers, who produce and sell tea in the open market to traders or processors.

Worker and contract farmers generally have a better standard of living compared to unlinked farmers, as they receive benefits such as stable output, access to high-quality land, technical training, credit access, retirement pension, and insurance against sickness.

Processors

Vietnam’s private sector has flourished, thanks to advancements in technology, transportation infrastructure, and reductions in processing equipment costs, resulting in an increase in the size of tea processors. Currently, there are over 600 processors in Vietnam, with capacities ranging from 3 to 7 tons of fresh tea per day, and over 10,000 traditional processing households. There are five different types of processors: non-registered households, registered households, private companies, state-owned enterprises, and joint-venture and foreign companies.

Non-registered households and registered household processors

Non-registered household processors produce dry tea from their own tea-leaf production and that of other producers. These processors typically have a capacity of only 70-100 kg of fresh tea per day and use hand or motor driers to manufacture dry tea. On the other hand, registered household processors operate on a larger scale than non-registered households and have their own bank accounts. However, there has been a significant decrease in the number of these two types of processors over the last few decades.

Private processing companies

Private companies are much bigger than household processors in terms of scale, capacity, equipment, and labor use. They process both green and orthodox black tea, using raw materials purchased from leaf traders and household producers. These processors manufacture about 400 tons of dry tea per year on average (in Moc Chau, Son La). Some companies process dry tea to sell to others for export, while others are directly linked to export companies to reduce intermediate costs. Generally, small enterprises prefer to register as companies rather than households due to several benefits. First, such enterprises are typically involved in other activities besides tea, and formal registration as a company makes it easier to conduct business. Second, it enables them to avoid local government intervention.

Traders

There are two main types of tea traders in Vietnam: tealeaf assemblers and dry tea traders.

Tealeaf Assemblers

Tealeaf assemblers collect fresh tea from individual households in the region using bicycles and motorbikes. They purchase tealeaf from household growers and sell it to processors in the commune or to tealeaf traders. It is crucial to mobilize the tealeaf for processing immediately, as it begins to deteriorate after 4-6 hours.

Dry Tea Traders

Dry tea traders purchase dry tea from processors, package and label the products, and sell them to wholesalers, retailers, or companies for export. They typically use cars or trucks to transport products and have more marketing experience. With a larger scale of operations, their trading networks are wide. They sell dry tea to other districts and deliver to other provinces for wholesalers, retailers, or companies.

However, tealeaf assemblers are becoming rare. Tea processors now directly contact farmers (tea producers) in the region and purchase tealeaf to reduce intermediate costs.

Domestic wholesale and retailers

In the tea value chain, wholesalers purchase dry tea that has been packaged and labeled from tea traders, and then distribute it to retailers. There are four main paths for tea retail in cities: small tea houses, tea bars, traditional tea retailers, and supermarkets. However, the increase in the number of tea bars in large cities has led to a decrease in the number of traditional tea retailers and small tea houses. In recent years, many consumers have turned to supermarkets or large agents for tea purchases due to the perceived safety and diversity of products. This trend is gradually replacing purchases from traditional retailers, as supermarkets offer transparent pricing and convenience for consumers. In supermarkets, the price of tea is set by the company, and supermarkets pay the tea companies after making sales.

Exporters

Tea is a major export commodity for Vietnam, with around 80% of the country’s tea output being exported. In 2006, approximately 180 companies in Vietnam were involved in exporting tea. The number of tea exporters in Vietnam is higher compared to rice or coffee exporters. There are three channels for exporting tea: state-owned enterprises, joint-venture and foreign companies, and private companies (including limited and joint-stock companies). In recent years, the role of the state in tea export has decreased, with the private sector gaining more importance. By 2007, 12 out of the 19 largest exporters of tea in Vietnam were private companies.