A treasure traded as a commodity

The earth around Clanwilliam in the Western Cape is a sun-baked red. It is fitting that this is the source of South Africa’s quintessential tea, rooibos.

This staple of almost every South African kitchen is becoming a treasured treat for tea connoisseurs across the globe, especially in Germany, but also as far afield as Japan.

South Africa is the monopoly producer of the tea, but unlike in many other industries it has been unable to extract a price advantage from this fact. Willem Engelbrecht, director for cultivation research and producer affairs at the South African Rooibos Council, told journalists on a media trip to the region that the tea, pegged against prices for black tea, was distinctly undervalued for a product that grew nowhere else in the country—or the world.

The health benefits of rooibos, long part of South African cultural lore, are only beginning to be properly verified through rapidly growing scientific research.

The tea, which is closer to a herbal infusion known as a tisane, has been linked to the prevention of certain types of cancer as well as heart disease. It grows in hardy bushes amid the Cape’s uniquely diverse fynbos floral kingdom.
As some would have it, rooibos is a treasure being traded like a commodity.

Germans love their Rooibos
About half of the 12 000 tonnes of tea produced annually is exported in bulk. This goes to tea traders and buyers internationally, who blend and package it either for sale or for export to other countries. The dominant market for exported rooibos is Germany.

It is a case of value addition taking place elsewhere that could go towards growing the local industry, which employs about 4 500 people, according to the council.

Local demand has grown steadily while the demand for rooibos overseas dipped from 7 000 tons in 2007 to 6 000 tons in 2011, according to Engelbrecht. This dip, he said, was owed to the global economic crisis on the one hand and the volatility of local and export rooibos tea prices on the other.

The price volatility, he said, occurred because producer prices—or what farmers get for their harvest—were based on perceptions of supply and demand and fixed at an annual rate. If these prices were set too low, farmers neglected their plantations, but if they were set too high, it led “to an inflated entry of farmers into the rooibos market and a flood of rooibos hitting the market in the years that follow,” he said.

The volatility is such that, in 2004, the producer price of rooibos was R16.50 a kilogram. But six years later, in 2010, it had plunged to R4.50 a kilogram.

A sustainable price for the industry that would benefit its various players is somewhere in the order of R10 to R12 a kilogram with an allowance of a maximum of 30% variation on either side.

“What we can’t have is a halving of the price, or the industry will cannibalise itself,” he said.

Engelbrecht is a third-generation farmer; his farm, Groenkol, is one of the few that processes and exports tea. Although low producer prices did have an effect on him, he said, it was not to the same extent as that on primary producers.

Equip farmers with business skills
A better understanding by farmers of the supply-and-demand dynamics in the market would enable them to get better prices for their products.

This did not mean rooibos farmers needed to start behaving like the Organisation of Petroleum Exporting Countries in a bid to manipulate markets, he said.

“What is required is an independent market-information system that gives farmers access to information about the area planted, harvest forecasts and market demand, which would allow them to make informed decisions about how much rooibos they must put into the market annually in order to stimulate growth but not push selling prices downwards,” Engelbrecht said.

“What is also necessary is for marketers and brand owners to know what the production cost of rooibos is, so that they realise that if prices are forced below this level, a new downward cycle in production volumes will follow suit.”

To this end, a project is being funded by the Dutch government and managed by the International Trade Centre, an agency of the World Trade Organisation and the United Nations.

It is aimed, according to the rooibos council, at assessing the potential for direct exports of value-added rooibos products to markets that import the tea from Germany, creating a rooibos export-development plan and improving production forecasts, supply capacity and market prices, and disseminating this market intelligence.

The tea supply chain does include major local buyers and processors, such as Rooibos Limited, which is responsible for 60% to 70% of the tea sales locally, according to Colette Cronje, who is in charge of the company’s technical support and product development.

The company processes the tea it buys from farmers and also creates other products such as rooibos extract, which allows for a range of other applications. It can then be used by other industries such as cosmetics and food companies, which add the extract to everything from yoghurt and bread to body lotion.

Half a billion rand industry
South African Rooibos Council co-ordinator Soekie Snyman said the rooibos industry was valued at an estimated R550-million a year.

It was based on the South African retail price and an estimate for bulk exports, but did not include the value of rooibos in products such as cosmetics and iced teas.

Although the European Union is traditionally the largest market for exported rooibos, interest in it is growing in countries such as the United States.

The US was the site for the well-known rooibos trademark controversy in the early 2000s when Burke International, a company based in Dallas, Texas, trademarked the name rooibos to the fury of the South African industry.

Although the case was settled out of court in 2005, work was being done to protect the name for the local industry, said Snyman.

The South African Rooibos Council would file a request with local authorities to trademark the term rooibos next month, Snyman said.

Once this process was finalised, it would open the way for the local industry to apply to have rooibos registered as a geographic indicator.

According to the World Trade Organisation, geographic indications are place names and, in some countries, words associated with a place that are used to identify the origin, quality, reputation or other characteristics of products.

Sparkling wine from the Champagne region in France is one such example.



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