1 INDONESIA N TEA EXPORT COMPETITIVENESS IN THE WORLD’S TEA MARKET Rohayati Suprihatini INDONESIAN TEA EXPORT COMPETITIVENESS IN THE WORLD’S TEA MARKET Rohayati Suprihatini Indonesian Estate Crops Research Institute Jl. Salak 1A Bogor 16151 ABSTRACT This study aims to analyze competitive position of Indonesian tea in the world market using Constant Market Share (CMS) approach. The result shows that export growth of Indonesian tea was lower than that of world tea growth due to (1) product composition problem; (2) distribution aspect problem; and (3) low competitiveness of Indonesian tea. To increase the growth of Indonesian tea export, exporters should increase tea export in the form of down-stream products as well as bulk green tea. Competitive position of Indonesian tea is lower than the other tea producing countries, except Bangladesh. Key words: Indonesia, tea, export, competitiveness ABSTRAK Penelitian ini bertujuan untuk mengetahui posisi daya saing teh Indonesia di pasar teh dunia dengan menggunakan pendekatan Constant Market Share (CMS). Data statistik menunjukkan bahwa pertumbuhan ekspor teh Indonesia jauh di bawah pertumbuhan ekspor teh dunia. Masalah tersebut disebabkan karena (1) komposisi produk teh yang diekspor Indonesia kurang mengikuti kebutuhan pasar; (2) negara- negara tujuan ekspor teh Indonesia kurang ditujukan ke negara-negara pengimpor teh yang memiliki pertumbuhan impor teh tinggi; dan (3) daya saing teh Indonesia di pasar teh dunia yang masih lemah. Dalam rangka meningkatkan pertumbuhan ekspor teh Indonesia, diperlukan upaya untuk meningkatkan komposisi produk teh melalui peningkatan ekspor teh Indonesia dalam bentuk produk-produk hilir dan teh hijau curah. Selain itu, diperlukan upaya untuk meningkatkan pengaruh distribusi pasar. Pada aspek daya saing, posisi daya saing teh Indonesia lebih lemah dibandingkan negara-negara produsen teh lainnya, kecuali Bangladesh. Kata kunci : Indonesia, teh, ekspor, daya saing INTRODUCTION Role of tea commodity in Indonesian economy is quite strategic. Indonesian tea industry in 1999 employed around 300,000 labors and generated incomes for 1.2 million people. In addition, tea industry at national level contributed Rp 1.2 trillions to GDP or 0.3 percent of total non fuel and gas GDP.
Transcript
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INDONESIA N TEA EXPORT COMPETITIVENESS IN THE WORLD’S TEA MARKET Rohayati Suprihatini
INDONESIAN TEA EXPORT COMPETITIVENESS IN THE WORLD’S TEA MARKET
Rohayati Suprihatini
Indonesian Estate Crops Research Institute
Jl. Salak 1A Bogor 16151
ABSTRACT
This study aims to analyze competitive position of Indonesian tea in the world market using Constant Market Share (CMS) approach. The result shows that export growth of Indonesian tea was lower than that of world tea growth due to (1) product composition problem; (2) distribution aspect problem; and (3) low competitiveness of Indonesian tea. To increase the growth of Indonesian tea export, exporters should increase tea export in the form of down-stream products as well as bulk green tea. Competitive position of Indonesian tea is lower than the other tea producing countries, except Bangladesh. Key words: Indonesia, tea, export, competitiveness
ABSTRAK
Penelitian ini bertujuan untuk mengetahui posisi daya saing teh Indonesia di pasar teh dunia dengan menggunakan pendekatan Constant Market Share (CMS). Data statistik menunjukkan bahwa pertumbuhan ekspor teh Indonesia jauh di bawah pertumbuhan ekspor teh dunia. Masalah tersebut disebabkan karena (1) komposisi produk teh yang diekspor Indonesia kurang mengikuti kebutuhan pasar; (2) negara-negara tujuan ekspor teh Indonesia kurang ditujukan ke negara-negara pengimpor teh yang memiliki pertumbuhan impor teh tinggi; dan (3) daya saing teh Indonesia di pasar teh dunia yang masih lemah. Dalam rangka meningkatkan pertumbuhan ekspor teh Indonesia, diperlukan upaya untuk meningkatkan komposisi produk teh melalui peningkatan ekspor teh Indonesia dalam bentuk produk-produk hilir dan teh hijau curah. Selain itu, diperlukan upaya untuk meningkatkan pengaruh distribusi pasar. Pada aspek daya saing, posisi daya saing teh Indonesia lebih lemah dibandingkan negara-negara produsen teh lainnya, kecuali Bangladesh. Kata kunci : Indonesia, teh, ekspor, daya saing
INTRODUCTION
Role of tea commodity in Indonesian economy is quite strategic. Indonesian tea industry in 1999 employed around 300,000 labors and generated incomes for 1.2 million people. In addition, tea industry at national level contributed Rp 1.2 trillions to GDP or 0.3 percent of total non fuel and gas GDP.
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Based on environmental aspect, tea crop production and processing are good for land and water conservation (ATI, 2000).
Indonesia is the fifth-largest bulk tea producing country in the world after India, China, Sri Lanka, and Kenya. In 2002 total Indonesian tea production was 172,790 tons or 5.7 percent of the total world tea production of 3,062,632 tons (International Tea Committee/ITC, 2003). Most of Indonesian tea production (65%) was sold for international market. Most of exported Indonesian tea (94%) is in bulk tea.
Besides as a tea producer, Indonesia is also the fifth-largest tea exporting country in terms of volume after Sri Lanka, Kenya, China, and India. Trend of Indonesia tea export tended to decline during the last nine years, namely from 123,900 tons in 1993 to only 100,200 tons in 2002, or on average a decrease of 2.1 percent per year. The decreasing export trend reduced Indonesian tea export share in the world market from 10.8 percent in 1993 to only 7 percent in 2002 (ITC, 2003).
Some main tea markets previously dominated by Indonesia were already taken over by the other tea producing countries. The markets taken over by the other exporters were Pakistan, United Kingdom, Netherlands, Germany, Ireland, Russia, United States of America, Singapore, Malaysia, Syria, Taiwan, Egypt, Morocco, and Australia (Suprihatini, 2000).
Decreased share of Indonesian tea export volume was most probably due to the weakening competitiveness of Indonesian tea in the world tea market. Therefore, in order to improve share and value of Indonesian tea export this paper aims to present growth rates and competitiveness of Indonesian tea export compared to other tea exporting countries in the world market. The study on Indonesian tea competitiveness was once conducted by the Asian Development Bank (1992), but it was limited on bulk black tea using Policy Analysis Matrix (PAM) method and was only comparing to Sri Lankan tea.
METHODOLOGY
Conceptual Framework
Concept of competitive advantage in commodity trade among countries is fast changing. The first concept started from Adam Smith’s absolute competitiveness explaining that two countries will benefit from trade if due to their natural factors each country could produce cheaper product than the same product produced by the trading partner. In other words, a country could earn profit from trade if total natural resources used to produce a product are absolutely cheaper than the natural resources cost to produce the same product in the other country. Therefore, according to this concept, each country has to
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specialize in producing the most efficient products, namely the commodities produced at the lowest costs (Asheghian dan Ebrahimi, 1990).
The next progress showed that the two countries still benefit from trade even though one country has no absolute advantage in producing all of the commodities. Triggered by that reality, David Ricardo proposed a comparative advantage concept stating that if a country could produce each of the two commodities more efficiently compared to the other country, and could produce one of the two commodities more efficiently, this country has to specialize in producing and exporting the more efficient, i.e. the commodity with the most absolute advantage. Conversely, the country with lower efficiency has to specialize and export the commodity with lower inefficiency namely the commodity with the lowest in its non-advantage (Asheghian dan Ebrahimi, 1990).
The most recent concept is competitive advantage as improvement of the comparative advantage concept. Based on the competitive advantage, a country’s advantage is not determined by the natural factors only. The famous competitive advantage was proposed by Porter (1990) explaining that an industry’s competitiveness of a country or a nation depends on four attributes well known as The Diamond of Porter consisting of: (1) factor condition; (2) demand condition; (3) related and supporting industries; and (4) strategy, structure, and enterprises’ competition. Those four attributes altogether added with opportunity and favorable government policy to accelerate advantage and coordination among the attributes will influence competing ability of an industry in a country.
Many competitive analysis models have been developed to assess competitive advantage or export competitiveness of a country in the world market relative to its competitor. One of the models is Constant Market Share (CMS). Based on CMS, there are three reasons of export failure due to its lower export growth according to Leamer and Stern (1970), namely (1) export is focused on the commodities with relatively low growth of demand; (2) export is aimed at the stagnant regions; and (3) inability to compete with the other exporting countries.
Basic assumption of CMS analysis is that export market share of a country in the world market does not change over time. Therefore, difference between actual export growth of a country with its probable growth if a country could maintain its market share is the competitive effect. Negative value of competitiveness shows that the country fails to maintain its market share, and the reverse is its positive value. Effect of competitiveness in CMS analysis is mainly due to price competitiveness.
The next developed-application of CMS model was conducted by Chen and Duan (1999) using two-stage decomposition. Effects of two-stage decomposition on change in export of a country are presented in Figure 1.
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Effects of the first decomposition consist of (1) structural effect comprising of effects of growth, market, commodity, and interaction; (2) competitive effect comprising of pure and specific competitiveness; and (3) second-order effect comprising of pure second-order effect and the residual dynamic structural effect.
Figure 1. Two-Stage Decomposition of CMS Model
Such as the other models, CMS model also has some weaknesses. The weaknesses of CMS model were explained by Muhammad and Habibah (1993), namely the equation used as the basis to decompose export growth is an identity equation. Therefore, the reasons behind changes in export competitiveness could not be evaluated using CMS analysis only. The other weakness of CMS analysis is that the anlysis does not take account change in competitiveness of a point of time in the two points of time interval. However, this anlysis is usefull in assessing trend of commodity product competitivenss produced by a country.
Analysis Method
An approach used to know the position of the tea product in the world in terms of growth, composition, distribution, and competition is based on constant market share (CMS) analysis. This analysis is used to measure export performance of a country relative to its competitors. This approach provides
Change in Export
Structural Effect Competitive Effect Second Order Effect
Growth Effect Market Effect
Commodity Effect Interaction Effect
Pure Competitive Effect
Specific Competitive
Effect
Pure Second-Order Effect
Residual Structural
Dynamics
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INDONESIA N TEA EXPORT COMPETITIVENESS IN THE WORLD’S TEA MARKET Rohayati Suprihatini
some statistical indicators to assess whether an exporting country is able to manage its export shares to all importing countries in a certain period.
There are four terminologies used in CMS model, namely: (1) standard growth; (2) impacts of commodities composition; (3) impacts of market distribution; and (4) competitive impact. The CMS approach is applied in the studies of estate crops commodities trade, for examples Muhammad and Habibah (1993) for rubber; Kusari and Fatimah (1998) for palm oil, cacao and black pepper. Referring to the general formulation such as applied by Tyers et al, (1985), the equations used in CMS analysis are as follows:
..
....
)1(
)1()(
−
−−
t
tt
E
EE = g standard growth
+ ..
.)(
)1(
)1(
−
−∑ −
t
iiti
E
Egg commodity composition effect
+ ..
)1()(
)1( −
∑∑ −−
t
i j
E
ijtEgigij market distribution effect
+ ..
)(
)1(
)1()1()(
−
−−∑∑ −−
t
i jijtijijtijt
E
EgEE competitiveness effect
Notes:
g = ..
....
)1(
)1()(
−
−−
t
tt
W
WW
gi = it
itit
W
WW
)1(
)1()(
−
−−
gij = ijt
ijtijt
W
WW
)1(
)1()(
−
−−
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Notes:
E(t).. = total value of Indonesian export for all tea products in year t
E(t-1).. = total value of Indonesian export for all tea products in year t-1
E(t)i. = total value of Indonesian export in year t for tea product ai (certain type of tea product)
E(t).j = total value of overall Indonesian tea export in year t to country of destination j
E(t)ij = total value of Indonesian export in year t for tea type ai to country j
W(t)i = total value of standard export (world of certain exporting countries) in year t for product ai
W(t)j = total value of standard export (world or certain exporting countries) of all tea commodity in year t to country of destination j
W(t)ij = total value of world standard’s export in year t for product ai to country j
W(t).. = total value of standard export (world or certain exporting countries) for all tea commodity in year t
Research Data
Most of data used in this study are secondary data got from the International Trade Center (ITC). Secondary data used for CMS analysis are export values of the tea exporting countries to the tea importing countries. Values of export consisted of those of bulk black tea, bulk green tea, packed black tea, packed green tea, and total export values of all types of tea. Confirmation on CMS analysis results was done by collecting primary data and information through interviewing all the world tea importing agents (22 companies) in Indonesia.
RESULTS AND DISCUSSION
Trends in Export Shares of The Tea Exporting Countries
Trends in export value shares of some main tea exporting countries are depicted in Table 1. Indonesia exported many types of tea, namely bulk black tea, bulk green tea, packed black tea, and pack green tea. Share of Indonesian all tea types export in 2001 was 3.9 percent of total export value of all tea types traded in the world (ITC, 2002). The data of shares of export value of all tea types implied that Indonesia was the sixth biggest tea exporting country in the world after India (18,9%), China (17,1%), Kenya (7,9%),England (7,9%), and United Arab Emirate (4%).
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Indonesian tea export value share dropped sharply compare to that in 1997, that 5.4 percent. During the period of 1997-2001, value shares of almost all types of Indonesia’ exported tea decreased except that of green tea bulk tended to increase from 1.7 percent in 1997 to 2.6 percent in 2001. Decrease in Indonesian tea export value share was related with the problems of tea products composition, distribution, and Indonesian tea competitiveness to be discussed in the next section.
Indonesian tea export value in 2001, most of them were exported as raw materials, namely bulk black tea and bulk green with of their shares of 6 and 2.6 percent, respectively. On the other hand, shares of Indonesian downstream product types of tea export, namely packed black tea and packed green tea, were still very low with each of 1.4 and 0.2 percents only.
The tea exporting countries with substantial export value share increase were India and United Arab Emirate. India’s tea export value share increased from 15.1 percent in 1997 to 18.9 percent in 2001, especially bulk black tea. United Arab Emirate’s tea export value share improved form 0.2 percent in 1997 to 4 percent in 2001 that it surpassed Indonesia. The drastic increases were shown by those types of packed and bulk black tea.
Tea export value shares of Sri Lanka, Vietnam, Japan and United States also increased even though not as high as those of India and United Arab Emirate. Improved tea export value share of Sri Lanka from 14 to 15.2 percent was triggered by increases in those of bulk black tea, bulk green tea, and packed green tea. Increased tea export value share of Vietnam from 0.6 percent to 0.8 percent was due to increases in those of bulk black tea and bulk green tea. Table 1. Export Value Shares of the Main Tea Exporting Countries, 1997 and 2001
Source: International Trade Center (2002) (data processed)
Japan’s tea export value share that increased from 0.7 percent to 0.8 percent was mainly due to increase in that of bulk green tea. On the other hand, improved tea export value share of the United States from 1.0 percent to 1.2 percent was caused by increases in those of tea down-stream products, especially packed green tea. World Tea Export Growth
Tea competitiveness of an exporting country could be examined through its tea export growth rate. Export growth rates of the tea exporting countries during the period of 1997-2001 are presented in Table 2. The countries with their growth rates higher than that of the world tea export standard (0.029 using the formula of standard growth CMS) were Japan, India, Vietnam, UK, United Arab Emirate (UAE), US, and Sri Lanka. Even though Japan, UK, US, and UAE are bulk-tea importing countries, but those countries are able to obtain added values through processing some of bulk tea into downstream tea products. In addition, those countries are also able to re-export some of bulk tea due to their strong tea trade network. Thus, those countries are also included in the market analysis as both exporting and importing countries of tea bulk. Table 2. Analysis Results of Export Growth Rates of the Tea Exporting Countries, 1997
INDONESIA N TEA EXPORT COMPETITIVENESS IN THE WORLD’S TEA MARKET Rohayati Suprihatini
India 0.294 0.045 -0.157 0.377 Indonesia -0.259 -0.032 -0.045 -0.211 Japan 0.303 0.512 -0.287 0.049 Kenya -0.412 -0.064 -0.073 -0.073 Sri Lanka 0.117 0.063 -0.183 0.208 United Arab Emirate 0.172 0.087 -0.799 8.362 UK 0.172 0.087 0.092 -0.340 United States 0.172 0.087 -0.135 0.180
Notes: - The greater the positive figures, the better those figures - World tea export growth (standard growth) is 0.029 computed using the equation - Standard growth (g) of CMS equation is presented in Research Methodology Section
Indonesian tea export growth rate was much below that of world tea export; even its growth rate was negative. Results of data processing using Constant Market Share (CMS) in 1997 and 2001 (Table 2) showed that negative export growth rate of Indonesia was due to (1) tea products composition exported by Indonesia could not satisfy market demand reflected by the negative sign (-0.032); (2) Indonesian tea export was not destined to the tea importing countries with high tea import growth rates indicated by negative sign of distribution figure (-0.045); and (3) Indonesia’s tea competitiveness in the world market was relatively low reflected by negative sign of competitive factor figure (-0.211).
In terms of exported products composition, Indonesia may refer to Japan, China, UK, US, United Arab Emirate, Sri Lanka, Vietnam, Germany and India in which they have positive product composition. Table 3 shows that the countries with positive product composition are those with relatively high contribution of tea export consisting of packed black tea (downstream product) and bulk green tea. Japan’s tea export consisted of packed green tea (39.8%), packed black tea (3.4%), and bulk green tea (53.4%). China’s tea export also consisted of packed green tea (25.3%), packed black tea (7.7%), and bulk green tea (29.4%). Most of UK’s tea export was packed, namely 83.1 percent, consisting of packed black tea (79.5%) and packed green tea (3.6%). Table 3. Tea Export Composition in 2001 of the Countries with Positive Product
Composition and Their Compares to Indonesian
Bulk black tea Packed black tea Bulk green tea Packed green
tea Exporting country
Ton % Ton % Ton % Ton % Japan 593 3.4 581 3.4 9,262 53.4 6,895 39.8 China 132,522 37.6 27,086 7.7 103,679 29.4 89,230 25.3 UK 25,643 15.8 129,196 79.5 1,931 1.2 5,834 3.6 Sri Lanka 173,856 55.3 132,248 42.1 4,108 1.3 4,131 1.3 India 254,144 65.0 132,348 33.9 3,190 0.8 1,263 0.3 Vietnam 9,867 59.9 912 5.5 5,478 33.3 212 1.3 Indonesia 67,090 85.5 9,288 6.0 4,102 8.4 273 0.1
Source: International Trade Center (2002) (data processed)
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In 2001, Sri Lanka, as the black tea producing country, was able to export downstream products of black tea up to 42.1 percent of its total tea export. India was also able to export downstream products of black tea and its value was 33.0 percent of its total tea export. On the other hand, Indonesian tea export by type of downstream products was quite small, namely only 6.1 percent, consisting of packed black tea (6.0%) and packed green tea (0.1%). Furthermore, bulk green tea exported by Indonesia was relatively small compared to that of bulk black tea, namely only 3,4 percent of total volume of Indonesian tea export. Especially for Vietnam, even though its ability to export downstream tea is almost equal to that of Indonesia, namely only 6.8 percent, but it was able to export more bulk green tea (33.3%). Thus, Vietnam was able to achieve positive product composition effect.
Therefore, in order to enhance Indonesian tea export growth rate, the Indonesia tea producers should be able to improve their tea export contributions through producing downstream products (packed black tea, packed green tea), and bulk green tea. This effort should be supported by the conducive policy, especially adjusting Added Value Taxes for bulk tea and import tariff arrangement for tea downstream products and inputs needed in production of downstream products. Those factors are crucial for tea downstream industry development acceleration in Indonesia (Gumbira-Sa’id et al., 2004).
In term of market distribution, using a Constant Market Share (CMS) analysis, the results showed that the countries with positive market distribution influence were UK, Vietnam, Bangladesh, and Germany. England was tactful in determining the countries of its tea export destination, namely the countries with relatively high market demand growth rates. Countries of destination of UK’s tea export are shown in Table 4. UK’s tea export was well distributed to both traditional and new markets. On general, UK’s tea export destinations were Canada, France, Japan, and US. However, each type of UK’s tea product has its own particular market. Table 4. Countries of UK’s Tea Export Destination in 2001
Bulk black tea Packed black tea Bulk green tea Packed green tea
Country of export
destination Ton % Ton % Ton % Ton % Canada 300 1.2 36,063 27.9 42 2.2 993 17.0 France 3,368 13.1 14,312 11.1 319 16.5 121 2.1 Germany 781 3.0 309 0.2 0 0 215 3.7 Japan 1,974 7.7 10,457 8.1 0 0 388 6.7 Poland 0 0 190 0.1 0 0 0 0 Morocco 0 0 106 0.1 0 0 0 0 Russia Federation
3 0 719 0.6 150 7.8 0 0
Arab Saudi 116 0.5 203 0.2 21 1.1 0 0
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United States 2,369 9.2 5,430 4.2 521 27.0 447 7.7 Others 16,732 65.2 61,437 47.5 878 45.5 3,670 62.9
Source: International Trade Center (2002) (processed)
Export destinations of bulk black tea from England were France, United States, Japan, and Germany. Importing countries of UK’s packed black tea were Canada, France, Japan, and United States. Importing countries of bulk green tea were United States, France, and Russia Federation. Packed green tea importing countries were Canada, United States, Japan, Germany, and France. Therefore, Indonesia needs to learn from the distribution pattern of England tea export market.
Vietnam’s tea export was also well distributed to the counties with relatively high import growth rates. The importing countries of Vietnam tea were depicted in Table 5. On general, the main tea markets of Vietnam were Germany, Japan, Poland, and United States. Destinations of bulk black tea export of Vietnam were mainly Germany (24.7%), Poland (23.6%), United States (14.7%) and England (5.8%). Importing countries of Vietnam’s packed black tea were Germany (44.3%), United States (16%), and Russia Federation (9.4%). Most of Vietnam’s bulk green tea was exported to Japan (48.4%). The main importing countries of Vietnam’s green tea were France (66.5%) and United States (33.5%).
Thus, Indonesia needs to follow the tea export paths such as conducted by England and Vietnam. Based on the growth rates of import shares, some markets suitable for bulk green tea export are Japan, United States, France, and Russia Federation. Markets for packed green tea are France, United States, Canada, and Japan. Packed black tea markets are Canada, France, Germany, Japan, and United States. Markets for bulk black tea are Germany, Poland, France, United States, Japan, and UK. Table 5. Countries of Vietnam’s Tea Export Destination in 2001
Bulk black tea
Packed black tea
Bulk green tea Packed green tea
Countries of Destination
Ton % Ton % Ton % Ton % Canada 177 1.8 0 0.0 0 0.0 0 0.0 France 6 0.1 109 12.0 0 0.0 141 66.5 Germany 2,433 24.7 404 44.3 193 3.5 0 0.0 Japan 93 0.9 0 0.0 2,652 48.4 0 0.0 Poland 2,327 23.6 0 0.0 0 0.0 0 0.0 Russia Federation
227 2.3 86 9.4 138 2.5 0 0.0
UK 576 5.8 21 2.3 0 0.0 0 0.0 United States 1,446 14.7 146 16.0 26 0.5 71 33.5 Others 2,582 26.2 146 16.0 2,469 45.1 0 0.0
Source: International Trade Center (2002) (processed)
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In terms of competitiveness, the tea exporting countries with positive competitiveness starting from the strongest were United Arab Emirate, India, Vietnam, Sri Lanka, US, and Japan. Among the countries with negative competitiveness, Indonesian tea competitiveness was still below those of China and Kenya. Indonesia tea competitiveness was better only than that of Bangladesh. Competitiveness ranks of Indonesian tea types and products in the main world markets are specifically presented in the next section.
Indonesian Tea Competitiveness in the World Market
Indonesian tea competitiveness position discusses four types of Indonesian tea( black tea in bulk, green tea in bulk, black tea in packs, and green tea in packs) in some well-known world tea markets.
Black Tea in Bulk
In term of black tea in bulk, some main markets and their contributions to total values of imported black tea in bulk and their market growth rates are presented in Table 6.
The main bulk black tea importing countries consist of UK, Japan, Germany, US, and Russian Federation. Among those countries with positive market growth rates of black tea in bulk were Russian Federation and Japan. On the other hand, the market growth rates of black tea in bulk in UK, Germany and US were possibly already stagnant such as shown by their negative market growth rates. Table 6. Some Main Black Tea in Bulk Markets in the World and Their Market Shares in
1997 and 2001
Country Import share in 1997 (%)
Import share in 2001 (%)
Market growth (%/year)
UK 26.3 26.8 -0.2 Japan 10.2 11.2 1.7 Germany 11.7 6.5 -14.1 United States 10.0 10.0 -0.8 Russia 5.1 11.9 22.5 Poland 3.0 3.1 0.3 Canada 1.5 1.5 -1.0 France 1.5 0.8 -14.5 United Arab Emirate 0.6 1.7 30.4 Others 30.1 22.7 -7.5 World 100.0 100.0 -0.7
Source: International Trade Center (2002) (processed)
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Indonesian tea products position in some world tea markets using a Constant Market Share (CMS) approach is presented in Table 7. On general, competitiveness of Indonesian black tea in bulk was relatively low, especially in Russian Federation, US, Germany, French, Japan, and Arab Saudi. This is shown by negative signs in those markets. Indonesian black tea in bulk was still competitive in England and Canada indicated by its positive coefficients. It was due to strong Indonesian tea market network to be exported to England with existence of Lipton as the biggest tea importer in Indonesia. Nevertheless, those coefficients of competitiveness should be compared to those of other tea producing countries such as shown in Table 8. Table 7. Competitiveness of Indonesian Tea Products in the World Tea Markets Using A
Constant Market Share (CMS) 1997 and 2001
Market Black tea in bulk Green tea in bulk Black tea in packs
Arab Saudi -0.002 -0.003 0.000 -0.002 UK 0.041 0.013 0.009 0.000 United States -0.051 0.001 -0.002 -0.001 Others 0.020 0.000 -0.009 -0.001
Notes: the higher the positive number, the greater the competitiveness
Competitiveness of Indonesian bulk black tea is quite low in the fast-growing markets such as Russia Federation, Japan, and Saudi Arabia. Conversely, it is very competitive in the stagnant markets such as United States and England It indicates lack of development and penetration of Indonesian tea to the new markets.
Estimates of world tea consumption level using an econometric model consisting of 22 equations (18 structural and 4 identity equations) predicted that during the period of 2003-2010 world tea consumption will increase by 16.6 percent compared to that in the period of 1995-2000 (Ditjen Bina Produksi Perkebunan, 2002). Based on the model, among the tea importing countries only the Russian Federation will experience a vast increased import by 38.5 percent compared to average annual consumption during the period of 2003-2010. On the other hand, tea imports of England and Pakistan will a bit decline
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and that of United States will a bit increase. Thus, Russian Federation is predicted to become the most promising world tea market during the period of 2003 - 2010. Thus, it is essential to develop Indonesian tea market to Russian Federation (Ditjen Bina Produksi Perkebunan, 2002).
In Russia Federation, the second-largest bulk black tea importing country with its growing market, Indonesian bulk black tea is the least competitive compared to those imported from other countries (Table 8). In Russia Federation, the countries with more competitive exported-tea than that of Indonesia, starting from the strongest, were India, Sri Lanka, Vietnam, Kenya, England, United States, China, Bangladesh and Germany. Share of Indonesian black tea export in 2001 in the market of Russian Federation was only 3.1 percent and it much decreased compared to that in 1997 which was 19,8 percent. The biggest shares came from India (74,7%) and Sri Lanka (15%).
Field observation confirmed that less competitive Indonesian tea in Russia Federation was due to lack of promotion, bilateral relationship in the economic globalization era in Russia (since 1997), and lack of harmony between bulk black tea quality produced by Indonesia and that demanded by the Russian Federation’s market. In addition, there was no agreement in term of payment method set by both sides.
In Japan’s market, as the third largest bulk black tea importing country in the world after Russian Federation and known as the fast growing market, Indonesian tea competitiveness was also weak. Competitiveness of Indonesian bulk black tea was just better than those of England and Bangladesh, and is comparable with those of China and Germany. The most competitive bulk black tea products in Japan’s market, starting from the strongest, were those of Sri Lanka, United States, India, Vietnam and Kenya. Export value share of Indonesian bulk black tea in Japan’s market in 2001 was quite small, namely only 1.4 percent, and it was relatively constant since 1997. The biggest export shares were those of China (54.9%), Sri Lanka (18.1%), and India (14.6%). Low competitiveness of Indonesia bulk black tea in Japan’s market was due to weak market network of black tea to Japan. With comparable competitiveness of that of China, market share of Indonesian bulk black tea in Japan’s market should have been much higher than 1.4 percent.
In England, known as the biggest bulk black tea importing country but it has negative growth rate, Indonesian bulk black tea is the most competitive compared to those from other exporting countries. Nevertheless, in 2001 export share of Indonesia bulk black tea in England was only 5.9 percent. The biggest shares was those from Kenya (35%), India (17,1%), and Sri Lanka (5,8%). High tea market share of Kenya was due to England’s investment in tea plantation in Kenya. In addition, those three countries with the biggest shares are the members of Commonwealth that they get special concern. However, Indonesia is possible to improve its tea export market share in England by taking over those of other tea exporting countries.
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In Canada, Indonesian bulk black tea was still more competitive than those from China, India, Sri Lanka, Kenya, Bangladesh, Japan, England, Germany, and Saudi Arabia. However, Indonesian tea was still less competitive than those from Vietnam and United States. Field observation confirmed that it was possible because of cheaper price of Vietnamese tea than that of Indonesia. United States’ tea was more competitive due to shorter distance and better trade link of both countries. Indonesian bulk black tea export value share in Canada in 2001 was only 8.3 percent, but it tended to increase. The biggest shares were those from Kenya (17.9%), Sri Lanka (16.9%), United States (15.4%) and India (14.2%). To improve its export share of bulk black tea in Canada market, Indonesia has to struggle to overcome United States and Vietnam.
In United States, known as the fourth largest bulk black tea importing country in the world, Indonesian bulk black tea competitiveness was just better off than that of Germany. In US market, Indonesian bulk black tea was less competitive than those from other exporting countries, namely, starting from the most competitive, Vietnam, Kenya, India, Japan, England, and China. Export value share of Indonesian bulk black tea in US in 2001 was 7.6 percent or the fourth after China (10%), Kenya (9.2%) and India (7.7%). Less competitiveness of Indonesian bulk black tea in US market was due to less acceptable price and difference between the quality of tea demanded and that Indonesia supplied, especially as the raw material of iced tea. In US, 21 percent of tea consumed was iced tea. Supply of ready-to-drink iced tea in US improves its demand in local market (Sumitro, 1999).
In Germany market, competitiveness of Indonesian bulk black tea was the least among those from other exporting countries. The most competitive exporting country in Germany market was Vietnam followed by India, Bangladesh, Poland, Sri Lanka, Japan, and China. Export value share of Indonesian bulk black tea in German in 2001 was 11.3 percent or the third largest after India (41.3%) and Sri Lanka (15.9%). Less competitiveness of Indonesian tea in Germany market was due its unsuitable quality and price. Besides using bulk black tea for re-exeport to US and England, Germany also used raw material of bulk black tea to be processed into instant tea either for export or domestic consumption. In 2001, Germany’s instant tea export was 1,595 tons. On the other hand, instant tea exports of India, Sri Lanka, and Kenya were each of 2,627 tons, 991.5 tons, and 1,348 tons (ITC, 2003).
In the fast-growing Saudi Arabia market (30.4%/year), Indonesian bulk black tea competitiveness was quite low such that in 2001 there was no Indonesia’s export of this commodity to this country. The most competitive bulk black tea exporting countries to Saudi were United Arab Emirate, India and Poland.
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Bulk Green Tea
The main bulk green tea world markets and their respective contribution to total world import value of and their market growth rates are presented in Table 9. The main market of this type of tea with high growth rates were Japan, US, and Germany. On the other hand, Morocco market slowed down.
On general, competitiveness of Indonesian bulk green tea in the world market is relatively better of than that of bulk black tea (Table 7). Competitiveness of Indonesian bulk green tea compared to other exporting countries is presented in Table 10. In Japan’s market pasar Japan, Indonesian bulk green tea was not competitive and that of China was the most competitive. However, Indonesian tea competitiveness was still better of than that of Vietnam and was comparable with that of Sri Lanka. Lack of competitiveness of Indonesian bulk green tea compared to that of China was due to different types of green tea supplied by Indonesian. Japan needed Chinese green tea, steam processed green tea, and Oolong tea. In addition, the green tea exporters informed that Japan still complained about bitterness and red-yellowish water mixed with Indonesian green tea. Table 9. The Main World Markets of Bulk Green Tea and Their Respective Import Shares in
1997 and 2001
Country Import share in 1997 (%)
Import share in 2001 (%)
Market growth (%/year)
Japan 17.2 24.1 8.3 Morocco 18.5 10.8 -13.1 Unites States 5.1 9.5 15.9 Germany 3.1 10.5 35.1 Russia Federation 1.7 3.3 17.6 France 2.1 2.9 8.1 England 1.3 2.4 15.2 Saudi Arabia 0.4 3.0 64.0 Canada 1.1 1.3 4.8 Others 49.5 31.6 -11.1 World 100.0 100.0 -0.5
Source: International Trade Center (2002) (processed)
Indonesian bulk green tea share in Japan market in 2001 was very low (0.4%). Japan’s market of bulk green tea was dominated by the countries with the highest competitiveness, namely China (87.4%) and Vietnam (7.1%). Indonesian bulk green tea share improvement in Japan’s market could be achieved through planting China Variety tea and its processing technology using steam and not applying panning method such as that was utilized in processing green tea in Indonesia.
In US market, Indonesian bulk green tea was still less competitive than those from Germany, England, and India. However, Indonesia’s competitiveness
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INDONESIA N TEA EXPORT COMPETITIVENESS IN THE WORLD’S TEA MARKET Rohayati Suprihatini
was still relatively higher than those from Japan, China and Vietnam; and was comparable with that of Sri Lanka. Nevertheless, the biggest shares were still dominated by China (40.3%), Germany (18.2%) and Japan (9.9%). Indonesia’s market share was only 0.9 percent. Indonesian bulk green tea in US market was less competitive because this commodity was first distributed through Germany and England before it came to US. It was indicated by significant volumes of Indonesian bulk green tea exported to Germany (8.7%) and England (37.8%) which were then re-exported to US. Conversely, Indonesian bulk green tea in Germany’s market was the most competitive and surpassed those from India and Japan. However, bulk green tea market share in Germany was still dominated by China (66.9%) and India (9.8%). Indonesia’s market share was only 8.7 percent. Thus, Indonesia has great opportunity to take over market shares of China and India.
In England market, Indonesian bulk green tea was the second most competitive after Japan’s and was better off than those of Vietnam, Sri Lanka, and Germany. Thus, Indonesian bulk green tea dominated England’s market share (37.8%) followed by China (18,5%) and US (11.5%).
There were only two countries could export bulk green tea to Morocco market, namely China and Indonesia, due to its complicated procedure to enter the market. To export tea to Morocco, the exporters had to conduct direct contact with the government’s own company dealing with green trade, namely ONTS Suprihatini and Partosoedarso, 1996). However, Indonesia’s competitiveness was still far below China’s such that in 2001 there was no more Indonesian bulk green export to Morocco.
Since 2001, China was the only bulk green tea exporting country to Morocco with its market share of 100 percent because Chinese green tea types, namely Gun Powder, Chun Mee and Saw Mee lebih were more suitable Morocco’s market demand. Nevertheless, total Morocco’s bulk green tea import kept decreasing from 29.4 tons in 1997 to only 16.8 tons in 2001 because Morocco preferred importing packaged green tea (downstream product). Morocco’s import of packaged green tea increased from 27.2 tons in 1997 to 52.1 tons in 2001.
Packaged Black Tea
The main world markets of packaged black tea and their respective shares on total world import values of packaged black tea and their market growth rates are presented in Table 11. The main markets with growth rates were Saudi Arabia, US, Canada, and France. The other main markets were Russian Federation, Japan, and Poland, but the packaged black tea markets in those countries got smaller.
Indonesian packaged black tea competitiveness compared to those of other tea exporting countries using a Constant Market Share (CMS) approach is presented in Table 12. In Saudi Arabia with its market and growth were very
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prosperous, Indonesia had no market share at all. In 1997 and 2001, Indonesia had not exported packaged black tea to Arab Saudi market.
The competitive packaged black tea exporting countries to Saudi Arabia were United Arab Emirate, Sri Lanka, Bangladesh, India, Kenya, and US. The biggest shares were dominated United Arab Emirate (45.6%), India (28.7%) and Sri Lanka (22.9%). United Arab Emirate import significant volumes of bulk and packaged black tea from India and Sri Lanka. On the other hand, the less competitive tea exporting countries to Saudi Arabia were England and China. Having observed the fast growth of packaged black tea market in Saudi Arabia, it is expected that Indonesia is able to export packaged black tea in accordance with the Saudi’s market preference. Table 11. The Main World Markets of Packaged Black Tea and Their Respective Import
Shares in 1997 and 2001
Country Import share in 1997 (%)
Import share in 2001 (%)
Market growth (%/year)
Japan 6.8 7.7 5.0 Morocco 5.3 6.9 8.8 Unites States 3.1 1.0 -23.9 Germany 9.2 6.7 -5.9 Russia Federation 5.9 2.3 -19.6 France 23.2 13.5 -11.0 England 8.9 15.6 17.3 Saudi Arabia 2.3 1.4 -10.0 Canada 3.0 4.0 9.8 Others 32.1 39.1 7.1 World 100.0 100.0 2.0
Source: International Trade Center (2002) (data processed)
In Canada, where its packaged black tea market is relatively prosperous, Indonesia did not take the opportunity as indicated by no export of Indonesian packaged black tea to this country. The relatively competitive tea exporting countries to Canada were US, Japan, Kenya, India and China. Therefore, Indonesia is necessary to try exporting packaged black tea to Canada. Furthermore, Indonesia had already strong network and good competitiveness of bulk black tea (stronger than those of China, India, Sri Lanka, Kenya, Bangladesh, Japan, England, Germany, and Saudi Arabia), that would enable to start exporting packaged black tea to Canada.
Indonesian packaged black tea was also not found in France market. The most competitive packaged black tea exporting countries to France market were Vietnam, Germany and England.
In US market, Indonesian packaged black tea was less competitive than those of Vietnam, Germany, England, and India. Nevertheless, Indonesian
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packaged black tea was still more competitive than those of Japan and China. Lack of promotion and weak market network made Indonesian packaged black tea less competitive than that of Vietnam. It was also true for Indonesian packaged black tea which was less competitive than those of Germany and England due to lack of promotion and weak network.
In England and Poland, where their markets had negative growth rates, Indonesian packaged black tea was very competitive. Therefore, Indonesia needs to diversify its packaged black tea products Saudi Arabia, Canada, US, and France where their markets are still promising.
Packaged Green Tea
The main world markets of packaged green tea and their respective shares on total world import value of packaged green tea and their growth rates are presented in Table 13. The main markets of packaged green tea with high growth rates were Morocco, France, US, and Canada. Table 13. The Main Markets of Packaged Green Tea and Their Respective Import
Shares in 1997 and 2001
Country Import share in 1997 (%)
Import share in 2001 (%)
Market growth (%/year)
Japan 2.5 3.4 18.3 Morocco 11.7 9.9 5.1 Unites States 2.9 2.2 2.0 Germany 0.4 0.9 34.6 Russia Federation 27.5 36.3 17.6 France 1.7 0.6 -17.1 England 1.4 2.8 30.4 Saudi Arabia 2.6 1.0 -13.1 Canada 4.3 6.9 23.4 Others 44.9 35.6 3.5 World 100.0 100.0 9.7
Source : International Trade Center (2002) (data processed)
Indonesian packaged green tea competitiveness compared to the other exporting countries is presented in Table 14. In Morocco, where its market of packaged green tea is promising, Indonesia had no market access. The only packaged green tea exporting countries had high competitiveness were China and US. It is expected that Indonesian tea exporters start to enter the packaged green tea in accordance with Morocco’s market preference. The main constraint to access Morocco’s tea market is that of bureaucracy. To export tea to Morocco, the exporters have to deal with the government own company in Morocco (Suprihatini and Partosoedarso, 1996).
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In France, where its market of packaged green tea is promising, Indonesian export of this product was not found yet. The packaged green tea exporting countries to France were China, Vietnam, Germany, Japan, US, and Sri Lanka. Indonesia has to try harder to enter France’s tea market because its tea market to this country is very weak. The only Indonesian tea product able to access France’s market is bulk black tea, but it was less competitive. To enter France’s packaged green tea market, Indonesia needs to try harder to compete with China and Vietnam, especially in improving quality and types of the products supplied.
Indonesian packaged green tea market share in Canada was very small, i.e. 1.1 percent. US and England were the most competitive packaged green tea exporting countries to Canada. On the other hand, even though Indonesia got access to US’ packaged green tea market but it could not compete with those of Germany, Sri Lanka, and England. If Indonesia could improve its packaged green tea competitiveness in US, it would be easier to increase its market share in Canada.
The main destination of Indonesian packaged green tea export was Saudi Arabia. Indonesia’s packaged green tea market share in Saudi Arabia was only 2.5 percent and it was less competitive than that of Sri Lanka.
CONCLUSIONS AND POLICY IMPLICATIONS
Conclusions
Indonesian tea export growth rate was below that of the world’s growth rate and, furthermore, that of Indonesia’s was negative. This was due to (1) composition of tea products exported by Indonesia could not meet the market demand indicated by negative sign of Indonesian tea commodity composition figure (-0.032); (2) Indonesian tea products were not exported to the countries with high tea import market growth rates denoted by negative figure distribution (-0.045); and (3) less competitive Indonesian tea in the world’s market shown by negative competitiveness factor figure (-0.211).
The countries with positive tea products composition were the countries possessing relatively high market shares on tea exports in terms of downstream products (packaged black tea, packaged green tea) and bulk green tea. Among the countries with positive product composition figures were Japan, China, England, US, Sri Lanka, Vietnam, Germany, and India.
Based on market distribution aspect, the countries with positive market distribution results starting from the highest were England, Vietnam, Bangladesh, and Germany.
Based on competitiveness aspect, Indonesia was less competitive than other tea producing countries, except Bangladesh. The tea producing countries
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with better competitiveness than Indonesia starting from the highest were India, Vietnam, Sri Lanka, Japan, China, and Kenya.
Policy Implications
To improve Indonesian tea export, it is necessary to increase tea products composition through expanded tea export of downstream products (packaged black tea, packaged green tea), and bulk green tea. Indonesian tea export of downstream products could be initiated by the private companies and Government’s Own Limited Companies of Plantation (PTPN) either though collaboration with the companies holding famous trade marks or establishment of new trade marks. Those attempts need favorable taxation policy (added value tax, import tariffs on downstream products of tea and inputs needed by the tea downstream industry). Improvement of exported bulk green tea could be conducted through training of tea farmers as the biggest green tea producers in Indonesia such that their products meet export requirements.
To expand Indonesian tea export growth rate, it is essential to increase market distribution effect by choosing the export destinations of the tea importing countries with high growth rates. Indonesian tea exporters and Common Marketing Office (KPB) of PTPN I–XIV need to direct and follow England’s tea market distribution. The main destinations of England’s tea export were Canada, France, Japan, and US.
Based on the import share growth rates, the markets with high growth rates of bulk green tea are Japan, US, France, Russian Federation, among others. The promising markets for packaged green tea are France, US, Canada, and Japan. The potential markets for packaged black tea are Canada, France, Germany, Japan, US, among others. The prospective markets for bulk black tea are Germany, Poland, France, US, Japan, England, among others. Therefore, those countries should become the main destinations of Indonesian tea export. The Government of Indonesia, especially its trade attaches in those countries, should be able to support Indonesian tea exporters in terms of accessing information on tea market preference and to negotiate to lessen trade requirements and import tariffs of tea to those countries.
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Table 8. Analysis Results of Indonesian Bulk Black Tea Competitiveness Using Constant Market Share (CMS) Approach, Data of the
Years of 1997 and 2001
Competitiveness Effect on Importing Countries Exporting Countries Canada Iran France Germany Japan Poland Russia Saudi
