Tea in Luong Son, Vietnam

Tea in Luong Son, Vietnam

Tea farmers and processing companies are seeking a new dynamic together.

Tea, the second most popular drink in the world, is an important agricultural crop in the northern provinces of Vietnam. However, during the last three decennia tea farmers have experienced a regular decline of their prices. The trade and distribution of tea is controlled by a few companies that can negotiate more stable prices with the retail sector themselves. The low prices the farmers get in return are an immediate danger to the survival of the entire sector. Farmers are switching to other crops or are moving out of the countryside towards the cities.

In the Phu Tho province, Vredeseilanden, together with the tea farmers, the government and processing companies, is seeking a new dynamic. The tea factories and tea farmers need each other, after all. Without farmers who supply constant amounts of good quality tea, tea factories are a worthless investment. A closer cooperation within the supply chain will deliver a better end product and will result in a shared profit for all parties.

We support the tea farmers of LUSOTEC, the Luong Son Tea Cooperation. More than 80% of the inhabitants of the Luong Son municipality are part of the Muong people, an ethnic minority group in Vietnam. 90% of the total family income comes from agriculture. In total, it's more than 35% of farmers' annual income that comes from tea. If the annual average income from tea increases, the living conditions of the tea farmers and their families would improve as well.

Challenges

  • The production is rather low, there is only limited access to agronomic support with regard to production capacities and a limited number of farmers applying good agriculture standards.
  • Access to working capital and credit is limited.
  • With regard to marketing, drawing up inclusive long-term contracts is an important challenge: LUSOTEC sells 70% of its tea to the Phu Ha factory under fair conditions and at a fair price. The rest of the tea is sold to intermediaries at unstable and often low prices.
  • Business capabilities are still lacking, especially as regards marketing, communication, networking and management.

Our strategies

  • Agronomic support to apply Good Agricultural Practices and to obtain the UTZ certificate.
  • Introducing internal control mechanisms to check the sustainability and quality of the tea.
  • Reinforcing business capabilities: support with the development of the business plan, training in accounting, management, negotiation techniques and marketing…
  • We introduce LUSOTEC to processing tea companies and guide them to establish relations and to negotiate with companies.
  • Beneficiaries: 166 (55 men/111 women)
  • Budget: €102.216 for three years

Results achieved

  • Thanks to training in UTZ standards, 30 farmers already obtained the UTZ certificate. Good Agricultural Practices are being applied.
  • An Internal Control System has been introduced to map out and improve the post-harvest process, with a view to the certification of the tea.
  • Besides selling fresh tea to the Phu Ha factory, LUSOTEC now also processes and sells green tea.
  • LUSOTEC already gained accounting, management and business development capabilities.

What do we expect by 2017?

  • Increase of the production and the amount and quality of the fresh tea that LUSOTEC markets collectively to tea factories and of the amount of green tea that the cooperation processes and sells itself.
  • The number of members who follow the UTZ guidelines when producing tea will increase; all members of LUSOTEC will use Good Agricultural Practices, which is why the use of agrochemical products will diminish and erosion will decrease.
  • The Phu Ha factory will remain an important wholesale buyer, but inclusive contracts will be negotiated and signed with another factory for fresh tea, and six additional wholesale buyers for processed green tea will be found.
  • LUSOTEC will be able to earn enough income to cover its operational costs and to partly reinvest in the cooperation.
  • The farmers’ average annual income will increase and their living conditions will improve.

Long-term results

We will use this case to influence private processing companies at a higher level to trade inclusively with family farmers.