The strategic partnership forged between Joyvio Group, the agricultural arm of Chinese investment company Legend Holdings, and Hangzhou-based tea production company Longguan has sparked speculation about the timing of such an investment in the tea market in China, given that high-end tea prices are slumping in the country.
"During the process of promoting the development of the tea industry, we perceived that the tea business can't survive without the support of technology and the integration of capital," Huang Xuming, deputy governor of Zhejiang province, told Guangzhou's Time Weekly.
Hangzhou Longguan is a subsidiary enterprise under the Tea Research Institute of the Chinese Academy of Agricultural Services. It was transformed from a state-run Longjing (Dragon Well) tea farm in 1950.
The Tea Research Institute now serves as China's only state-level tea research institute that is equipped with the only EU-certified laboratory in terms of the testing and examination of pesticide residues on tea leaves, according to Time Weekly.
Longjing Tea produced by Longguan has been one of most popular teas in the Chinese market owing to its high quality, 100% processing by hand and limited output.
The company has faced challenges since last year, however, when a drought in Hangzhou dried up the tea harvest. Since 2013, prices of high-end tea have declined due to the impact of domestic and global economic changes, according to the report.
Chinese tea producers are under immense pressure to stay afloat because the scale of farming the crop in the country has continued to expand but exports and domestic consumption have dropped.
Longguan president Jiang Aiqing is not worried much about the oversupply of tea in the domestic market, however. Citing a study her company conducted in 12 cities around China, Jiang stated that they found that the national demand for Longjing Tea produced in Hangzhou's Xihu district touches 120,000 tons each year.
Now the output of Xihu Longjing merely amounts to less than 10,000 tons per year, Jiang pointed out, saying that the demand was still far greater than supply.
The world's largest tea producer, China reported output worth 270 billion yuan (US$43.3 billion) in 2012. Some 1.97 million hectares cultivated the crop, with an annual output of 1.48 million tons, accounting for 33% of the world's total.
Despite the massive output, there were fewer than 100 out of over 70,000 tea companies in China that could claim annual production value exceeding 50 million yuan (US$8 million), according to statistics from the Chinese Tea Makers Association.
An S&P Consulting report on the prospects for the Chinese tea market was optimistic, however at present no Chinese enterprise has the potential to become a world-renowned brand like Lipton or Twinings, the report noted, attributing pesticide residues as a major stumbling block in the development of Chinese tea brands.
The Longguan-Joyvio tie-up is expected to break new ground since Longguan, according to Jiang, runs a set of the most strict tea quality monitoring and management measures in China.
