Te Argentino, base scan of sustainability issues in argentine tea industry by NGO Prakruthi

TĂŠ Argentino

Base Scan on Sustainability Issues in Argentine Tea Industry

Té Argentino

Té Argentino BASE SCAN OF SUSTAINABILITY ISSUES IN ARGENTINE TEA INDUSTRY

Base Scan on Sustainability Issues in Argentine Tea Industry TĂŠ Argentino Base Scan of Sustainability Issues in Argentine Tea Industry by Josefina Eisele Programme Assistant, Solidaridad Regional Expertise Centre for South America Research Coordinator: Jeroen Douglas, Director, Solidaridad Regional Expertise Centre for South America

ISBN: 978-81-908155-0-5 ÂŠ 2009, Edition - first

Published by Prakruthi 43, 2nd Cross, Ramaya Layout St. Thomas Town Post Kammanahalli Bangalore 560 084, India www.prakruthi.org on behalf of Solidaridad Regional Expertise Centre for South & SE Asia

Design and Layout by Rajesh MV Printed at National Printing Press, Bangalore

Té Argentino

Table of Contents Foreword 1

Foreword 2

Executive Summary

11 SECTION I – Overview

General Overview

Historical Overview

Stakeholder Representation

Production Aspects

Influencing Factors

Assessment of Critical Issues

Trade Aspects

Economic Aspects

Legal Aspects

CSR Aspects

CSR in Argentina

Opportunities

SECTION II – Summary of Problems and SWOT Analysis General Summary of Problems

SWOT Analysis

SECTION III – Conclusions and Recommendations Conclusions and Recommendations

References

Annexure: ILO International Labour Standards

Base Scan on Sustainability Issues in Argentine Tea Industry

Té Argentino

Foreword 1 Zipping from the silver straw placed in my hot mate gourd, I realize the irony of writing some opening words on this insightful report on the Argentine tea industry. Virtually the entire nation drinks yerba mate, a strong herbal, grassy reminiscent of green tea, and the production of mate is five times greater than the nation’s green tea sector. Both tea trees grow in the same northeastern Misiones province, in the proximity of the spectacular Iguazú Waterfalls at the frontier with Brazil and Paraguay. Virtually all green tea is exported. The Argentines rather prefer their mate drinking ritual. As green tea is the little brother, this may be the explanation why the Argentine sector has not yet taken any serious steps towards corporate social responsibility (CSR) and improved farm management practices. On the social side, the sector’s main concern is mere survival. The tea sector is underfinanced, in some cases obsolete, with unsecure income and no investments whatsoever in improving the overall low to average qualities. Workers quite often do not receive social benefits, as they are not registered. Clusters of family farmers – organized in exporting cooperatives – have poor bargaining powers in relation to mighty buyers’ corporate clout. This is a classical problem of dependency, so often registered by Solidaridad in agricultural chains of custody. In fact, the aspiration to eliminate the coyotes – the middlemen – was the prime reason for Solidaridad to launch the Fairtrade label way back in 1987. On the agricultural side performances at most tea farms are sub-optimal. A future Solidaridad tea support program – in combination with the Good Inside label of Utz Certified – can make a marked difference. Planting density could be doubled, pruning techniques modernized, quality selection and homogeneity improved, processing conditions made relatively easy, and access to finance can be facilitated. Through an integral support effort, the better part of the sector can increase its overall output, including sales and marketing to higher market ends in Europe and the US. Together with the already existing organic tea, a new round of CSR certification can give a more solid future to several thousand families.

Base Scan on Sustainability Issues in Argentine Tea Industry

My colleague Josefina Eisele – after the writing of this excellent baseline – is ready to implement Solidaridad’s better tea program.

Jeroen Douglas Director, Solidaridad Regional Expertise Centre for South America

TĂŠ Argentino

Foreword 2 The tea smallholdings have been a challenge for all certification and code-setting bodies with most of the certifications focusing mainly on the large estates. This is in spite of the fact that the smallholders, unlike big estates, are not covered under different laws. Previous researches by Solidaridad have shown that the information flow and sharing of market demands, such as knowledge about quality, price, sustainability issues and good farm practices, is limited for smallholders. It also highlighted the low level of organisation through cooperatives and other dedicated institutions. This hinders smallholdersâ&#x20AC;&#x2122; representation in relevant institutions, knowledge and skill sharing and ultimately their bargaining position. However, from the sector sustainability point of view, the smallholder segment needs to be addressed with some priority because they represent a major stakeholder group. Hence, the Solidaridad tea programme specifically focuses on smallholders issues to ensure access to and benefits from certification schemes and markets for smallholders and workers. Argentina is the ninth largest tea producer in the world and the sixth biggest exporter of black tea. More than 80 per cent of the holdings are with smallholders and yet their contribution to the overall volume is significantly low â&#x20AC;&#x201C; a trend which is so similar to India or other teaproducing countries. Argentina is also the third largest supplier of black tea to Netherlands and Dowe Egberts is the biggest importer in Netherlands with its ten per cent of total tea imports coming from Argentina. Yet, there is scant information or a detailed analysis on the environmental, social and economic impact of tea production and processing in Argentina. The present study prepared by Josefina Eisele under the coordination of my senior colleague Jeroen Douglas fills up that void. The present base scan is an assessment Solidaridad is conducting on sustainability issues in tea smallholdings of India, Sri Lanka, China, Indonesia and Vietnam which has never been done before. By facilitating the publication of this research we hope that the findings would provide

Base Scan on Sustainability Issues in Argentine Tea Industry

crucial information for Solidaridad and other organizations to initiate support programmes for sustainability in the tea smallholdings.

Shatadru Chattopadhayay Director, Solidaridad Regional Expertise Centre for South and South East Asia

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Executive Summary The aim of this report is to provide a base scan research identifying key social, economic, environmental and quality issues in the tea industry in Argentina. The base scan will provide a preliminary assessment of the tea chain in the country. The topics addressed will allow us to characterize the situation of the sector in general and the product in particular, as a starting point for identifying problems that hinder tea sector development in Argentina. Our work is broken down in three sections, firstly, we analyze the sector within the national and international context, the structure of the cultivated area, production, process development, trade market, prices and margins; putting particular emphasis on farms run by small producers. This first section is also represented by the legislative and policy framework and an analysis of the certification systems and new initiatives that are being considered regarding international standards. It will then proceed to evaluate the critical issues that conspire to the detriment of progress of the tea sector, both at each link in the food chain as to the articulation of them and their interaction with the context around it. The second section is based on the identification of the sector weaknesses, where we seek to develop proposals and alternatives to implement actions to ensure a sustainable development of the tea industry. Finally, in the third section we will suggest courses of action, aimed at strengthening productive integration patterns in the argentine tea chain. The formulation of proposals seeks to shoot a debate about the various options to improve the social, economic and environmental conditions in the Argentine tea industry to enhance its competitiveness. The period studied covers the beginning of the productive activity in the Argentine tea industry, from the mid 50s until the year 2007/8, representing more than 50 years of history of this economic sector.

Base Scan on Sustainability Issues in Argentine Tea Industry

Initial Considerations The information available for the analysis was scattered and broken. The absence of an organism in charge of constant monitoring and information gathering makes it difficult to perform an accurate analysis; therefore some data is the result of deductions through indirect estimations. Findings Argentine tea is considered low/medium quality and BT (Broken Tea or Fibre), with good colour but without much flavour and its own characteristic; properties that makes it suitable for mixing with high quality teas, flavoured iced tea or dietary fibres. However, due to the low quality product the export prices are considerably low compared to international prices. In addition, export companies do not focus on improving the quality because of the fact of the existing high demand of â&#x20AC;&#x153;low price and low/medium qualityâ&#x20AC;? tea from US and other international markets. As a result, primary tea producers are paid for their tea substantially low prices that make it almost impossible to maintain the plantations. Furthermore, the producer has to face the costs of harvesting, pruning, weed control and mites, as well as inputs such as fertilizer, pesticides and herbicide which have increased significantly over the last two years. In addition to this, there are a large number of producers with lack of capital, low yields per hectare due to the age and low density planting, with an unfeasible production from an economic point of view. In contrast, producers with high level of productivity, that can manage the productive capacitive of their properties and have replaced many seed origin plants by clonal plants, face depressed prices due to the influences that generates high volumes of low quality raw materials. On another point, there is a high concentration of estates in small holders, estates with less than 10 ha represent more than 80%, however their participation over total planted area is 53%. Participation of middlemen or consignment agents represent 23,51% due to the lack of means for small scale producers to afford high costs of harvesters and transport. Needless to say that by its delicate social situation, high level of fragmentation of plantations, lack of information, and reduced level of individual production, these producers has no bargaining power opposite to contractors and manufacturers, additional factor that discourages the possibility of obtaining better prices. Finally, it was observed a new trend in international recognized certification schemes (Rainforest Alliance) in exporting companies. Organic tea trend has also increased over the last five years; several

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companies have been certified in order to sell their tea to the European market mainly. Nevertheless, small scale producers have not seen this impact yet, as in general export companies have certified their own plantations. But awareness is starting to expand, for this reason a good opportunity is presented for Solidaridad to do a market intervention in the Argentine tea industry, in order to encourage small holders to use Better Agricultural Practices, evaluate the finance for the replacement of old seed plants, and increase awareness of exporting companies in their role of Socially Responsible Actors.

Base Scan on Sustainability Issues in Argentine Tea Industry

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Section I

Overview

Base Scan on Sustainability Issues in Argentine Tea Industry

Argentine Tea : General Overview The Tea plant (Camelia Sinensis) has grown in Argentina since the beginning of 20th century In the International tea market, Argentina is ranked as the 9th Producer and the 6th Export country Argentina produced around 70.000 tons of tea in 2007 Argentina exports between 85 - 90 % of its total annual production Tea exports mostly consist of black tea, as green tea only averages 1, 04% of total exports. The average export price for 2008 is USD 0.784 FOB/kg, although each destination country pays a different price. Misiones is the first Argentine province that produces around 93 % of the total production; Corrientes province concentrates the remaining 7%. Argentina exports mainly to: USA, Chile, Germany, Holland, U.K., Poland, and Russia. The domestic consumption of tea is very low; it represents 5% of total production. Contribution to National Economy: Tea represents 0,001% of Argentine GDP and 0.01% of total exports. Argentina sells mainly two types of tea: Off grade, low price tea, used for the production of iced and soluble tea. Main grade, classified tea intended for consumption or mixtures. Argentine tea is mainly sold for the production of iced and mixed teas. Argentina represents 1.76% hectares implanted worldwide by the year 1990 and 1.61% by 2004.

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HISTORICAL OVERVIEW The first tea plantations in Argentina were made in 1924 through the government initiative, but they began to have economic importance after the trade Argentina balance crisis in the year 1952. Before 1950 domestic demand for tea was entirely satisfied by imports, being a product consumed primarily by upper strata of society. Since the deep recession of 1952 the government faced the need for major reforms in the policies implemented and restricted the use of foreign currency for the importation of luxury goods such as tea and the inability to import this product at the official South America exchange rate. This generated a significant increase in the domestic price of tea and gave sustenance to the start of tea production. As a consequence, in the years between 1953 and 1955 the hectares implanted grew explosively in 30,000 hectares, 780 per cent rise (reaching 45.000 in total) with a average annual growth of 625 hectares, but with many problems concerning the selection of plants, inadequate densities and other issues which impacted in the quality of the final product. Similar problems were experienced in the later stages of the chain, mostly in the dryers which were not built in an appropriate way to generate a good quality of tea processing and classification. This rapid pace of planting did not allowed to select high quality seed plants, or the employment of the right techniques. All these features and technology generated a high negative impact to the sector heavily industrialized and conditioning quality factor. The same crisis that gave incentive the tea production prevented the import of machinery suitable for processing. Consequently needed to undertake adjustments to machinery, which reproduced models of other

Base Scan on Sustainability Issues in Argentine Tea Industry

countries, with the aim of prosecuting the recent amount of raw material The volume of tea exported, acquired importance since the 60s. Since then, the activity devoted most of the production to external markets. Between 1960 and 1965 several prototypes were developed and built. Due to cost production cuts together with the genetic quality of plantations has led to international consideration of Argentine tea as a good color product and a low middle quality without its own characteristics, which make it suitable for mixing with tea of good quality. Public policies were relevant to the activity from the mid-70s. The implementation of national policies, such as rebate payments to exporters, and pre-export financing led to a sustainable growth of the tea industry. The cooperative sector also received support through favourable credit lines. Since the mid-’80s changes in the destiny of productions were generated. U.S. became the main country of destinations followed by the United Kingdom and Chile. Nowadays, 50 per cent of shipments are still destined to United States. The quality demanded by this country is identified as containing the names of BT, BT1, BT2, and so on. It is characterized by its high fibre content and good colour, suitable for dispensing iced tea or for the production of soluble tea. Such demand even led to the development of cutting light at the end of the harvest, with the consequent lower quality. This situation continues until the present with an increase of the total production of 70 per cent on average, despite a 25 per cent reduction in area under the crop generating a strong degradation of the country’s image as an exporter of tea. In 2007 the national production of dry tea, reached 73 thousand tons which value reached 55 million USD. For the 2008 campaign and given the agro-climatic conditions and international market demand, it is estimated that the dry tea production will increase up to 79 thousand tons (equivalent to about 355,000 tons of green tea buds). According to the 2002 census, in the province of Misiones there are 6.108 tea producers and 23 in the province of Corrientes, with an area of 35,000 hectares located in Misiones and 1,760 hectares in Corrientes. It is estimated that since then there are an average of 8.000 producers in total. Misiones main producing areas are located in the departments of Oberá with 13,000 hectares followed by Cainguas with 10,000 hectares.

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Exports for 2007 came to 73,000 tons the larger volume in history, at an export value of 0.70 U $ S / kg which represents a 40 per cent to 50 per cent of the average price of world exports.

STAKEHOLDER REPRESENTATION In the Argentine Tea sector, the major stakeholders are: Trade Unions UATRE (Unión Argentina de Trabajadores Rurales y Estibadores) Rural Workers Union of Jardín America Rural Workers Union of Santo Pipo, Misiones Rural Workers Union of Oberá (SUTA) Rural Workers Association of Campo Viera (ATRAM) Rural Workers Union of El Dorado, Misiones (SUOR) Rural Workers Union of Puerto Libertad (Misiones) Delegación Regional de Misiones de la Confederación General del Trabajo Tea Planters Associations Argentine Tea Camber (Cámara Argentina de Té) Tea Small Growers Associations APAM: Association of Agricultural producers of Misiones (Asociación de Productores Agropecuarios de Misiones) Agricultural Movement of Misiones (Movimiento Agrario) INDES Institute for Social Development and Human Promotion (Instituto de Desarrollo Social y Promoción Humana) MAPO: Argentine Movement of Organic Producers (Movimiento Argentino de Productores Orgánicos) Cooperatives COINAGRO Inter-cooperative Agricultural Confederation (Confederación Inter-cooperativa Agropecuaria) Federation of Cooperatives of Misiones (Federación de Cooperativas de Misiones) Association of Cooperatives of Misiones (Asociación de Cooperativas de Misiones)

Base Scan on Sustainability Issues in Argentine Tea Industry

Factories’ Associations CETA: Argentine Chamber of Tea Manufacturers (Cámara de Elaboradores de Te de Argentina) CIPA: Chamber of Manufacturers of Food Products (Cámara de Industriales de Productos Alimenticios) Government Actors Secretary of Agriculture, Livestock, Fishery and Food ( its abbreviation in Spanish, SAGPyA): Food Department (Dirección de Alimentos) Ministry of Agriculture and Production of Misiones (Dirección General de Yerba Mate y Te) Ministry of Labor and Social Security RENATRE (Workers Registry) Secretary of Commerce and Integration (Subsecretaria de Comercio en Integración), Misiones Government INTA: National Institute of Agro Technology (Instituto Nacional de Tecnología Agropecuaria) Other CoProTe (Provincial Tea Commission) Tea Producers Cluster of Misiones (Aglomerado Productivo del Té de Misiones). Project Improvement of Competitiveness of the Productive Chain of Tea in Misiones IP-TEC MI 06 FONTAR MinCyT Argentine Export Chamber (Cámara de Exportadores de la República Argentina) Misiones International Trade Chamber (Cámara de Comercio Exterior de Misiones)

PRODUCTION ASPECTS The Argentine tea region is located between 26 ° and 28 ° latitude south, becoming the world’s southernmost tea region. According to the International Tea Committee, Argentina is the ninth tea producer in the world and the sixth exporter. Dry Tea production in 2007 was approximately 79.716 tons according to the Secretary of Agriculture, Livestock, Fishery and Food (SAGPyA in Spanish Secretaria de Agricultura, Ganaderia, Pesca y Alimentacion) The area under cultivation today comprises 40,000 ha, representing 80 per cent of the production of tea in South America.

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The province of Misiones concentrates 93 per cent of the plantations in the country; the remaining 7 per cent is derived mostly from Northeastern Corrientes. The main factors influencing the crops and explaining the high production in the area are: Height of around 300 meters, the tropical climate with no dry season. Soil that contains a high percentage of iron oxide. The height is a variable that affects particularly on the properties of Tea, the final product characteristics improves with the height of the crop. The climate is subtropical moist, rainfall ranging from 1800 to 2200 mm annually. With these conditions the crop develops its harvest period between October to May. Main characteristics of primary production Tea is a perennial crop which has a productive life of 30 to 50 years. Since its planting the first productive years are the third or fourth years and has its peak in the sixth or seventh year. The harvest takes place in periods of 10 to 15 days depending on the sprouting and the level at which the sprout is cut, affecting the quality of the raw material. Argentine tea harvest period is between October and May. The main tasks are represented by the management of weeds, pruning and fertilization. Producing regions in Argentina can be divided into four zones, according to agro-ecological and economic criteria (total area and diversification): 1. The South Centre Zone, which covers the departments of Oberá, Leandro N. Alem and San Javier, constitutes the most important region with 41.5 per cent of the total area planted. It is characterized by a high degree of diversification of its exports, where the main perennials crops are besides the tea: the yerba mate, forest resources and to a lesser extent, the tung. This region has the highest degree of technology adoption in terms of fertilization, pruning, harvesting and use of clonal varieties. 2. The North Central Zone with 29.8 per cent of the total area under tea in Argentina, including the departments of Cainguas, Guarani and 25 de Mayo. There are a significant number of farms that accompany the tea, although this is the only perennial crop that develops in the area.

Base Scan on Sustainability Issues in Argentine Tea Industry

3. The Alto Parana area with 16.2 per cent of the area is located in the departments of Monte Carlo, Libertador Gral. San Martin and to a lesser extent in Iguazu and Gral. Belgrano. It has diversified holdings with yerba mate, citrus and forest, in recent years has undergone a process of regression in the progress of forestry projects. 4. The zone of Campo concentrates 12.5 per cent of the area and includes the departments of Apostles and Concepcion de la Sierra, Santo Tome e Ituzaing贸 (the last two in the province of Corrientes). In general, this area has experienced a regressive process in the departments of Misiones, by contrast, a very good productive level in the departments of Corrientes, thanks to high technology adoption. Types of tea production and volumes Although there are several types of tea which the people usually drink, there are all made with the same shoots, leaves and ripe from the plant of tea (Camellia sinensis (L.) O. Kuntze). The variety in the flavours of tea depends on the botanical sinensis varieties, Assam or its hybrid, forms of cultivation, age and type of harvesting and processing.

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On this last point, there are three categories of tea: Green or not oxidized Semi-oxidized, known as Oolong Black or oxidized Ninety-nine per cent of Argentinian tea is produced as black tea. Green tea exports and production participate only with small volumes (1 per cent). In 2004 the highest green tea export was registered (2.4 per cent). Argentina produces and commercializes different grades of black tea: primary and secondary types according to international classification. Off grades (used in the composition of various products of the food and beverage industry) are also commercialized. In 2007 off grades represented 18 per cent of total exports. International Denomination of Tea Types The following are the various types of tea: Primary: FP (Flowery Pekoe); P (Pekoe); FBOP (Flowery broken Orange Pekoe); BOP (Broken Orange Pekoe); BOPF (Broken Orange Pekoe Fannings); BOPD (Broken Orange Pekoe Dust). Secondary: BM (Broken Mixed) PF (Pekoe Fannings); PD (Pekoe Dust); FD (Fine Dust). There is an expected increase in annual export to 100,000 tonnes of dry tea, with a ratio of 40 per cent of BOP, Fannings and Dust and 60 per cent of BT (Broken tea). CATEGORIZATION OF PRODUCTION UNITS Approximately 8,000 producers cultivate tea in the province of Misiones and in the north-western province of Corrientes. In Misiones a high concentration of estates are found in small scale productions, estates with less than 10 ha represent more than 80 per cent however their participation over total planted area in the province is 53 per cent. Table 1 Stratification of Tea Plantations Hectares

0.1 to 5

5.1 to 10

10.1 to 20

20.1 to 30

30.1 to 40

40.1 to 50

> 50

Concentration

67%

18%

13%

Participation Planted Area

30%

23%

24%

13%

Source: National Agricultural Census 2002, INDEC

Base Scan on Sustainability Issues in Argentine Tea Industry

Another important variable to take into account is the producerâ&#x20AC;&#x2122;s relation with the drying plants and there are five types of relationships: 1 Estates that belong to the dryers (vertical integration), but are not supplied 100 per cent by their own plantations (15 to 20 per cent of the area). 2 Producers that belong to cooperatives delivering their production to their dryers (10 to 15 per cent area). 3 The most common type of relationship are the verbal agreements between producers and drying plants for the delivery of the output of the campaign. These arrangements are generally respected year after year due to the strength bonds between the actors. 4 Farm leasing, the outsourcing to third parties or drying plants is also an important form of relationship, especially in periods of low prices. 5 Finally, there are farms without a defined structure relation, switching between different forms and seeking access to better opportunities. It is difficult to quantify the way they are connected but an approximation reaches figures where 15 to 20 per cent of the area located in Misiones belongs to totally integrated companies and these estates do not exceed 3 per cent of total estates. Between 10 per cent and 15 per cent of the area is related (has some kind of relationship) to cooperatives, 4 per cent and 8 per cent overall small scale producers. The remaining percentages (65 to 75 per cent of the area and 90 per cent of small scale producers) are connected with scheduled deliveries through private drying plants or cooperatives; outsourcing work or combining forms of trading. Manufacturers Green Leaves Processors: This group does the drying process but they do not do the sorting. They sell their product to drying plants which are in charge of sifting and classifying leaves. Their equipment is very varied in obsolescence. Processors and Classifiers: This group does the drying and sorting process. Their sales consist only on classified tea. Their technology is not advanced, as they usually use machines that previously belonged to more advanced dryers. Processors, Classifiers and Exporters: These business groups constitute the economic stages of drying, classification and distribution of tea. They sell classified tea to the domestic and exporting market. These companies usually work throughout the entire year.

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Domestic market processors: In addition to large exporting companies there are a number of companies that outsource or completely integrated activities and produce fractioned tea for final consumption, mainly domestic. Location of dryers The dryers need to be close to the primary production due to the perishable nature of the tea buds; therefore distribution in the dryer’s territory is dependent on the location of primary production, and mainly in the core production area. The concentration of business is principally in the departments of Oberá and Cainguás. Size Depending on the type of processing plant, “leaves or classifiers” their annual process goes from 500 tons (about 2,500 tons of tea buds) up to 2,000 tons of dry tea. Usually the smaller plants belong to the “leaves processors” and the larger plants to the manufacture exporters. Small Plants hire between 1 to 10 employees, medium up to 20, while large plants employ over 100 people (P. Henry, 1999) Technical Specifications There is no information regarding status of the technological level of machinery and infrastructure of the different plants; we can only refer to larger enterprises, mainly exporters, who have the best technological capacity. The rest present some industrial delay, they utilize local manufactured machine, machinery replaced by big companies and in some cases new machinery. According to a survey made to a group of producers their vision of the technological state of their plants was “not obsolete and sufficient for the activity being done” (“The chain of tea business in Misiones”, 2005). It is important to mention, that almost 95 per cent of the machinery use firewood as source of energy to generate heat. Companies The largest manufacturing company is the Establishment Casa Fuente SA, with their dryers located in the central province of Misiones, with primary production, sorting and export fully integrated. Other major firms in the province of Misiones are El Vasco SA, Don Basilio S.A., Las Treinta S.A., Ceticom SRL, EXA S.A, Koch Tschirsch SACIFEI, Picada Libertad Cooperative Ltda., Compañía Argentina de Te, and Yerbatera of NE.

Base Scan on Sustainability Issues in Argentine Tea Industry

In Corrientes with a fully integrated production, designed primarily to the domestic market are the Establishment Las Marías SA and Establishment Diez Hermanos Hrenuk SA. Theire representation is the export market is very little. Outside the basin producing “Fraccionadoras” and packaging companies such as La Virginia SA in Santa Fe; Cabrales SA, IG Padilla SA, J. Llorente SA are located in the City of Buenos Aires, and the Province of Buenos Aires, Sol de Acuario is in charge of the distribution of certified organic products. Others The other players are: Coop. Agrícola Ltda. Ruiz de Montoya; Alfredo Linz; Hreñuk S.A.; Kraus S.A.; Empresa ABC SRL. Cooperatives Cooperatives are farmers organizations constituted to lower their costs and have better insertion in the market, buy inputs, shared technical assistance and training, sell their production as a whole, increase the volume and improve the price, and initiate processes of transformation of primary production. The association of agricultural cooperatives through federations, confederations, leagues or unions of cooperatives strengthens the position of cooperatives in the first degree and allows them to provide new and more sophisticated services of an economic-financial (workshops or factories, nurseries, etc.. ) Argentina has a highly developed agricultural cooperative movement, composed by major states and expanding. Agricultural Cooperatives increase and regularize the income of producers, especially because they can sell their products in more appropriate amounts, they have access to more distant markets or desirable, offer their products in the form of conservation or process more suitable, replace individuals and eliminate superfluous middlemen. It also allows those farmers who have fewer resources or are more adversely located, to perform in a satisfactory manner, as long as they meet the minimum requirements set by agricultural cooperatives and are within their respective area of operations. They promote regional development and industrialization of areas (General, not only of tea). In the Argentine agriculture sector:

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120,000 producers associated with agricultural cooperatives. 300,000 permanent and temporary workers in these agricultural units. 40,000 jobs are directly in the agricultural cooperatives. 20,000 additional jobs that depend on these cooperatives in an indirect way by the outsourcing of transportation services and distribution. More than 500,000 people depend directly on the complex agricultural cooperative that expands from small communities in which they operate directly to the gondolas of the supermarkets and ports. The agricultural cooperatives billed more than $ 7,500,000,000 per year and its exports exceed $ 3,000,000,000 annually, accounting for 6 per cent of Gross Domestic Product (GDP). This about 9 per cent of the total food industry. Argentina sold approximately 22 per cent of all agri production from the field, while tea accounted for 30 per cent of production. EVOLUTION OF PLANTED AREA The evolution of the planted area can be observed in three main stages in the chart below. Hectares under plantation

The first stage is reflected between 1953 and 1955 where the increase shot up by 29,000 hectares, representing a 780 per cent rise compared

Base Scan on Sustainability Issues in Argentine Tea Industry

with 1953. This explosive growth generated problems concerning the selection of plants, inadequate densities and other issues which impacted in the quality of the final product. Similar problems were experienced in later stages of the chain, mostly in the dryers which were not built in an appropriate way to generate a good quality of tea processing and classification.1 The second phase is between 1956 and 1975. Peaking at 45,000 hectares, it reached the highest point of planted area in tea history according to ITC. At this stage, although there were years of some slight decrease, the area increased at the rate of 1.58 per cent per annum. In the third stage, until the year 2006, a fairly shallow drop of 8,100 hectares can be seen with an annual fall of 0.65 per cent resulting in 36,300 hectares by the year 2004 according to ITC. This development marks the slump (stagnation) of the plantations and little renovation of them, which, corresponds to the international overview. By 1990 there were approximately 2,350,000 hectares in the world and towards 2004 there were 2,250,000 hectares, this indicates a decrease of 4 per cent between those years.2 Internationally, Argentina apportioned 1.76 per cent of worldâ&#x20AC;&#x2122;s tea plantations by the year 1990 and 1.61 per cent by 2004. The area under cultivation today comprises 40,000 hectares, representing 80 per cent of the production of tea in South America. INFLUENCING FACTORS Age Information regarding the planted area is very important to estimate future production. However, tea production depends as well on other factors besides the planted surface, such as the age of plantations which play an important role in production and yields. It is important to identify the new planted areas and the reasons why some others are eliminated or have been abandoned, leading to changes in the distribution of ages within the total stock. The area of tea plantations represents an average age of 35 years and that situation has improved in recent years with new plantations.

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Table 2 Distribution of total hectares by age category Total

<5 yrs

5-14 yrs

15-29 yrs

Hectares %age

36.660

751 2

3.659 10

10.384 21.463 28 59

Average Age

33.58

2.50

9.50

22.0

> 30 Not yrs categorised 404 1

45.0

Source: National Agricultural Census, 2002

Density, Management, Genetic and Climate Another important factor is the density of plantations with different yields, as well as aspects of crop management, genetic and climatic factors. Producers: In order to avoid uncertainty in the investment decision process, more accurate information is needed to at least be able to estimate the performance of the investment in potential extreme situations. Machinery: In the province of Misiones there are 2.511 tea harvesters. According to the National Agricultural Census of 2002, small-scale producers own 2,300 of them over an area of 19,000 hectares. The estates that have a harvester possess an average 8 ha. of tea and estates that does not have this have average of 4 ha. The average age of the fleet of harvesters is quite considerable, 76 per cent of the park presents an age of over 15 years. Intermediary Agents Storages or Consignees: They are called “storages” (acopiadores) – those individuals or corporations who are in charge of searching sources of production of tea, agree on the terms of the transaction and carry the load until the dryers. These intermediaries have very good knowledge of the producing area, and their respective paths. They also have the means to transport the crop. They work on commission and are dependent on the fee they fixed with the dryer. It is a player that has declined in importance in recent times, although according to the census of 2002, there were 864 small scale producers that used this medium for trading. If we add to this the number of consignment agents, we reach the provincial level of 1436 small producers that use this method, that being 23.51 per cent of all smallscale producers. Pruning and Harvesting Contractors: New forms of associations have emerged in order to reduce costs and expand gross margins. It surges in

Base Scan on Sustainability Issues in Argentine Tea Industry

this way, the use of machinery and transport shared by producers, the implementation of plans to swap value product for fuel, agricultural chemicals and fertilizers by the storages/ processors and the leasing of tea plantations by contractors. Brokers: Another important factor, but this will be dealt with in the trade section in more detail. PRICE VARIATION IN DIFFERENT TYPES OF TEA PRODUCTION 3 Green sprout The green sprout is the raw material that is delivered to “acopiadores” (“tea collectors”) or directly to dryers. Values are agreed between the producer and the industry, which at present is US $ 0.08 per kilogram, delivered at the dryer. This price is agreed by CoProTe; Provincial Committee of Tea; formed by actors of all sectors, government, large and small producers, trade unions, cooperatives and the INTA (National Institute of AgroTechnology). Dry tea This designation applies to black tea after the drying process. Its value is measured in dollars as it is mainly designated for international markets. The average price during the August 2008 period was US$ 0.83 FOB per kilogram. Retail domestic price of black tea bags Considering the value of the box of 50 pieces of black tea in bags in the local market, it is noted that while there have been increases every year since 2001 the proportion of the increase has been declining. The largest increase occurred between 2001 and 2002 (56.5%) and lowest among the years 2004 and 2005 (4.2%). During 2008 the average price has been AR$ 3.18 (US $0.95) per pack . International Prices Tea prices are set through auctions in various countries of global relevance in terms of production and export of the product. These prices are taken as reference for international business transactions and also setting the trends of behaviour of the markets. Between 2005 and 2007 the average export prices for Argentina show positive trend, following the trend of prices at auctions in Colombo (Sri Lanka) and Calcutta (India). By contrast, prices in the auction in Mombasa (Kenya) recorded negative trend between 2006 and 2007, due to social conflicts that prevented the

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Té Argentino

normal development of the crop, the determination of prices and commercialization in the country. In Argentina, during to the first quarter of the year, the average export price retracted 6 per cent. The exporting companies negotiate the price directly with the trader, broker or buying companies overseas. NUMBER OF WORKERS INVOLVED The number of producers involved in tea production totals 8000, concentrating 89.5 per cent in holdings of up to 50 ha and an average size of 3 to 5 ha. of tea. Despite the efforts, we have not found precise information regarding the percentages of legal workers in tea plantations; it is very common to find workers getting paid “under the table.” However, after several conversations with people from the industry, we came to the conclusion that mainly big companies and cooperatives have legal workers, small producers cannot afford hiring in legal terms, therefore they work with help from their neighbours’ farms and family, or they hire casual workers paid in cash (not declared). ASSESSMENT OF CRITICAL ISSUES IN TEA PRODUCTION IN ARGENTINA Integration between primary production and manufacturers The link between primary production and processing was balanced until the late 1990s by the intervention of the state mediator and regulatory action of two cooperatives, which came to have a flow of movement of raw materials, of between 40 to 50 per cent of production in the Province of Misiones. At present both the national and provincial government and cooperatives have ceased to have the influence of previous decades. Given this fact, new players have emerged in the industrial and service sectors, large manufacturers, exporters and contractors pruning and harvest. So among the primary producers, processors and contractors have emerged new associative forms in order to reduce costs and expand gross margins. Surge the use of machinery and transport shared by producers, the implementation of plans to swap value product for fuel, agricultural chemicals and fertilizers by the processors and the leasing of tea areas by the contractors. In order to establish a more balanced integration, it is desirable to identify the strengths and weaknesses of primary producers, processors and contractors, and strike a match consensus.

Base Scan on Sustainability Issues in Argentine Tea Industry

Primary production In order to strength integration it is appropriate to establish certain parameters, such as: Feature quality of the raw material defendant; Payment deadlines set; Security in the collection; Setting a price range for each quality. Manufacturers require: Homogeneity in cultural practices; Proper handling of raw materials in the collection, storage and transfer stages; Uniform quality in raw material.

TRADE ASPECTS The commercialization of the product is a fundamental issue for a balanced development of the chain, since the possibility of obtaining good prices will impact positively not only the industrial but also for the producer and in general, for all the players directly or indirectly with the activity. This necessarily implies strongly attacking the factors that determine that Argentina receives prices significantly lower than other producing countries. While many of these factors are purely agronomic, environmental or organizational, the morphology of the marketing structure prevailing in the sector could constitute a restriction for the full exploitation of the gains in efficiency and productivity that are experiencing the primary and industrial sectors. Briefly, the operations of sale in the producing area are conducted mostly through brokers or traders who represent or interact with major international companies. The biggest local exporting companies, many times trade directly with the company overseas. These transactions are carried out using as a reference framework for the so-called Standards of Marketing, a system that classifies the product in different quality levels in line with the parameters set Supply Chain The buyers are either companies such as Unilever or other tea wholesalers worldwide, that process the Argentine tea sold in big bags of 600 kg. These companies process them either as tea bags, iced tea or blend it with other processed tea form other countries.

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Consumers buy the final product in different types of presentations. Processing Factories (Drying Plants) At the time of seeking information on the existence of drying plants it was scarce, so the values presented should be considered as estimations. The following Table also shows an approximation of the quantity and type of drying in the production area. The concentration of business is mainly in the departments of Oberá and CaInguás. The data presented is reduced if we consider companies with more than one plant (about five); these companies have between two and

Base Scan on Sustainability Issues in Argentine Tea Industry

four plants located in different areas and are mainly exporting companies. Table 2 Types and amount of dryers Type of dryers Leaves Processors

52%

Processors and Classifiers

11%

Processors, Classifiers and Exporters

29%

Classifiers

Others

Total

132

Source: CNA02, Enrique 1999, Direcci贸n de saneamiento ambiental Gobierno de Misiones

The problem with tea is that it is a very perishable commodity both before and after processing. Producing high quality tea relies on smooth transport and other infrastructure networks to get the tea quickly to and from the processing factories. The green tea leaf cannot be stored for longer than six hours without damaging its quality, and it is recommended that there is a maximum of three hours interval between harvesting and processing for good quality tea. Likewise processed tea has a shelf life of only a year before experiencing a serious drop in quality. The longer the tea is kept the higher transaction costs are as the tea may need repeated quality assessment and grading. The fact that small holders grow their tea in geographically dispersed areas makes it difficult for the marketing system to move the tea efficiently and quickly. The small producers sometimes have very little choice in whom to sell their tea to, and in such cases they are forced to sell to whichever buyer can process it relatively quickly. Bearing the brunt of higher costs Increasing costs are particularly hard on smallholders. On one hand, they pay more for inputs such as fertilizer as they do not buy in bulk, and on the other hand they have poor access to infrastructure and market information necessary to increase productivity, with the result that they have much lower yields than big plantations. The average yield per hectare for small holder farms is currently around 70 per cent or less of those of big plantations. Small scale plantation have an average yield of 4.000 kg/ha while big plantations have 20.000 kg/ha.

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For farmers with a small amount of land, yield can make the difference between a satisfactory income and poverty. They therefore need training and advice, but this demand is only inadequately met by tea boards who consider them too small to worry about. Main players Exporters Casa Fuentes SACIFI; Don Basilio; El Vasco S.A.; Las Treinta S.A.; Koch Tschirsch S.A.C.I.F.e.I Local Players Establecimiento Las Marías S.A. (Taragüi); J. Llorente S.A.; Café La Virginia S.A.; Cabrales S.A.; I.G. Padilla S.A.; Establecimiento 10 Hermanos S.A.; SANESA Cooperatives Cooperativa Agrícola Ltda. Ruiz de Montoya; Cooperativa Agrícola Ltda. Picada Libertad; Cooperativa Agrícola Ltda. de Oberá; C.O.P.E.T.E.G.L.A.; Cooperativa Agrícola Mixta de Montecarlo ; Cooperativa Agrícola Los Colonos Ltda.; Agrícola de la Colonia Liebig Ltda Others Emprendimiento Exportador Agroforestal EXA S.A.; Alfredo Hinz; Hreñuk S.A.; Kraus S.A.; Empresa ABC SRL; Luis Gabrouski; Schuchardt Harry Enrique; Empresa Tealera Dos de Mayo- Baum; Ceticom SRL; Compañía Argentina de Te; Empire Tea SRL; Ernesto y Mario Barbaro S.A (La Obereña); Koch Tschirsch SACIFEI; Pech Hermanos S.A; Te Kairiyama Main Brokers Buddemeyer C E; Van Rees; Soleven; Jorge Barbaro; Spider Small farmers Owners of 5 to 25 Ha farms Trends in concentration and ownership characteristics Most of the companies are owned by argentine people. Companies as El Vasco and Don Basilio have Spanish origins, from the first tea settlements, but at the moment they all belong to local people. Multinationals like Unilever, buy their tea from these companies or through brokers.

Base Scan on Sustainability Issues in Argentine Tea Industry

Value chain analysis Small farmers sell their crop to plantations, middlemen or to factories that buy up the raw tea, process it and then sell it. In some cases it is the factory that collects the leaf directly from the smallholder, with whom there is usually a contract, or in other cases the producer is in charge of delivering it to the factory absorbing transport costs. Prices paid by factories to small holders are set nationally or regionally by government and reviewed regularly (AR$ 0.27 cents, US$ 0.08 delivered in the dryer). Prices for small holder tea tend to be lower than prices for big plantation of tea because of the generally lower quality. Compared to large plantations with access to the latest technical information, small holders lack the knowledge of how to harvest and store the leaves properly, and how best to treat the bushes and the land. This situation is exacerbated because they often do not have the capital to be able to afford the necessary technical inputs like fertilisers and pesticides. Supply Chain Analysis: Costs Yield Technology Level

4.000 8.000 14.000 Low

Med

High

7.000 14.000 Low

24.000

Med

High

Fertilization

None Nitrogen Total

Plant Type

Seed (%)

Clonal (%)

Labour Force

18.1

14.5

10.5

8.8

6.7

4.8

6.3

5.1

3.7

5.8

4.5

3.2

Inputs

10.6

16.5

27.1

9.9

14.6

23.6

Harvest

12.2

10.7

14.2

9.3

Transport

11.8

18.9

19.2

29.2

37.66

30.1

21.8

39.1

29.6

21.4

1.4

1.1

0.8

1.3

0.7

1.6

1.1

1.8

1.4

Pruning & Fertilization

Amortizations Administrative Costs Taxes

If we assume that large-scale companies have medium to high technology and use mostly clonal plants and some seed plants we would have the following distribution:

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TĂŠ Argentino

Harvest Cost (Large Scale Company)

If we assume that small scale companies have mostly seed plants with low to medium technology and some clonal plantations with low technology, we would have the following graph: Production Cost (Small Scale)

Dry Tea Production Costs for Small and Large Scale Plants Updated and detailed data is not available. It is important to note that due to argentine high inflation, tea cost raised up to 30 per cent, especially in inputs such as the urea fertilizers. Cost of production unit of black tea Manufacturing and classifying plant: 1.500 ton annual capacity; yield 23.2 per cent (Grades and BT).

Base Scan on Sustainability Issues in Argentine Tea Industry

Large Scale Variable Costs Item Labour Force Energy

Fixed Costs % 7.14 15.99

Item Labour Force Amortizations

% 6.00 15.42

Packaging

9.67

Maintenance

Others

1.00

Administration

16.08

Cost and Freight Bs. As.

22.29

Total Variable Costs

33.80

Others Total Fixed Costs

5.41

1.00 66.20

Source: INTA Cerro Azul/Private Company Data

There is no available data regarding production costs for small scale companies. Price The price is fixed by CoProTe. (Provincial Commission of Tea Representatives). Producers by law should get a fixed price for their tea, however this is hardly respected. According to market conditions, processors pay the price they consider appropriate. After devaluation in Argentina, when exporting became a better business, prices were adjusted, but inputs prices raised as well, so it became even harder for the producer to get profit from his production.

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TĂŠ Argentino

Since the arrival of Rainforest Alliance, some producers are receiving the price fixed by the government while the others receive from AR$ 0.22 to AR$ 0.25. Export figures and trends The market for Argentine tea is medium/low quality; it is exported mainly to USA. Trends are still increasing, but due to world economy crush and being USA their main market companies are waiting to see what happens. According to interviews made to the major tea companies it is believed that tea consumption is not going to decrease. But on the other hand, if USA reduces their tea imports it would be a big problem for argentine production as it represents such large volumes that it would be hard to allocate it in other markets. During the Falklands War Argentine companies have a similar problem with UK, but they were able to sell their production to Pakistan due to their conflict with India, so they replaced Indian tea for Argentine tea. The volume of Argentine production has low impact on the international market. Argentina is located in the 9th position as a producer and as the 6th-producing country exporter. The export volume represents just over 90 per cent of annual production, and 3.6 per cent of world trade. During the 2007 campaign 52,030 tonnes of black tea were sorted and bagged; bags of 50-60 kg were exported, with 33,361 tonnes and 5,964 to the U.S. and Chile respectively. The rest was distributed between the Russian Federation, United Kingdom, Germany, Kenya, Paraguay and the Netherlands. The total value of shipments reached 38,783 million dollars. Regarding the evolution of exports during the period 1995/2001 grew in volume by nearly 26 per cent, while the value of these increased by 22 per cent. The difference originates centrally exposed to the greatest degree of participation in secondary or BT Total shipments. The average value per ton of exported black tea fluctuated in the span of reference from 940 to 740 U.S. dollars. For the same period Sri Lanka earned an average of US$ 2.450, India 2317, Kenya 1824, 1209 Indonesia and Malaysia 811. Green tea had in the past decade, a growth of 2.6 per cent annually in its production and of 9.2 per cent per annum in volume in the international market. Main producers-exporters are located China, Vietnam and Indonesia, while their older buyers are Morocco (24.3%), Japan (8.3%), USA (5.3%), Germany (5.1%), France (3.6%) and Canada (1.7%). Argentina exported only 1 per cent.

Base Scan on Sustainability Issues in Argentine Tea Industry

Argentine export companies The largest exporting company is the Establishment Casa Fuentes S.A, fully integrated. Other major firms in the province of Misiones, also integrated, are El Vasco S.A, Don Basilio S.A, Las Treinta S.A, Koch Tschirsch SACIFEI, Campania Argentina de Te, EXA SA. There are no auctions, exporter trades via brokers, directly with the foreign company, or in some cases with importer companies. Argentine tea is exported to various markets worldwide. Between 2000 and 2007 tea was sold at an average of 39 foreign markets. This shows both the presence of the product worldwide, as the search for new markets by the domestic tea sector. Export Countries (2007) (In thousand tons/in millions U$ FOB) Participation Country

Volume

Value

64.4

55.6

Chile

9.7

15.6

Germany

5.8

5.2

Holland

5,0

4.9

6.4

India

2.0

2.2

Kenya

1.7

3.9

Poland

1.6

1.9

Others

4.8

4.3

United States

USA paid in august 0,96 USD FOB/kg, Chile 0,50 USD/kg, Poland, Holland, China, UK, Canada, India paid values under 0,80 USD FOB/kg USA market profile According to a report made by the Tea Association of the USA â&#x20AC;&#x153;, tea is the most consumed beverage in the world along with water, and can be found in 80 per cent of households. It is the only drink that is served hot or iced, at any time, place and for any occasion. Any day, more than 127 million Americans are taking tea. In 2005, it was consumed in the United States over 50,000 million cups of tea and the estimated value of the tea

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market reached U.S. $ 6.160 million dollars. 87 per cent of all tea consumed is black tea and 12.5 per cent green tea. Approximately 85 per cent of tea consumed in the U.S. is iced tea, a habit not common in other countries. Over the past 10 years, the pattern of tea “Ready-to-Drink” (bottled tea ready to take) has grown almost 10 times: in 2005 sales under this procedure were estimated at USD 2410 million. 65 per cent of tea served in the U.S. during 2005 was in tea bags. Instant tea is declining, while the loose-leaf tea is gaining popularity, especially in sectors gourmet and business expertise. As to the level of sales, 2005 marked the fourteenth consecutive year that sales to consumers rose. Only sales in supermarkets exceeded USD 1,900 million dollars. The consumption outside the home has been rising at least 10 per cent annually over the last decade. The experts anticipate a strong and sustained growth in the tea industry in the next five years. This growth will come from all sectors driven by convenience, by the interest in the healthy properties of tea, and the discovery of gourmet varieties of tea. In 2005 Argentina exported tea valued at US$ 35 million. Imports of Argentine highlighted the sale of black tea made otherwise with a total of US$ 33,611,000 during 2005 that put their country first ranking of imports of that product. The ports of entry where they were registered during 2005 65 per cent of imports under tariff positions considered in this profile are listed in descending order: New York, NY; Los Angeles, CA; Norfolk, VA and San Francisco, CA. Entry requirements and documentation The import of herbal tea is regulated by the U.S. Customs Service (www.customs.gov) and the Food and Drug Administration or FDA (www.fda.gov). The main factors to take into account are: Provisions set by FDA in the “Law on import of tea” (Tea Import Act), which sets standards for purity and quality so that the tea is fit for human consumption. In the case of products entering the country packaged for retail sale, it must follow the rules on labelling of foods FDA, according to the law called the Fair Packaging and Labelling Act. Among other data, the package must include: name of the product, name and place of operation of the manufacturer, packer or distributor; ingredients, spices, flavours and colours; portion sizes and number of servings per package.

Base Scan on Sustainability Issues in Argentine Tea Industry

Imported products regulated by FDA can be inspected at time of admission. If FDA does not require inspection of samples, it emits a “proceed with the import,” with which the shipment is free from requirements of this body. On the other hand, if it indicates a “notice of specimen”, the products will be analyzed by FDA before being allowed entry into the U.S. market. Those shipments that do not comply with the laws and regulations will be retained, amended so as to comply with, or to destroy or re-exported. There are no non-tariff restrictions. According to the instructions issued by the Customs Service the documents required for entry of goods to the U.S. are as follows: Income Manifest (Customs Form 7533), or Application and Permit for immediate delivery (Customs Form 3461) Evidence of the right products to enter the country, such as a bill of lading or air waybill) Commercial Invoice or pro forma List /s packaging (if appropriate) Summary of income (Customs Form 7501) Any other documents necessary to establish that the cargo can be admitted legally in the country. Evidence of payment guarantee (in English, Surety Bond) Certificate of Origin is not required but helps the office of the U.S. to relieve the burden more easily, as well as to ensure the proper application fee included in the GSP as appropriate. For this reason it is recommended to have it. Any other production certificates, specifications, quality certificates or other similar remain under negotiation between buyer and seller. The office of the United States takes no part of such requirements. Bond, a warranty or guarantee required by U.S. Customs, is required at pre-determined slab rates. If the value of the merchandise is less than US $ 8,000 the bond value would be US $ 45 and if the market value exceeds US $ 8,000, it is US $ 4.50 for each US $ 1,000 for each import. Bioterrorism Act The Bioterrorism Act of 2002 changed the pattern of trade with the United States, as regards the entry of food from foreign countries. The main elements of this new legislation are the requirements for registration and notification. In this sense, ALL producer, importer and

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TĂŠ Argentino

distributor of food regulated by FDA, either domestic or foreign, must register with the agency of the U.S. government. Any other agent that is in direct contact with food during the elaboration process and deposit / storage of foods should also be registered. This registration must be carried out unfailingly between October 16, 2003 and Dec. 12 of that year, and then shipments of food will be held in the port of entry. It also must give prior notification to FDA electronically of any shipment of food. All documentation must be accurate and reflect the true nature of each shipment. Not to complete this requirement, the shipment will be held in a warehouse in the port of entry and the cost of storage will be charged to the importer, and there are also a possibility that has been refused entry to the countryâ&#x20AC;&#x2122;s shipping directly Chilean Market Phytosanitary Requirements And Entry Conditions Res. 3801/98 of Agriculture and Livestock Service provides the Classification of Goods Plant under the category of plant health risk and sets the conditions for entry into the country. According to the resolution, Tea is in Category 1, which means that is exempt from the requirement to enter the country under an official phytosanitary certificate from the country of origin. Category 1 of health risk is the vegetal origin product whose raw material has been subjected to one or more manufacturing processes or industrialization, involving some transformed of their natural characteristics, as a result of which they are not capable of being affected directly by pests (www.sag.cl Agricultural Area). Also, the Food Sanitary Regulation sets out the conditions that must adhere to production, processing, packaging, storage, distribution, sale and importation of food (Decree 977 Ministry of Health OJ 13.05.97). The aforementioned regulations set for tea the following requirements: These three types of tea (green, red and black) must meet the following requirements: Up to 20 per cent of stems; 12 per cent humidity; 8 per cent of total ash and 1 per cent ash insoluble in 10 per cent hydrochloric acid, both expressed in dry basis. It should contain a minimum, expressed in dry weight, of: 1 per cent of caffeine 24 per cent of aqueous extract of black tea; 28 per cent of aqueous extract in green tea. It is for the Health Services to run the Sanitary Control of food (of every kind), toxic substances and hazardous for the health, pharmaceuticals

Base Scan on Sustainability Issues in Argentine Tea Industry

products, medical use food, cosmetics, drugs and psychotropic substances. (Of.Circ. 604 D.N.A-15.10.82). With regard to labelling and packaging, it is suggested to visit the website www.tecnoalimentos.cl. Note: See decree www.sesma.cl: Decree 977/199

England-Germany-Holland This group represents one of the major importing markets of the world. Argentine imports may come to England and / or triangles with the other two countries. These three countries account for 15 per cent Argentine tea exports. The product exported to these markets is composed of two grades: The highest quality and the called “de corte” (fractionize) that presents a low price and is used by their colour to be mixed with other highquality teas in order to obtain a product for specific markets.

ECONOMIC ASPECTS Costs of Production of Green Tea The cost varies according to the Type of production and technology level. It is considered useful to contemplate first two important aspects that define the potential yield: plantations originated from seeds and clone plantations. Subsequently, and according to the technological level used three levels have been established: low, medium and high. The physical and technical coefficients as well as other aspects of technology used to define them are shown in Table 1. The economic results that are described above pertain to the 2007-2008 campaign, which has defined an operating model based on data from the National Agricultural Census 2002. It is important to note that 92 per cent of the tea EAP´s (small scale plantations, 5 Ha) also produces Yerba Mate. This characteristic means

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TĂŠ Argentino

Table 1 Physical parameters of production in small plantations with different levels of technology, in seed and clone plantations. Seed Technology Level Total production Area (Ha) Tea cultivated area (Ha) Tea Yield (Kg/Ha) Distance to the Dryer (Km)

Clone Technology Level

4.000

7.000 14.000

7.000 14.00022.000

Plantation system

Seed

Plantation density (Kg/Ha)

100

Plantation density (0,60 x 2 m) Pl/Ha

8.333

Inputs Fertilizer use:

Yes

Urea (Kg/Ha)

200

300

200

300

Double Nitro (Kg/Ha)

300

1,5

Acarus pesticide (L/Ha)

0,5

Labour force Manual Un-herbage (Daily Wage/Ha)

Fertilization (Daily Wage/Ha)

0,5

Pesticide Pulverization (Daily Wage/Ha)

0,75

1,5

0,75

1,5

Herbicide Pulverization (Daily Wage/Ha)

0,75

1,5

0,75

1,5

Mechanical Harvesting (2h/ha) 2 persons Daily Wage/Ha

3,5

5,5

Herbicide (L/Ha)

Harvests per Year

Clone Clone Clone _

8.333 8.333

Base Scan on Sustainability Issues in Argentine Tea Industry

Table 2: Gross margin and operating results of the plantations with different levels of technology.

Concept

Seed Technology Level Low

Gross Income (+)

Med High AR$/Ha

Clone Technology Level Low

Med AR$/Ha

High

880,0

1.540,0 3.080,0

1,540,0 3.080,0 4.840,0

Direct Costs (-)

1.225,6

2.249,2 3.837,6

1.531,7 2.671,9 4.322,5

Gross Margin

-345,6

-709,2

-757,6

8,3

408,1

517,5

94,4

107,5

130,0

103,7

115,0

133,7

-440,0

-816,7

-887,5

-95,4

293,1

383,8

Structure Expenses (-) Operating Results

Table 3. Economic indicators for the small plantations with different levels of technology without considering the labour force of the producer and his family.

Concept

Seed Technology Level Low

Low

Med AR$/Ha

High

Gross Income (+)

880

1.540

3.080

1.540

3.080

4.840

Directs Costs (-)

479

1.346

2.672

664

1.678

3.048

Gross Margin

401

194

408

876

1.402

1.792

Structure Expenses (-) 94

107

130

104

115

134

Operating Result

307

278

772

1.287

1.659

Amortization (-)

328

379

558

420

453

542

Net Income

-21

-293

-279

352

834

1.116

Unpaid Labour Force (-)

738

905

1.166

868

1.016

1.275

Capital Income

-759

-1.198

-1.445

-516

-181

-159

Profitability

y46

Med High AR$/Ha

Clone Technology Level

-3,73%

-5,22% -4,53%

-2,06% -0,68% -0,51%

TĂŠ Argentino

that these EAPs (mainly the larger ones) have mechanical traction (around 40 per cent) for their cultural work. 82 per cent of these EAPs have a total area of less than 50 ha. In the same order, 90.5 per cent of tea plantations have less than 10 ha, which represent 58 per cent of the total area under tea cultivation in the province. Some important aspects of the technological level indicate that 49 per cent of EAPs are using fertilizer, 13 per cent applies acaroids and 52 per cent make use of herbicides that in area represent 62 per cent, 29 per cent and 72 per cent respectively. The fertilizer mostly used is urea Economic performance The gross income results belong to the yields reported in Table 1 multiplied by the price of green tea leaves for $ 0.22 / kg. Table 2 shows gross margins of EAPs with different levels of technology. EAPs with tea plantations of seeds in all cases are not enough to cover the structure expenses, so that the operating result is negative at levels of up to $ -887 / ha. These results are modified in tea plantations of clone origin of middle and high technology, since even the clone plants with low technological level have negative operative results. Direct costs include inputs identified in Table 1, plus the wages required in the various tasks, assigning the wages of rural workers established by the National Agrarian Labour Commission according to the latest current resolution. Since in these production systems, labour is provided by the farmer and his family, the gross margin could be made without considering the workforce as a direct expenditure, obtaining the results of the Table 3. These results improve substantially from the previous ones, with gross margin and positive operating results in all cases, though much higher in plantations of clone origin. However, in the case of seed plantations these values do not reach to cover amortizations, so the net income is negative. This is not the case with clone plantations that in all cases show positive net income. But these net revenues are not enough to reward back the workforce of the producer and his family for what the capital income ends up negative in all cases and profitability returns are in the order of -3 to -5. The fact that this analysis suggests is to show that probably the producer is resigning his workforce paid to the legal values as a strategy to carry through this activity. It should also be noted that the largest proportion of the plantations in production have planting seed origin, as the values of the 2002 Census

Base Scan on Sustainability Issues in Argentine Tea Industry

can corroborate where about 75 per cent of the area belong to plantations of more than 15 years old, being that the clone plantations have started in the past decade. The above Tables show that the fixed price of $0, 22 of last campaign was not enough to cover production expenses. Most plantations have seed origin, it is calculated that the price should be at least $ 0,34 to cover the costs. Only clone plantations, with high technology get real profits. Small Holders in general have seed plantations, while the only actors that can afford buying clone plants are big companies. This shows the how inequitable is the value chain. Other Calculation According to INTA (National Institute of Agro Technology) calculations to estimate the cost of tea for each player, the mathematical operation is as follows: The Liquid Margin is going to be considered, and also the price of some adjustments that refer to industrial losses. Formula: LMc = Pf* / Pp* x 100 Pf* Example with current prices: Pp* = 0.27 AR$; Y = 0.2222; K = 10%; Pf = U$ 0.83 x 3.35 = AR$ 2.7805 Pf* = 2.7805 x 0, 2222 x (1- 0.1) = 0.556 LMc = (0.556 - 0.27) / 0.556 x 100 = 51,.438 % In this way the industrial sector accounts for 51.438 per cent of the final price and the primary producer the other 48.562 per cent for those who face up to their costs and profits. Taken parameters of industrial performance and losses of the above example and the price series in constant pesos of the green leaf and dry tea for export show the number of LMc. According to this formula 48.562 per cent goes back to the producer. But as we have seen before, costs are higher than incomes, and the age, and low yield of seed plantations that most of the producers have, show the lack of profit that the small holders receive with this market conditions. Moreover, the fixed price is never respected, even though it Pp*= Price of tea sprout per kg Pf*= Pf.Y. (1-K) Pf = export price of dry tea Y = Yield of tea sprout in dry tea: 1/4.5 = 0, 2222 K = % of industrial losses per kg of tea sprout 10%=0.5 kg

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is defined by law. Producers usually receive 3 or 5 cents less than established prices. Argentina Exports Total exports Argentina: 50 bn USD Total tea exports (2007): 55,5 million USD FOB Tea represents 0.01% of total exports GDP GDP Argentina (2007): 240 Bn USD (world bank 608,8 mil millones usd 2007??) Contribution of tea industry to Argentina GDP: 0,001 %

Misiones Exports Total Exports of Misiones (2007): 439 million USD Total Tea Exports of Misiones (2007): 51.9 million USD Contribution of tea exports to Misiones Economy: 12% GDP Misiones GDP: (2007, not official data available, estimated) USD 1,900 millions Total tea production Misiones: 55 million USD Contribution of tea production to Misiones GDP: Between 2/3% The production of tea in Missions represents between 2% and 3% of the province GDP. In Misiones most export consists in forestation. GDP based on purchasing-power-parity (PPP): (2007) 523.739 bn USD Inflation rate (consumer prices): 9% is the official rate for 2007. Real rate is 20%

Wages Wages in the tea plantation sector are quite low comparing to other industries. In Argentina, official government figures for average daily earnings indicate that a tea estate worker (and all rural workers in the country) earns AR$.61.82 (US$ 18) a day, while the average payment of employees registered in the commercial sector is AR$ 101.40 (US$31.2) a day and a metallurgical industry worker earns AR$ 80 (US$25) a day. General minimum wage in Argentina is going up 27 percent, first from to 980 pesos a month to 1,200 pesos a month in August 2008 and then up to 1,240 pesos (US$ 400) a month in December. This increase was

Base Scan on Sustainability Issues in Argentine Tea Industry

negotiated between labour unions, industry leaders, and the government. Despite the fact that the government calculates the annual inflation at around 9 percent, independent analysts believe that it prices have been increasing around 20 to 25 percent. The decision to increase minimum wage so much more than the reported inflation perhaps reflects the general awareness in Argentina of the high inflation.

LEGAL ASPECTS Labour Regulatory Framework: Argentine Labour Laws are a Set of Public Laws Labour activity is highly regulated Governing principle is the protection of the Employee Trade Unions representatives are protected by Law Argentina’s Law structure is based on the European Union System where almost every activity has its position represented in one Trade Union. The Collective Bargaining Agreement Act and Trade Unions Act follow the above mentioned system. (Ref. ILO Convention 87 on Freedom of Association) (Ref. ILO Convention 98 on Right to Organize and Collective Bargaining) Union representation depends neither on the Company’s will nor on the Employee’s will. It depends on the type of function or task rendered by the Employee. (i.e., an employee working for a glass company and manufacturing glass bottles will be represented by the Glass Trade Union). There exists two types of Unions, legally-recognized Unions and not legally-recognized Unions. The legally recognized are those with rights to claim on behalf of the Employees. Labour and Working Conditions Enforcement of Argentinian legislation relative to labour and working conditions is an institutional responsibility of the Ministry of Labour, Employment and Social Security. The National Administration of Social Security (Administración Nacional de la Seguridad Social – ANSES) reports to the Ministry of Labour, Employment and Social Security. In January 2000 a Federal Pact on Labour Conditions was ratified between the Federal Government and all provincial governments and the Government of the City of Buenos Aires. This pact creates the Federal Labour Council which has institutional strengthening of labour administration by the public sector as its main goal. The Federal Labour

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Council is headquartered at the Ministry of Labour, Employment and Social Security. In August 2000, the National Commission for Eradication of Child Labour was created. Federal Decree No 719/00 establishes that this commission will be headed by the Ministry of Labour, Employment and Social Security. (Ref. ILO Convention 182 on Worst Forms of Child Labour). Law No 25877/04 establishes general work conditions and regulations affecting administration of labour and labour conflicts. Among other aspects, this law creates the National System of Labour Inspection and Social Security (SIDITYSS) with responsibility for supervision and enforcement of compliance with labour and social security legislation on a national basis. The Argentinian Constitution of 1994 includes provision for dignified and equitable work condition for all citizens, including limited work schedules, guaranteed minimum salary, remunerated rest and holidays, equal remuneration for equal tasks, profit sharing and participation in production control, protection against unjustified dismissal and the right to organize collectively in a free and democratic way. Worker representatives are granted guarantees in order to be able to fulfil their functions without risk of loss of employment. The Constitution further establishes compulsory social security to be administered by national and/or provincial labour administrations with independent budget allocations. This must avoid redundancy of payroll contributions and retirement entitlements. The main federal laws affecting labour rights and conditions at work include: Law N o 25877/04 establishes general work conditions and regulations affecting administration of labour and labour conflicts. Law No 25212 (November 1999), which establishes the Federal Pact on Labour Conditions (ratified in January 2000) and institutes the Federal Labour Council. Law No 25191 (November 1999), which among other aspects establishes special conditions for rural workers. Law N o 24467 (March 2005) deals with promotion and development of small and medium scale enterprises and includes a chapter on special working conditions at such establishments. Law N o 24013 (December 1991) is the National Law of Employment and includes provisions for unemployment compensation, for punishment of irregular labour practices

Base Scan on Sustainability Issues in Argentine Tea Industry

(mostly informal labour), for assurance of compliance with minimum wage requirements and for enhancement of labour productivity, among other aspects. Law No 20744 (updated in 1989) regulates the work contract and worker relations. Based on the aforementioned legislation, most pertinent aspects of labour relations and conditions at work in Argentina are as follows: Minimum wages are fixed by the government and are currently set at $1.200 pesos (approximately US$ 370.00 per month). Work regime totals 48 hours per week (Monday through Saturday), where small and medium enterprises (up to 40 employees) are allowed to operate on a flexible regime of up to 12 hours per day without alteration of the 48-hour weekly total. (Ref. ILO Convention 1 on Hours of Work) Minimum working age is 18 years, though children over 14 can legally work if independent from parents or tutors. (Ref. ILO Convention 182 on Worst Forms of Child Labour). Holidays are remunerated and are progressive, totalling 14 days per year for workers with up to 5 years in the firm. All workers have a right to 13 salaries per year. All rural workers, whether permanent or temporary, are issued a Worker Identification Card with register of all contractual labour relations. Labour contracts with pre-set duration (i.e. temporary labour) are allowed for periods between 6 and 18 months. Discrimination based on sex, race, nationality, religion, political orientation, worker leadership or age is explicitly vetoed by law. Severance pay corresponds to one month’s salary per year in the company and is calculated on the basis of the highest or last salary. Unemployment compensation is paid by the government for up to one year after severance and is subject to a descending scale. All workers are entitled to insurance for risk at work and during transport to work, life insurance and a health plan whose cost is shared between worker and employer. Trade Unions Although there tends to be a high rate of unionization unions also tend to be highly politicized around different parties, which can affect the

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nature of negotiations of collective agreements. In Argentina, unions are weak, fragmented and inactive. They are also alleged to be ‘puppets of management’, severely restricting their ability to represent the interests of the workers. In Argentina the only union recognized nationally by the rural workers is the Argentine Union of rural workers (UATRE), so that on policy matters, wage and other agreements, only one union, the ACMS, represents nearly 850,000 workers. The freedom of movement for activists of other trade unions is severely restricted, and there are certain gardens where they cannot enter even during the daytime. The Union of Rural Workers, UATRE, allowed the merging of unions: SUTA, United Trade Union of Agricultural Workers of Oberá; ATRAM, Association of Rural Workers Misiones, Campo Viera, and SUOR, Single Union of Rural Workers of El Dorado. Environment The Constitution of Argentina (last revised in 1994) provides for a high degree of autonomy for the provinces regarding the environment. Article 41 of the Constitution states that: “It is incumbent upon the nation to establish the standards containing the minimum protection provisions and it is incumbent upon the provinces to establish the required standards to complement them, without altering local jurisdictions.” National and provincial have the duty of ensuring rational use of natural resources, protection of cultural property, biological diversity conservation and access to environmental information. . At national level, environmental matters are the institutional responsibility of the Secretariat for the Environment and Sustainable Development, whose main executive departments include: (i) Department of Environmental Planning and Policy; (ii) Department for the Promotion of Sustainable Development; and (iii) Department of Coordination of Environmental Policies. It is important to note that since the Constitution delegates much autonomy on environmental matters to provincial authorities, many federal environmental laws limit themselves to establishing guidelines to be further detailed in provincial laws providing the necessary operational regulations. Thus, some federal environmental laws cannot be applied in the absence of provincial regulations. Furthermore, many provinces have not yet enacted all necessary environmental regulations as there is usually a significant lag time for this to happen after enactment of federal rules. As a result, provinces frequently “use” the regulations of other provinces as a reference standard, when own standards are missing.

Base Scan on Sustainability Issues in Argentine Tea Industry

In spite of the above, during initial years after the 1994 revision of the Constitution almost only provincial laws providing environmental standards were enacted. At the federal level, the main laws in place during a considerable period were Law No 20284 (05/73) regulating air quality and air pollution and Law No 24051 (07/92) relative to Hazardous Wastes. In 2002 several general environmental laws were passed by the National Congress, including the National Environmental Code (Law No 25675). Application of this law is the responsibility of provincial institutions, though matters affecting more than one jurisdiction are dealt with at the federal level. The National Environmental Code (Law No 25675) institutes the Federal Environmental System with the purpose of coordinating the development of sustainable development policies between the federal, provincial and City of Buenos Aires governments via the Federal Environmental Council (COFEMA). Regulation of the Federal Environmental System is established in Decree No 2413 â&#x20AC;&#x201C; 02. The Federal Environmental Council is composed of the Assembly, the Executive Department and the Administrative Department. The Assembly is the highest level body of the council and concentrates the power of decision on general policies and implementation plans. This Assembly is the central element of the Federal Environmental System and the provincial institutions responsible for environmental matters have a seat in it. An Environmental Compensation Fund is administered by the competent authority of each jurisdiction for the purpose of ensuring environmental quality, impact prevention and mitigation of harmful or dangerous effects on the environment; as well as response to environmental emergencies, and the protection, preservation, conservation or compensation of ecological and environmental systems. Responsibility for environmental permitting, lies with the Federal Environmental Council (COFEMA) in projects with international impacts or with impacts on more than one jurisdiction. On projects with local impacts permitting responsibility lies with the provincial government. As per Law No 25688 on Management of Water Resources, the Department of Coordination of Environmental Policies of the Secretariat for the Environment and Sustainable Development is responsible for management of water resources and issuance of water use permits and registers. Control of solid wastes of industrial origin is the responsibility of provincial environmental agencies, as per Law No 25612 /2002.

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Law No 20284 (05/73) regulates air quality and air pollution on a national basis. Under the terms of this law, it is the responsibility of local Sanitary Authorities to establish the maximum limits for emissions from various types of fixed sources for each zone, determine their presence and verify compliance with the corresponding Plan for Prevention of Critical Atmospheric Contamination situations. Local Sanitary Authorities also have the responsibility for establishing maximum limits for different types of movable source emissions, except for visible emissions, and for establishing the corresponding measurement methods. The manufacturers of movable emission sources must conduct testing programs to certify that the manufactured units comply with the requirements of the law. Regarding deforestation, on November 28 2007 the new Law for Minimum Environmental Protection Requirements for Native Forests was enacted. This establishes a uniform procedure to authorize forest clearing to be adopted at all provinces. Before this law was enacted, authorization for clearing was a very simple and expedient procedure and each province followed different rules. The application authority of this new law on a federal level will be the Secretariat for the Environment and Sustainable Development. The National Secretariat of Agriculture and Livestock Breeding is responsible for application of Law No 22428 relative to conservation of agricultural soil. Health and Safety Health and Safety regulations for the entire country are governed by Law No 19587 (04/28/1972). Under the terms of this law, all employers have the responsibility of putting into practice adequate hygiene and safety measures to protect the life and integrity of the workers. When labour is outsourced, health and safety responsibility is shared with the outsourcing party. Its provisions are applicable to all establishments regardless of the purpose of their economic activities. The federal entity responsible for enforcement of Law No 19587 is the Ministry of Health. Main aspects to be highlighted with regards to Law No 19587 include: Â&#x160; All companies are required to implement internal safety and occupational hygiene units as well as worker medical monitoring and assistance services. Â&#x160; Safe work procedures must be developed for all high-risk activities.

Base Scan on Sustainability Issues in Argentine Tea Industry

Environmental conditions in work environments must be controlled. Distinction between normal and high-risk activities is required and restrictions of age or others must be clearly defined. Accident classification and investigation procedures must be established. Accident statistics must be maintained according to a standard format. When the provision of services is executed by third parties, the third party will be jointly liable for compliance with the provisions of the Law. In Argentina the Regulations on Health and Safety for Agricultural Activities came into effect on 7 July 1997. These regulations address a number of aspects of the safety and health of agricultural workers including: General obligations (Title I); Infrastructure (Title II); Machinery, Tools (Title III); Pollutants (Title IV); Electricity risks (Title V); Materials handling (Title VI); Fire prevention (Title VII); Vehicles (Title VIII); Forestry (Title IX); Animals (Title X) and Training (Title XI). The regulations were developed because it was acknowledged that existing safety and health laws in Argentina, although general in their scope, did not adequately address the specific risks of agricultural activities. Argentina has also established a tripartite National Commission for Agricultural Work — which is part of the Ministry of Labour — to supervise the implementation of the law. Consumers and Quality: Argentina According to a survey made by the Universidad Nacional de Mar del Plata (Quality Warranties and Food Products in Argentina. What do Consumers Believe in? By M. Berges and K. Casellas) Consumers´ perceptions about high quality products in Argentina are more related to brand names than seals and certifications in labels. This has consequences upon the competitiveness of domestic food market. Argentinean food industry has a heterogeneous degree of modernization. While large processors and retailers, especially multinational firms, have improved their products quality along the supply chain converging to international standards, small firms are very far from this quality level. Not all consumers are interested in improving their quality food information and they minimize costs by trusting brand names. Quality certification and seller’s reputation are quality warranties restrained only to certain domestic market niches. These mechanisms acceptance is related to the degree of information consumers have acquired and

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their level of trust in private firms, public authorities and the institutions. Building trust in brands, certifications and reputation as the best warranty for food quality is strongly associated to the environment in which consumers make decisions. The household’s situation and occupational status seem to be more complex variables that resume the interaction between attitudes, information-processing and actions. Social capital, proxy by consumers´ occupation appears to be more related to the way consumers choose food quality products than individual capital proxy by age or experience and education. Labor Issues: Trade Unions In Argentina, there is a health insurance and unemployment fund operated by UATRE (Unión Argentina Trabajadores Rurales y Estibadores). More recently, the union’s initiative to extend protection to large numbers of unregistered and unprotected agricultural workers has been formalized in national legislation. The programme received political backing after a long process of negotiations and social dialogue involving UATRE and the agricultural employers. “RENATRE” – An initiative to reach unregistered agricultural workers An important trade union initiative has recently passed into national law in Argentina addressing the situation of up to 1.2 million unregistered agricultural workers, who have no contracts and no social benefits. (LAW Nr. 25.191) UATRE (Union Argentina de Trabajadores Rurales y Estibadores) initiated the process in some provinces in the early 1990s, but lengthy negotiations were required. By March 2003 a National Registry of Agricultural Workers and Employers (RENATRE) had been established by Parliamentary Decree, and all employers and workers are to be registered, a veritable “DNA of the agricultural sector”. Direction and management of RENATRE comprises four directors from UATRE and four directors representing the main agricultural associations, including cereal producers, agricultural cooperatives, small and medium-sized producers and livestock landowners. UATRE membership has grown during the last decade and it currently administers a health insurance scheme for 300,000 members, who are workers with contracts and thus registered for health benefits (20 per cent are women). RENATRE anticipates that women agricultural workers will become more “visible” as registration proceeds. It is estimated that about 40 per cent of the unregistered workers are domestic migrants, and 15 per cent are migrants from other countries, who come mainly from Bolivia, but also Paraguay and Uruguay, to provide family labour on tobacco plantations and onion farms. The

Base Scan on Sustainability Issues in Argentine Tea Industry

registration process will thus also include migrant workers; however, it is unclear to what extent benefits are to be extended to migrants. In tea plantations unregistered workers mainly consist on domestic migrants from neighbour districts or provinces, or local workers that work both in tea and yerba mate according to the season. An unemployment fund has been created through the programme, with employers contributing 1.5 per cent of a worker’s gross salary. RENATRE plans to canvass workers and employers in preparation for the development of a comprehensive system of unemployment benefits to include permanent and non-permanent agricultural workers and will make its proposal to the Ministry of Labour, Employment and Social Security in the near future. Provincial Committee of Tea (CoProTe) The legislation (Act 24.13 created by the Provincial Committee of Tea [CoProTe] governs the activity in the province) set out in Article 5, which is conferred to the Ministry of Agriculture and Production, “set on an annual basis,” the price guarantee “of the sprout of tea ..., where it has not been fixed by agreement of the parties concerned.” The Ministry of Agriculture and Production fixed the price guarantee for the green leaves of tea for this harvest in the sum of 27 cents (U$ 0, 08), according to the powers given by law 2413. Through the same resolution, the 337, the price of produced tea (not classified), for the current harvest in the amount of 1.45 pesos (U$ 0, 43) The CoProTe is formed by: Ministry of Agriculture and Production: Ziegler, Semeguen y Gauto Processors Representative: Ladislao Kallus Producers (APAM Asociación de Productores Agropecuarios de Misiones): Hugo Sand y Eugenia Kasalba (Suplentes: Carlos Minoura y Ramon Martin Enriquez) Cooperatives: Alfredo Kallus UATRE (Unión Argentina de Trabajadores Rurales y Estibadores): Raúl Morinigo (Suplente Jose Cardozo) Subsecretaría de Comercio e Integracion: Maria Marta Oria, Gabriela Gotschalk INTA (National Institute of Agro Technology): Humberto Primo Fontana /Suplente: Sergio Dante Prat Kricun) Also Participates IFAI (Instituto de Fomento Agrario e Industrial) Diputado de la Provincia de Misiones Alberto Hein

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Ministry of Agro y Producción de Misiones: Especialistas en te: Helmuth Kümritz Organic Law Argentina is one of the few countries in the world that has a National Organic Act. This law began to be engendered in the year 1997. Several members of MAPO collaborated in developing the rationale and objectives of this Act. Subsequently SENASA officials, from other government agencies, political parties and members of the MAPO also worked in the preparation and drafting of this important tool National standards and regulations In 1992 SENASA published national legislation on organic production, which set out the minimum requirements for organic farming in Argentina (Decree No. 423, 3 June 1992). The initial legislation contains 13 Articles, and describes what ‘organic’ stands for, requirements for organic imports, elaboration and packing requirements and describes the control system. During the following years, adjustments to this initial legislation have been made, as international standards have also developed. It should be noted that Argentina was among the first countries in the world with legislation on organic animal production. The Argentine rules are in general equivalent to the EC Regulation (Regulation (EEC) No 2092/91. Apart from the national legislation, each inspection body publishes its own private production standards on organic production, which do not have a legal status. In assessing the inspection bodies, SENASA checks whether these private standards meet the minimum requirements of the legislation (EC, 2000). For organic materials, which are exported in bulk, the containers are accompanied by identification documents that can be inspected by the SENASA officers in the ports. The products have to be labelled as “Producto de agricultura orgánica”, and have to display the label of the inspection body and its registration number, as well as a batch number identifying its origin, as defined in Article 9 of Decree 423/92 (SENASA, 1992). Training and other types of governmental support The National Institute of Agro Technology (INTA) dictates training seminars to improve the production and processing in the industry. It has a specialized team in the activity whose engineers in charge are Mr.

Base Scan on Sustainability Issues in Argentine Tea Industry

Prat Kricun and Mr. Fontana. The province also has a specialist in the area of Campo Viera called Helmut Kumritz, an agricultural engineer. But producers constantly complain about the lack of support in the field from these organisms. The National Agency for Promotion of Science and Technology, through the Argentine Technology Fund (FONTAR), called for the presentation of technological innovation projects for the award of Non-Repayable Contributions (ANR 600) intended to finance technological development projects presented by companies within the IP-TEC of Tea Cluster that meet the project objectives PITEC No. MI001/06 under the Technology Modernization Program III, Loan 1728-BID OC-AR. As a result of this Call, four projects were approved. Three of them were related to machinery improvements, and the other to research and development of soluble tea. There is almost no real economic support for producers by the government. There are programs but are not very effective.

CSR ASPECTS Certifications – Voluntary initiatives Voluntary initiatives in the form of labels and codes of conduct are intended to privilege goods and services produced under fair and equitable working conditions. The initiatives are “voluntary” so producers or retailers who place a label on a product or service or adopt a code of conduct do so by choice, rather than in response to government legislation or import restrictions, and the consumer freely chooses to purchase the labelled or coded item. Aimed at consumers and/or potential business partners, social labels may be affixed to products, displayed at retail sites, or assigned to enterprises, while codes of conduct are written statements of principle intended to serve as the expression of a commitment to specific enterprise conduct. Such codes may be adopted unilaterally by enterprises, negotiated between management, workers and/or NGOs, or influenced in some way by shareholders. Depending on the market they are selling they have to follow their rules. For example, US market has Food and Drugs Department that controls tea products imported in the country. They do random inspections in those countries. In Argentina all companies follow the Argentine Alimentary Food Code by law but certifications are voluntary.

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Conditions for industry establishments are specified in Chapter II of the Argentine Alimentary Food Code (Law N° 18.284/69, Decree N° 2126/71). Conditions for tea in its different types are specified in the same Code, Chapter XV. The Standards and Resolutions mostly used in the market are: ISO 3720 (implemented by IRAM Standard) Black Tea. Definition and basic requirements. For manufacturing stage. IRAM Standard 20650-1. Black Tea. Good Manufacturing Practices (GMP). General Recommendations. IRAM Standard 20650-2. Black Tea Good Manufacturing Practices (GMP). Best Farm Management Practices (BFMP) Recommendations on the product. IRAM Standard 20650-3. Black Tea. Good Manufacturing Practices (GMP). Recommendations on manufacture. IRAM Standard 20620 – Black Tea. Vocabulary. Resolution No. 80/96 MERCOSUR GMC. GMP in food. Quality Protocol of Black Tea (Premium). Secretariat of Agriculture, Livestock, Fisheries and Food (SAGPyA) “Argentine Food a Natural Choice” (Alimentos Argentinos una Elección Natural) seal was created for agri-food that complies with SAGPyA´s protocols with the purpose to highlight them as Premium. The resolution 392/2005 defines the creation of a seal, distinguishing a national image through it, allowing the positioning of food in markets, encouraging their placement and marketing. Any producer or legal entity involved in the chain which complies with good agricultural practice (GAP) and manufacturing (BPM) can apply for this seal. However, the seal is for the product, not the company or the producer. The Quality Protocol of Black Tea though, is not yet defined; the secretariat is working on it. It is expected to be ready for March 2009. The Ministry of Economy and Production through SAGPyA grants the seal “Argentine Food” IRAM (Argentine Institute of Standards and Certifications) Through the National Executive Decree No. 1474/94 the National System for Standards and Quality Certification was created, thus regulating the activities of standardization and conformity assessment within the strictly voluntary scope. This system is structured on the basis of a National Standards and Quality Certification, comprising

Base Scan on Sustainability Issues in Argentine Tea Industry

representatives of the various areas of the national government convened by the enforcement authority of this Decree, the Ministry of Industry, Commerce and Mining of the Nation (SICyM ). This organism is assisted by an advisory committee including representatives of all non-governmental sectors involved. Immediately below this level of political decision are the two agencies responsible for carrying out the operational management of the entire system: The standards body (IRAM) The accreditation body (OAA) The first is responsible for centralizing the study and adoption of technical standards, essential part of any national system of quality, and the second is in charge of accreditation of certification bodies, of testing laboratories and calibration, and The audit, which should continue patterns of evaluation based on those recommended in ISO / IEC guides involved. At the beginning of the year 1995 the SICyM signed an agreement with the Argentine Institute of Standardization (IRAM) by which it was designated as Argentine Agency for Standardization, for the implementation of Decree 1474/94. For the purpose of filling the position of the protagonist Argentine Accreditation Agency within the framework established by Decree 1474/94, was founded at the beginning of 1996, the OAA, in the form of a civil association non-profit. Its regulations for the accreditation of certification bodies, laboratories and auditors match as indicated by international standardization bodies in their guides (ISO-IEC). This important fact gives the opportunity to achieve mutual recognition agreements with similar organizations in other countries, which would ensure that a single certification granted in Argentina is recognized in other countries in the world. Within this system the National IRAM intervenes at all three levels: at level 1 as a permanent member of the National Quality Standards and Certification; at level 2 as Argentine Agency for Standardization; at Level 3 as one of the Certification Bodies ISO 3720 A survey of the adoption of ISO 3720 was undertaken by FAO in November 2007. From the responses it was apparent that further progress had been made in terms of the numbers of countries whose

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national standards institutions had accepted ISO 3720. These countries include Argentina, Bangladesh, India, Indonesia, Kenya, Malawi, Mauritius, Sri Lanka, Turkey and Uganda and account for 80 percent of black tea trade. While ISO 3720 has been widely accepted by national standards institutions, it should be noted that such standards are voluntary and optional, as it was mentioned before. Exporting countries having formally adopted national quality standards which match or do not deviate significantly from ISO standard 3720 now account for about 85 percent of world exports of black tea compared to about 80 percent in the mid-nineties. These countries are Argentina, Bangladesh, India, Indonesia, Kenya, Malawi, Mauritius, Papua New Guinea, Sri Lanka, Turkey and Uganda. Other initiatives promoted by the government The INTA (Instituto Nacional de TecnologĂa Agropecuaria, National Institute of Agro Technology), from Misiones has developed a GAMP (Good Agricultural and Manufacture Practices) Guide in order to meet the demands of local and international markets regarding the quality sanitary and organoleptic of tea products. IRAM and ISO certifications were created for manufacturing processes. INTA has developed GAMP owing to the lack of standards designed for primary production practices in the tea industry. In addition to this, the SAGPyA is formulating The Black Tea protocol, which is intended to address agricultural issues as well. In that sense all public and private efforts that are made to ensure this qualitative leap, are rewarded by the direct benefits on the consumer. The GAMP guide not only adopts standards, but implement, disseminate and train in actions that ensure compliance, continuity and improvement. The recommendations for primary producers, collectors, processors, sorters, transporters, distributors, exporters, not aim to unify methods or techniques, but to guide them in achieving consistent quality in the product. Other International voluntary initiatives Some of the major and well-known initiatives are: The Ethical Tea Partnership (ETP) works to make the picture transparent â&#x20AC;&#x201C; to monitor living and working conditions on tea estates, with the aim of making sure that the tea bought from the members of ETP has been produced in a socially responsible way.

Base Scan on Sustainability Issues in Argentine Tea Industry

In Argentina they have already monitored 17 estates. The UK-based Ethical Tea Partnership is an alliance of major UK, European, and North American tea companies (including Twinings, Tazo, and Lipton’s parent company, Unilever) that independently monitors tea estates around the world to ensure that they follow local laws, trade union agreements, and some international standards. But they do not have a label, they just monitor estates. Fair Trade: No certifications registered in Argentine tea industry. Rainforest Alliance: It is important to note that Rainforest Alliance is doing an intensive job in the Argentine tea industry. Casa Fuentes, one of the main Argentine tea exporters, as well as Las Treinta, El Vasco and Koch Tschirsch S.A, has Rainforest Alliance certification. The reason why they decided to get certified was because Unilever, one of their main buyers, solicited. In 2007, Unilever, which buys close to 12 percent of the world’s black tea supply, committed to purchasing all of its tea from sustainable, ethical sources to protect crops and improve conditions of plantation workers. Unilever’s major tea labels are Lipton, the world’s best-selling tea, and PG Tips, the most popular tea in the UK. Unilever has asked the Rainforest Alliance to start auditing its tea suppliers with immediate effect. The first tea farm to apply for certification will be Unilever’s own tea estate in Kericho, Kenya, which has pioneered sustainable tea production for many years. Other tea farms, in Kenya, Tanzania, Malawi, Indonesia, India, Argentina and Sri Lanka, will follow. Eventually, certification will extend to thousands of farms in Africa, South America and South East Asia. UTZ Certified: No certifications registered in the Argentine tea industry yet. International Federation of Organic Agriculture Movements (IFOAM) to encourage organic production; Environmental and social concerns are addressed by the above mentioned initiatives. ILO Conventions Nos. 87 and 98 on freedom of association and collective bargaining figure explicitly, except in IFOAM, which, being more concerned with the environment, recommends in general that all ILO Conventions with respect to labour welfare be observed. Workers’ right to organize is asserted by the other four, as well as the imperative to allow workers’ representatives to carry out their functions freely. All four require that the legal minimum wage be respected, SA 8000 and

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ETI adding a proviso that the minimum wage should be sufficient to meet basic needs and provide some discretionary income. FLO requires that a “social premium” be paid to producers out of the final price. Following the success of campaigns against child labour in certain export industries, the first social labelling initiatives were introduced in the 1990s as a supplementary means of attempting to totally eliminate child labour from any role in the production of the labelled product and improving the situation of child workers. Later initiatives have encompassed other issues such as international labour standards on forced labour, freedom from discrimination, freedom of association and the right to collective bargaining, and issues relating to conditions of work with respect to wage levels, social benefits and working hours. Protection of the environment is an even more recent addition. Organic Products Argentina has the largest area under organic production, with an estimated area of around 3 million hectares (including pastures in the South which are certified organic but are not under production). Although only 234 thousands belong to organic agricultural area. Misiones province shows the largest percentage of certified estates (30%) due to an increasing number of producers that belongs to cooperatives and one of the lowest scale of surface (43 ha average). In total 28 different certified tea products were exported during 2007. European Communion and Switzerland were the main importers. In 1992 a fundamental enhancement of the sector was realized, when the Government through the “Instituto Argentino para la Sanidad y Calidad Vegetal” (IASSCAV) (Argentine Institute for Plant Health and Quality) and the “Servicio Nacional de Sanidad Animal” (SENASA) (National Service for Animal Health) established guidelines for the “National System of Control for Organic Products”. These national rules, based on existing guidelines by IFOAM and the European Community (EC), were in most cases equivalent and in some cases more demanding than IFOAM and EC rules. In mid-1992, Argentina submitted a request to the European Commission to be included in the equivalence list of third countries provided for by Article 11 (1) of EC Council Regulation No 2092/91. After verification of the equivalence of the inspection system and production rules for organic farming, Argentina was officially included in the EC list of equivalent third countries, on 26 March 1996 (Commission Regulation (EC) No 522/96) (EC mission report). The fact that Argentina was included in the EC list was not only thanks to the level of applied standards, although it is of course a basic pre-

Base Scan on Sustainability Issues in Argentine Tea Industry

condition, it was also thanks to EC recognition of reliable national certifying bodies and their procedures and control mechanisms. Details on this system are provided in Section 3. Once the third country status was obtained, organic exports to the EC, traditionally already one of the main export markets for Argentina, grew strongly, and now account for almost 80 percent of organic exports. The expansion of the organic sector accelerated, with annual growth rates of over 100 percent during the second half of the nineties. Argentina is considered a reliable country by the strictest organic markets in the world. This is due to the professionalism and responsibility shown by the country in establishing organic production regulations in accordance with the strictest ones in the world. Standards and Regulations concerning the National System of Organic Production were created in Argentina between 1992 and 1993. This strict normative system is officially recognized by the European Union. Institutions active in the organic sector Farmer organizations The oldest farmer organization is MAPO (Movimiento Argentino para la Producción Orgánica -Argentine Movement for Organic Production). MAPO has, together with SENASA, played an important role in the formulation and implementation of the National Programme for the Development of Organic Agriculture in Argentina. In 1998, Cámara Argentina de Productores Orgánicos Certificados (CAPOC) was established. This umbrella organization has been constituted to promote organic activity, defend the interests of organic producers, represent producers during fairs and exhibitions, create awareness among consumers and collaborate with government authorities as technical partner. Government agencies The competent authority for the inspection system of organic production in Argentina is the “Secretaría de Agricultura, Ganadería, Pesca y Alimentación” (Ministry of Agriculture, Animal Husbandry, Fisheries and Nutrition), through the “Servicio Nacional de Sanidad y Calidad Agroalimentaria” (SENASA) (National Agrifood Health and Quality Service). SENASA approves and supervises private inspection bodies. Other organizations and companies SENASA approved twelve inspection bodies of which three are approved for inspection and certification activities of products for export to the EC:

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ARGENCERT S.R.L. (Instituto Argentino para la Certificación y Promoción de Productos Alimentarios Orgánicos), OIA (Organización Internacional Agropecuaria) and LETIS S.A. The first two inspect 80 percent of the total volume of domestic organic produce, while Letis is significantly smaller. It obtained its equivalent status recently (October 2000). All certifiers are private companies, without any support from the government. They have inspection activities in organic farming throughout Argentina and a few certifiers also have activities in other South American countries. Argentina has the ideal framework to make profit of its comparative advantages such as: Large extensions of virgin lands and naturally fertile soils. Climate diversity and ecological aptitude for all sorts of crops. Counter seasons with respect of main consumption centres. Organic production is mainly designated for exports. Local people are not very aware of the advantages of organic production, so most of it is exported. United States The National Organic Program (NOP) develops, implements, and administers national production, handling, and labelling standards for organic agricultural products. The NOP also accredits the certifying agents (foreign and domestic) who inspect organic production and handling operations to certify that they meet USDA standards. Argentine certifying Agents accredited by USDA are Argencert S.R.L.; Food Safety S.A.; LETIS S.A. and International Agricultural Organization (OIA) CSR in Argentina The Ministry of Labour has a CSR area, aimed to improve the quality of employment generating partnerships between universities, businesses and the state emphasizing on training, employment and production. When we asked the companies about the knowledge of this Area in the Ministry Labour, none of the interviewed companies had heard of it. But although certain initiatives like this, Argentina lags a long way behind other countries in CSR development. It is noted that the concept of CSR is still focused on Social Aid, but not in Sustainability issues.

Base Scan on Sustainability Issues in Argentine Tea Industry

Cultural reasons Economy instability: Short-term policies, lack of planning. In general, CSR policies to be effective in a company take at least 3-5 years to be implemented. Lack of a culture based on trust and cooperation. Individualism and self interest predominates. Mistrust or quick lost of trust due to negative past experiences. Argentina does not have a culture based on dialogue, mutual trust and seek to achieve consensus. Lack of example from the government. Patronage system, corruption and authoritarian proceeds in hand with a chronic lack of vision and ambition in the field of CSR and sustainability. However, the government is not the only responsible stakeholder for the development of CSR. Argentine entrepreneurs have limited personal commitment and passion for the topic of CSR in the vast majority. There are almost no leaders committed themselves personally and together with the company to a sustainable strategy and practices. Another obstacle is the lack of social pressure. Compared to Holland where 4 million out of 16,4 million inhabitants are member of an organization for nature or the environment. Consumers in Argentina do not use their power to demand companies’ sustainable practices. But not all are negative issues. Argentina has an important source for CSR and sustainability: human capital that is exhibited both in the circle of relatives and friends. If the warmth, love, loyalty, care, trust and support that are there could be translated to the Argentine institutions, the structural approach of CSR would then be much easier. Promoters of CSR in Argentina Since the socio-economic crisis until now the Argentine companies have been slowly getting involved in social issues in a reactive way, to cover the basic needs that both employees as society needed. From there emerged a new civil society organizations (Argentina Institute of CSR, IARSE, etc.) to promote the issue. Other actors like universities, journalists and the state also came into action. These are called “promoters of CSR”. Education: There isn’t yet a specific Master or MBA in CSR. However, many universities are incorporating the subject in their Study Plan. For example the public University of Buenos Aires has an area dedicated to study and investigate CSR (CENARSECS). Some NGOs in combination with universities offer seminars and courses for professionals or entrepreneurs.

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Journalism: Sunday Magazine from La Nacion, one of the most popular argentine newspaper, on July 28 had in its cover an article called “Green life: how to be a leading figure of a sustainable planet” There are also television programs such as “TN Ecologia” that devotes a central space to explain and publicize cases at national and international level for the environment and sustainability. NGOs and Civil Society International Standards and Rules Drivers: interest of tea companies to go for CSR programmes or certification schemes Many argentine companies have the ISO or IRAM certification for the manufacturing processes. Nevertheless, there is scarce knowledge on sustainable certifications such as Fair Trade, UTZ and Rainforest Alliance. Their driver to get certified is when important clients, such as Unilever, implied it. But in the local tea industry, companies do not get certified by their own incentive. After interviewing companies that had the RAS certification, they all agreed that the benefits were higher than the costs. Moreover, they all said that at the beginning they rejected as they could not imagine the real benefits for the company. But after being certified for almost 6 months they said the costs were not high, and that the benefits on better yields, and fair prices was a great initiative. However, Argentine tea companies are still a long way from being aware of their responsibility as social actors in the country. Economy instability is one of the main reasons, they cannot think on long term policies, they are aware of the unfair prices small producers are receiving for their tea, but on the other hand they believe it is not their responsibility to change the market conditions. They blame the government, the low quality of productions received by small holders, so they think they are trapped under those conditions. But that is the idea, if we generalize. After Unilever initiative of certification with RAS owners of these companies are more aware of the problem. We notice a long way to Scope of impact of CSR initiatives and RAS After RAS intervention, small holders have not seen a significant impact. Companies pay higher prices to certified states (they respect the AR$ 0, 27, while non certified are being paid AR$ 0, 25 or less), but we noted that RAS only require for 50 per cent of total production certified, so these companies are certifying first their own estates, which include a large part of their production. Las Treinta, for example, have only certified

Base Scan on Sustainability Issues in Argentine Tea Industry

8 producers. They all have over 50 ha, so we can see that small producers have not yet seen any impact. Las Treinta said they were aware of the need of certifying more producers of the chain, but they have not advanced much on this topic. Opportunities From the above mentioned reasons, and the fact that RA is growing substantially in the market, it would be a great opportunity if UTZ certification do a market intervention. Traceability is one of the main issues in the market, and with UTZ, companies will see the benefits if they can track the origin of the leaf delivered. I noted interest on traceability, and open entrepreneurs for new ideas and certifications. The certification consciousness is just starting in Argentina. Solidaridad could create consciousness on companies of their social responsibilities as important actors in the argentine society. Solidaridad could explain the new concept of CSR, as it is a new idea that Argentina has a lot to learn. Smart shoppers everywhere, not so much yet in Argentina, are looking for eco-labels and demanding products from responsibly managed farms. Trendsetting food companies and supermarkets are interested in knowing more about how their products are grown, where and by whom and with what social and ecological consequences. There is a growing consensus that certification is an effective way to ensure the establishment and enforcement of management practices that protect the environment, the rights of workers and the interests of local communities. Certifications are raising public awareness about the interdependence between conservation and agriculture. Although Argentina is advancing on this concept, we believe there is still a long way to go. The Rainforest Alliance Certified seal stands for sustainability. Once used primarily among conservation groups and development agencies, the term “sustainable” has now seeped into the public consciousness as shorthand for all the things that we do to fight poverty and pollution and protect the Earth’s resources today for the benefit of our children. Sustainability describes a means of reducing costs and improving profits. As this “people, planet and profits” message spreads throughout the marketplace, demand for goods from sustainable farms will continue to grow. The rewards of sustainable tea farming are not only environmental, but also economic. A key benefit of the certification program is to enable growers to obtain higher prices for their tea, thus raising their incomes and significantly improving their quality of life. Awareness of these benefits are starting to grow in local companies.

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Section II

Summary of Problems and SWOT Analysis

Base Scan on Sustainability Issues in Argentine Tea Industry

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GENERAL SUMMARY OF PROBLEMS PRIMARY PRODUCTION The low prices of green leaves, makes the primary production unattractive because the producer has to face up to the harvest cost of lightweight or heavy pruning, weed control and mites. In the case of low performance planting seeds, effects are increased transforming the activity uneconomical. Lack of Quality Standards for the raw material and differential prices Lack of a proper training and technical transfer, affecting production efficiency and better use of resources. Although, INTA Cerro Azul is working on this, there is still a long way to go. Existence of a significant number of farms abandoned by low yields, small size, isolation or abundant weeding by low density. The continued use of harvesters with inadequate systems for cutting and harvesting, with intervals exceeding 45 days, promote the production of large volumes of low quality tea. Low density of plantations, affects the small producers profits. INTA estimates that 90% of plantations of tea are low density. Plantations have 3,000 to 5,000 plants per hectare when 10,000 plants per hectare is common internationally. Great heterogeneity of plantations as a result of the use of seed from different backgrounds. Buds obtained are usually small and with hard leaves, which results in the development of low quality tea. Light and heavy pruning are carried out in an inappropriate manner in time and form, an effect that reduces the production, health and longevity of the plantation. The improper handling, packaging and transport of the output collected, produce the compaction, bruised, and burned with warming with the consequent impact on the quality of the product. Lack of use of the technologies available at INTA, in addition to the absence of knowledge of the international market progresses.

Base Scan on Sustainability Issues in Argentine Tea Industry

Quality: Due to the high demand of “medium quality and low price tea” from US markets, companies do not focus on improving the quality of tea. High increase in inputs cost. Prices paid for green tea are very low. Although CoProTe sets a price, it is not respected by the manufacturers, as the law is not respected; it is only a referential price for them. During the pasts years it has been a high trend of outsourcing steps of the production due to high production costs. Lack of long term policies from the government. The Government of Argentina does not grant any subsidies or incentives to agricultural production, including organic production. Production constraints: Due to lack of access to credit, especially for small farmers, it is virtually impossible since actual rates are ranging between 25 percent and 40 percent annually. “Economies of Scale Crisis”: Producers have very small areas that do not justify the fixed costs that are require producing. Conflict of Interest: The Government is influenced by different interests. Small scale farmers do not feel represented by the government. MANUFACTURE Process development without the specific knowledge of biological characteristics, transforming the various stages in a routine and mechanized activity. The lack of Health and Safety Systems during the collection process, handling and manufacturing. Only big companies exporting respect them. Lack of Quality assurance systems during the above mentioned process. The buds that has suffered damage due to improper practices, suffer profound changes that adversely affect on the final product.

Lack of adjustment to international standards for the equipment used during the withering and enrolling stages

Obsolescence of the existing generators and heating systems, with the consequent low efficiency, high costs and contamination of the product.

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CLASSIFICATION AND MIXING Lack of integration of the screening and mixing stage in processed plants, resulting in increasing cost and loss of quality during the transportation of the tea leaf (not classified). High production of dust during the rolling process, to obtain secondary degrees and BT. Great heterogeneity in the specific density of the various lots, for lack of standards in receiving raw material. No traceability. Obsolescence of the current generation systems and heat transfer in the stage of drying. Most of the dryers use wood fire as a heating source, which generates high cost of maintenance in the heat exchangers and the constant presence of ash in tea due to flaws in the exchange systems. The lack of internal monitoring of black tea lots compared with the Argentine Food Code or IRAM-ISO 3720 standard; does not provide an adequate framework for product control, as well as security and transparency for the commercialization. INTEGRATION The fragile link between processors, exporters and primary production, threatens the possibility of improving the competitiveness of the sector. Although there are standards on product and process (GMP, Good Manufacturing Practices) and methodology for POES and HACCP (Hazard Analysis Critical Control Points) systems, it does not prevail in the whole spectrum of producers, processors and exporters in the sector. Therefore, they are pending matters to optimize the quality of the product. On the other hand, it is believed that companies that are integrated through the whole chain are those who are getting all the profits, leaving producers out of the “chain”. Cooperatives: Instead of being the “thermometer” of the activity by regulating competitiveness in the sector, due to mismanagement, fraudulent business, outrageous managerial salaries and excessive employees, they lost importance giving all the power to big integrated exporting companies. Cooperatives: They all receive subsidies from the government that they usually mismanage, ending up owing favours and tied politically to them. The industry sees the cooperatives as a polity policy where the politic acting party receives votes and good reviews from the affected farmers

Base Scan on Sustainability Issues in Argentine Tea Industry

ORGANIC There is no Government or private sector sponsored activities designed to educate and encourage consumers to purchase organic products. However, in September 1998, the Argentine Agricultural Secretariat (SAGPyA) launched the National Program for the Development of Organic Production (PRONAO). This programme, which does not exist anymore, aimed to promote organic products in the domestic market, increase the number of organic producers, capture new markets and educate consumers (FAS, 2000a). Although the organic sector has increased strongly, it is still a relatively young and inexperienced sector. There is hardly any research on appropriate organic farming methods under local conditions and extension assistance is virtually absent. Therefore, many producers start producing organically on a ‘trial and error’ basis, and adjust their farming methods every season until they reach an acceptable and (more) stable level of output. Some producers expressed during interviews that the costs of low yields due to unforeseen problems in especially the first few years of production are the highest costs they face, much higher than other costs, such as certification and inspection. Small farmers will have difficulty bearing such costs. Although conventional agriculture has been extensive in many parts of the country, other parts need a three-year conversion period before full organic status can be obtained. No government support exists during those years of conversion, a practice that is common for example in many European countries in order to provide incentives to farmers to convert. LEGAL Non registered workers due to the high employment costs Lack of monitoring of the accomplish of the law Lack of long term and legal policies from the government

SWOT ANALYSIS STRENGTHS The production of tea has a long tradition in the producing region, which entails a comprehensive identification of the population with the food chain. Already established as a worldwide consuming product. It is after water, the most consumed beverage in the world in its varieties of hot tea, cold, soluble, flavoured, and so on.

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Suitable agro-ecological conditions, which together with modern techniques of cultivation, may result in an economic, environmentally and socially sustainable activity. Natural product, with antioxidants and without additives. Existence of advanced technology in the stages of rolling, drying, packaging and distribution of the product, with standards similar to top establishments globally. The current installed capacity would permit incorporating ordered increases in production. Core entrepreneurs with good exporting profile. WEAKNESSES Lack of reliable, timely and relevant information on planted area, abandoned, harvested, yields, estimated harvest, raw materials and processing costs, local and international prices, stock and consumption. Raw materials supply highly split and concentrated processors demand. Use of inadequate harvesters and collection ranges from 45 to more days result in a low quality raw material. Lack of a standardized system for the domestic market to allow a differential price for the quality of the raw material. Annual and regular pruning in an inappropriate manner and bad timed. As a result of these cultural practices it affects productivity performance, which results in the abandonment of various plantations. High costs and inadequate traditional transport of raw material. Companies with obsolete equipment and facilities used in the withered, rolling and drying process. Lack of Health and Safety Systems in tea production. Absence of a common policy in the food chain for the institutional promotion of the product and opening of new markets. There are no mechanisms of coordination between producers, processors and exporters. High cost of logistics for being a product of low value / volume Unexplored domestic market. Low proclivity of producers to change over clone varieties with high yield and quality.

Base Scan on Sustainability Issues in Argentine Tea Industry

Lack of Farm Credit System for the sector Absence of integration between the Ministry of Agriculture of the provinces involved and the National State. OPPORTUNITIES Continued growth in international demand for regular and high quality tea. Internationally recognised Certifications schemes are emerging, which represents a good opportunity for Solidaridad to introduce new schemes and cooperate with the implementation of good agriculture practices of small scale producers Significant reduction in the participation of China and India in the international market due to the constant increase of their domestic consumption. Available technology and clone varieties tested, which can be incorporated into new development projects. Possible forms of diversification development, such as green tea (not oxidized), Oolong tea (slightly oxidized), decaffeinated, soluble, and so on. New niche markets for high added value tea, such as organic, functional foods, and so on. Potential markets to explore in the Arab countries of Asia and Africa. Instability of volumes produced in African countries participating in the global tea market. THREATS Production growth in the Eastern African countries (Kenya, Malawi, Uganda, Tanzania and Zimbabwe), with the subsequent expansion of their sales in argentine traditional international markets and potentials. High concentration of exports into the U.S. market, with a quality product or lower middle BT. Low quotation and international prestige of our product. Trade barriers or difficulties for lack of control in established regulations in the Argentine Food Code, ISO-3720 IRAM, bromatology conditions or agrochemicals waste.

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Section III

Conclusions and Recommendations

Base Scan on Sustainability Issues in Argentine Tea Industry

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CONCLUSIONS AND RECOMMENDATIONS One of the main difficulties noted in the tea sector is the existence of a large number of producers with lack of capital, low yields per hectare due to the age and low-density plantings, and unfeasible production from an economic point of view. However, in a context of supply of raw materials of poor quality, middlemen such as contractors surge, but it is noted that their action contributes to increasing the scant income of these primary producers. However, the producers are still dependant on these contractors as in the case of small areas they cannot afford the operating costs. So that any nominal income let them sustain and continue the activity, but logically, without the possibility of overcoming the conditions of dependency. In this way, a productive pattern is originated, harmful for both the primary producer for lack of incentives as well as for the contractor that in an effort to reduce costs introduces into the crop cutting systems, intervals and frequency inadequate and the processor has to process a raw material of low quality, which requires an expensive reprocessing later. Needless to say that by its delicate social situation, high level of fragmentation of holdings, lack of information, reduced level of individual production, these producers have no bargaining power compared to contractors and manufacturers, additional factor that discourages the possibility of obtain better prices. In contrast, producers with a high level of productivity, which works hard to manage the productive capacities of their property, face depressed prices due to the influence that generates high volumes of low-quality raw materials. Accordingly, in this situation the market cannot adequately fulfil its role of self-regulatory mechanism, to achieve a balance between supply and demand, determine prices rewarding appropriately to those producers that produce raw materials of high quality and handle with greater economic rationality their land.

Base Scan on Sustainability Issues in Argentine Tea Industry

As a result of this process an inevitable consequence arises, the need for the Federal and Provincial Governments in addressing some kind of joint intervention to overcome the vicious cycle of raw material production of low-quality black tea without their own characteristics and low international prices; leading the primary producers to its stagnation and poverty. Solidaridad could help in this intervention. This intervention is certainly linked to the aforementioned need to begin a process of integration of small holders (primary producers) in consortiums, for the purpose of practising greater negotiating power with suppliers, contractors and processors. These producers could make the pruning, harvesting, transport and supply of raw material jointly, as well as the procurement of services, purchase of inputs, agricultural chemicals and machinery. The implanted area of each consortium should reach 100 to 200 hectares, located within a radius of no more than 5 km. For the purpose of increasing yields, uniformity and quality of raw materials, according to market demands, each consortium must implement a plan for annual renewal of 5 to 10% of the common tea seed with clone varieties. . The consortium would be composed by an estimate of about 5,750 producers and a planted area of 23,800 hectares, with an initial offer of 95 to 100 thousand tons, which quickly according to the organization and technological impact may reach 190 to 200 thousand tons. The industrial sector (drying plants), faces a fragmented offer and absence of logistics, they lack of mechanisms to regulate the entry of green leaves to the dryer being an important factor that jeopardizes the quality, as well as the strict control that the handling of green leaf should have between harvest and the entry into the dryer. With regard to abandoned plantations, which are estimated to reach over 6,000 hectares, they should be replaced by clone varieties or if it is not possible, alternative crops. This intervention is certainly linked to the aforementioned need to begin a process of integration in production, allowing producers to reduce costs, increase yields and initiate new plantations with clone varieties, and at the same time receive the necessary support necessary from the consortium. This program will require planning and implementation of different components of technological, credit and organizational assistance, as well as a future certifications. Pushing forward this initiative would permit achieving greater efficiency in the productive areas. It will also help to recover degraded or abandoned plantations, order the agricultural structure and improve the development of the regionâ&#x20AC;&#x2122;s economy, given the growing demand for tea in the international market and outstanding quality.

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A second phase of this program must include a technological upgrade of the existing mechanical harvest systems and the reengineering of the carriage and transport of the product in the farm. As a consequence a quality improvement and less deterioration of the raw materials will be noted, as well as a reduction of labour and lower freight costs. Moreover, the existing machinery and facilities devoted to the elaboration process, classification and mixing, by technological obsolescence must undergo through a profound process of updating its design and engineering, accompanied by the development of systems of Health & Safety in the processes (GMP, HACCP), and in the product (ISO-3720 IRAM). The realization of both goals will improve quality and reduce production costs, currently affected by methods of harvesting, hauling and freight which are expensive and unsuitable for preserving the quality of the raw material. With regard to the processing plants, the process will be made accordingly to their biological type and health requirements, assuring foreign markets a good quality product. The main challenge now is to ensure the broad based and efficient adoption of Best Farm Management Practices and sustainability guidelines in order to come to an integral approach in implementing sustainable chain management related to production, processing and trade of tea. Tools and strategies will need to be developed to reach in particular the thousands of small scale farmers and farm workers and to draw them into the mainstream planning and implementation of this drive towards sustainable and socially responsive commodity development. The overall goal is formulated as follows: Provide support to small scale farmers and farm workers in the tea sector applying Better Farm Management Practices for adding value to a certifiable and sustainable supply chain. RECOMMENDATION TO SOLIDARIDAD It is suggested further research towards the pilot program for CSR and BMP, maybe together with UTZ, building an alliance with some providers who wish to step into the UTZ program matchmaking with market parties, starting in Europe.

Base Scan on Sustainability Issues in Argentine Tea Industry

References Cadena Alimentaria del Te (Camellia Sinensis) Diagnostico de la Region Tealera. Secretaria de Agricultura, Ganaderia, Pesca y Alimentacion, Direccion Nacional de Alimentacion, Marzo 2001. Luis Alberto DeBernardi, Sergio Dante Prat Kricun Variables de Mercado, Sector Tealero Argentino, Lisiak Emiliano. Julio 2007 INTA: Exportaciones de Te en Argentina, Lysiak Emiliano. Enero 2008 INTA: El Sistema Agroindustrial del Te. Lysiak Emiliano. Agosto 2008 INTA, Cerro Azul: Documento Pragmatico Estrategico: Té INTA: Guia de Aplicacion de Buenas Practicas Agricolas y de Manufactura. Ing S.D. Prat Kricun INTA: Economia de los cultivos industriales. Algodón, Caña de Azucar, Te, Yerba Mate, Tabaco y Mani, Rodolfo Bongiovani INTA: Te negro Practicas de Cultivo y Manufactura, Noviembre 2007 The Tea Market, A Background Study E. Inglesias: Trabajo decente en la agricultura: Situación en América Latina desde el punto de vista sindical, background document prepared for ACTRAV, Mar. 2003. 2 The Rural Workers’ Act El Tango de la Sostenibilidad – El desafío de la Responsabilidad Social Empresaria”. Editorial Temas. La cadena empresarial del Té en Misiones (Argentina). Un enfoque estrategico- Carlos M. Fernandez Jardon, Xavier Martínez Cobas, Roberto S. Gutawski, María Susana Martos, María Claudia Dekún. SAGPyA, Secretaria de Agricultura, Ganadería Pesca y Alimentación Gobierno de la Provincia de Misiones, Ministerio de Agro y Producción, Dirección Infusiones Infoleg, Centro de Información y Documentación del Ministerio de Economía Argencert SA, Productos orgánicos, web page Index Mundi WebPage FAO Webpage Wikipedia Ministry of Labour Web page Ministry of Economy, Informe Coyuntural del Te, Patricia Parra pparra@mecon.gov.ar

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Té Argentino Debilidades y Desafíos Tecnológicos del Sector Productivo (UIA, SECYT, PROFECYT) Misiones Online Newspaper SAGPyA, Direccion nacional de Alimentos, Direccion de Industria Alimentaria: INFUSIONES EN ARGENTINA: DESEMPEÑO 2000 - 2007 Y PERSPECTIVAS. Ing. Agr. Patricia A. Parra Argentina TradeNet Argentine Foods WebPage Interviews: Casa Fuentes SA (Alberto Fernández Espinosa), Las Treinta SA (Guillermo Lillieskold), Cooperativa Agrícola Picada Libertad ( Mr. Wollemberg), INTA Misiones Cerro Azul (Prat Kricun and Emiliano Lysiak), Alberto Tomas Re (ex Secretary of Tea Industry in the Ministry of Production in Misiones), María Elena Parra INAES (National Institute of Social Development), Hugo Sand (small scale producer and President of APAM), Carlos Ortt (small scale producer and member of APAM), Victor Rosenfeld (INDES), Jorge Hultgren (J.Llorente y Cia), Cooperative IndusTea (Campo Viera, Argentino Almeida, Tito Feltan, Jorge Bashniuk, Javier Arsivenko), House of Misiones in Buenos Aires, Fundacion Exportar.

Base Scan on Sustainability Issues in Argentine Tea Industry

Annexure

ILO International Labour standards Convention

Ratification date

C1 Hours of Work (Industry) Convention, 1919 30.11.1933

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Status ratified

C2 Unemployment Convention, 1919

30.11.1933

ratified

C3 Maternity Protection Convention, 1919

30.11.1933

ratified

C4 Night Work (Women) Convention, 1919

30.11.1933

denounced on 03.03.1992

C5 Minimum Age (Industry) Convention, 1919

30.11.1933

denounced on 11.11.1996

C6 Night Work of Young Persons (Industry) Convention, 1919

30.11.1933

ratified

C10 Minimum Age (Agriculture) Convention, 1921

26.05.1936

denounced on 11.11.1996

C11 Right of Association (Agriculture) Convention, 1921

26.05.1936

ratified

C12 Workmen’s Compensation (Agriculture) Convention, 1921

26.05.1936

ratified

C14 Weekly Rest (Industry) Convention, 1921

26.05.1936

ratified

C17 Workmen’s Compensation (Accidents) Convention, 1925

14.03.1950

ratified

C18 Workmen’s Compensation (Occupational Diseases) Convention, 1925

24.09.1956

ratified

C19 Equality of Treatment (Accident Compensation) Convention, 1925

14.03.1950

ratified

C21 Inspection of Emigrants Convention, 1926

14.03.1950

ratified

C22 Seamen’s Articles of Agreement Convention, 1926

14.03.1950

ratified

C26 Minimum Wage-Fixing Machinery Convention, 1928

14.03.1950

ratified

C27 Marking of Weight (Packages Transported by Vessels) Convention, 1929 14.03.1950

ratified

C29 Forced Labour Convention, 1930

ratified

14.03.1950

Té Argentino C32 Protection against Accidents (Dockers) Convention (Revised), 1932

14.03.1950

ratified

C33 Minimum Age (Non-Industrial Employment) Convention, 1932

14.03.1950

denounced on 1.11.1996

C34 Fee-Charging Employment Agencies Convention, 1933

14.03.1950

denounced on 19.09.1996

C35 Old-Age Insurance (Industry, etc.) Convention, 1933

17.02.1955

ratified

C36 Old-Age Insurance (Agriculture) Convention, 1933

17.02.1955

ratified

C41 Night Work (Women) Convention (Revised), 1934

14.03.1950

ratified

C42 Workmen’s Compensation (Occupational Diseases) Convention (Revised), 1934

14.03.1950

ratified

C45 Underground Work (Women) Convention, 1935

14.03.1950

ratified

C50 Recruiting of Indigenous Workers Convention, 1936

14.03.1950

ratified

C52 Holidays with Pay Convention, 1936

14.03.1950

ratified

C53 Officers’ Competency Certificates Convention, 1936

17.02.1955

ratified

C77 Medical Examination of Young Persons (Industry) Convention, 1946

17.02.1955

ratified

C78 Medical Examination of Young Persons (Non-Industrial Occupations) Convention, 1946 17.02.1955

ratified

C79 Night Work of Young Persons (Non-Industrial Occupations) Convention, 1946 17.02.1955

ratified

C80 Final Articles Revision Convention, 1946

14.03.1950

ratified

C81 Labour Inspection Convention, 1947

17.02.1955

ratified

C87 Freedom of Association and Protection of the Right to Organise Convention, 1948

18.01.1960

ratified

C88 Employment Service Convention, 1948

24.09.1956

ratified

C90 Night Work of Young Persons (Industry ) Convention (Revised), 1948

24.09.1956

ratified

C95 Protection of Wages Convention, 1949

24.09.1956

ratified

C96 Fee-Charging Employment Agencies Convention (Revised), 1949

19.09.1996

ratified

C98 Right to Organise and Collective Bargaining Convention, 1949

24.09.1956

ratified

C100 Equal Remuneration Convention, 1951

24.09.1956

ratified

C105 Abolition of Forced Labour Convention, 1957

18.01.1960

ratified

C107 Indigenous and Tribal Populations Convention, 1957

18.01.1960

denounced on 03.07.2000

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C111 Discrimination (Employment and Occupation) Convention, 1958 18.06.1968

ratified

C115 Radiation Protection Convention, 1960

15.06.1978

ratified

C124 Medical Examination of Young Persons (Underground Work) Convention, 1965

20.06.1985

ratified

C129 Labour Inspection (Agriculture) Convention, 1969

20.06.1985

ratified

C135 Workersâ&#x20AC;&#x2122; Representatives Convention, 1971

23.11.2006

ratified

C138 Minimum Age Convention, 1973

11.11.1996

ratified

C139 Occupational Cancer Convention, 1974

15.06.1978

ratified

C142 Human Resources Development Convention, 1975

15.06.1978

ratified

C144 Tripartite Consultation (International Labour Standards) Convention, 1976

13.04.1987

ratified

C150 Labour Administration Convention, 1978

20.02.2004

ratified

C151 Labour Relations (Public Service) Convention, 1978

21.01.1987

ratified

C154 Collective Bargaining Convention, 1981

29.01.1993

ratified

C156 Workers with Family Responsibilities Convention, 1981

17.03.1988

ratified

C159 Vocational Rehabilitation and Employment (Disabled Persons) Convention, 1983 13.04.1987

ratified

C169 Indigenous and Tribal Peoples Convention, 1989

03.07.2000

ratified

C177 Home Work Convention, 1996

31.07.2006

ratified

C182 Worst Forms of Child Labour Convention, 1999

05.02.2001

ratified

C184 Safety and Health in Agriculture Convention, 2001

26.06.2006

ratified

TĂŠ Argentino

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