Research On The Vertical Integration Of Chinese Tea Industry Chain

As one of the major tea-producing countries, China’s tea industry has developed rapidly in recent years. In2009, the tea production is1.35million tons, the tea plantation area is1.867million hectares, the export volume is30.3million tons, the export value is$705million, the tea output value is41.36billion yuan, and these indicators are among the highest in the world. China has the largest tea production and tea garden area in the world, the characteristics of tea such as green tea and oolong tea in China occupies an important position in the international market.With the rapid development of tea industry, the domestic and international market of tea has also undergone significant changes. Firstly, with the continuous improvement of people’s living standards, consumption demand of the tea market changes. And with the steady growth of demand quantity of tea, there is a slow growth in the demand of bulk tea (ordinary tea), and a rapid increase in the demand of brand tea and famous tea. Secondly, given that the quality and health problem of tea occurs repeatedly, consumers highly concern about the quality and health of tea, as a result, many consumers turn to choose a better quality of organic tea, pollution-free tea. Thirdly, demand for Chinese tea in the international market has also been changed from bulk tea to packaged tea, bulk tea exports having been affected by more and more technical barriers. However, from the perspective of supply in the tea market, the production of high-quality tea such as branded tea, organic tea, etc. is obviously inadequately, the brand tea is still in the early construction. Thus, there is a problem of structural imbalance in the supply and demand of China’s tea, that is, there is a big gap between the effective supply and potential demand for high-quality tea. How to deal with the rapid changes in domestic and international market of tea, in order to fully supply high-quality tea to meet consumer demand at home and abroad, has become one of the urgent problems of China’s tea industry. From the practical level, the tea companies emerging vertically integrate the upstream and downstream of industry chain, which has become an important trend in the development of China’s tea industry,Due to differences in the levels of regional development of China’s tea industry, hierarchy of tea consumption structure, imperfection of vertical integration of the interests of the connection mechanism and lower barriers to enter tea industry chain, there are various forms of the tea industry chain in China’s tea industry which will co-exist within a certain time and space. But from the perspective of development trends and the demand of consumer, tea industry chain with a core of tea enterprises is the main direction of development of tea industry of today and tomorrow. The vertical integration of the upstream industry chain is to obtain high-quality fresh leaves raw materials, the specific form of which includes full vertical integration(acquisition of tea gardens) and incomplete vertical integration(fresh leaf contract transactions), and the vertical integration of the downstream industry chain is to obtain greater economic benefits, the main form of which is full vertical integration to open a tea store.Through empirical analysis of structural equation, we can conclude that the performance of vertical integration of tea companies depends on several factors.(1) Vertical integration dimension has the greatest direct impact on the performance of vertical integration of tea enterprises. Expanded vertical integration in different dimensions will directly affect the performance of the integration of tea enterprises.(2) The ability to integrate has the greatest impact on the performance of vertical integration of tea companies, and the stronger the ability is,the better the performance will be. The ability to integrate not only directly affects the final integrated performance, but also indirectly affects the integrated performance through integration dimension.(3)Integration resources and capabilities of the enterprises have a greater impact on the integration dimension. With more human resources, entrepreneurial talent, information, technology, capital and more rational utilization of these resources, tea companies will be more inclined to integrate in the upstream and downstream of industry chain and thus to obtain better performance.The vertical integration of the tea industry chain will inevitably change the relationship between tea companies and production organization----farmers, which may in turn change the external constraints of the production, thereby affecting the mode of production of tea growers. Through the analysis of survey data, this article shows that involvement in vertical integration can significantly change the tea cultivation methods, which changes from conventional tea garden planting to the ecological tea garden planting, and thus the quality of the fresh leaves can be improved significantly. The main reason of which is that farmers are subjected to the constraints of technology and funds. The vertical integration of upstream can improve the technical and financial conditions of the farmers to some extent, thus promoting the establishment of ecological tea garden. Through principal component analysis method, this paper attributes the factors that affect the farmers to participate in the vertical integration to price factor, support and trust factors. Using logistic regression method, this article concludes:In the price factor, the higher selling price of fresh leaves, the timely and secure payment, and the low-cost sales of fresh leaves have a significant positive role in promoting farmers to involve in vertical integration. In the support factor, technical and financial support helps farmers participate in the vertical integration, however, access to information has no effect on the involvement in vertical integration for farmers. In trust factor, buyer reputation is vital for farmers to participate in the vertical integration, but long-term relationship has no significant effect. Among the characteristic variable of individual and family of the farmers, years of education, age and family labor are factors restricting the farmers to involve in vertical integration, and the greater the home production scale, farmers are more inclined to participate in the vertical integration.Based on the above research, this paper proposes the following measures:to meet the needs of domestic and foreign consumers of tea, to speed up the vertical integration of tea industry chain and accelerate improvements in the integration capacity of the tea companies in order to enhance the performance of vertical integration of the tea industry, to guide the farmers to participate in the vertical integration, and to promote the changes of the production and management.