Tuesday, August 25, 2015

Revisiting the 2007 Puerh Market Crash

 

2007 was a turbulent year for those involved in puerh tea, especially tea businesses that were heavily invested. After a decade of escalating prices the momentum driving the value of puerh tea would peak during the spring of 2007. However the high prices could not hold and as the price for puerh tea tumbled, the first crash of the modern day puerh market was at hand. Fueled by heavy speculation and in part the wave of euphoria generated by the Chinese national media the price of puerh tea was at an all time high and was no longer sustainable without a significant correction. Furthermore the realization that the quality of puerh tea was increasingly being compromised for bigger profits by producers had begun to greatly dampen the euphoria of puerh tea leading up to 2007. A lack of confidence in new products whereby quality was sacrificed for quantity increasingly deterred buyers and investments. By mid-2007 the puerh tea market had crashed. As prices plunged to deeper depths for the reminder of the year many tea businesses that had gambled on escalating prices would be forced to close their doors.

“In a nutshell, the Yunnan Puerh tea crash of 2007 was absolutely caused by human factors. First, there were the well-known processing plants, taking profit from the market as their own. Second, a certain company rented out its name but didn’t ensure product quality, thereby losing the confidence of the customers. Third, Yunnan anxious for ever greater results, falsely reported production, increasing production every year and flooding the market. Fourth, tea sellers went to great lengths to fool consumers, causing Puerh consumers to back off.”, excerpt from the article Thoughts on the Business of Puerh by He Jing Cheng fromThe Art of Tea No.8

Revisiting the crash of 2007, a significant correction was made and a painful lesson was handed out. In the aftermath the Chinese authorities attempted to restore confidence in the puerh market by issuing tighter regulation and conditions that would stipulate what teas could be called - Puerh Tea. At the heart of the new ruling the use and production of raw materials and puerh tea respectively must be exclusive to the geographical location of Yunnan Province. Meanwhile the tea market would seek to re-establish quality by increasingly shining the spotlight on gushu raw materials (tea leaves that are harvested from big trees that can be centuries old) and further emphasizing the names of famous tea growing regions. The post-2007 crash would also see big tea factories like Menghai Tea Factory taking up the trend by redirecting their significant resources towards heavily marketing and promoting countless limited and special editions that would consist of big tree materials in association with the famous regions of Yunnan.

From my own experiences I remain grateful that my instincts kept me away from the calamity that was the 2007 Puerh Market Crash. Thinking back to the years 2006-2007, the most recurring memory I have is my many encounters with newly produced raw puerh tea that had an uncanny similarity to Chinese green tea. I also recalled many of the famous regional teas I encountered (ex. Yiwu, Banzhang, Jingmai, Nannuo, etc) all having a very generic character and clearly missing their own definitive characteristics that would be the hallmark of each famous region. I had long suspected that overharvesting and deceptive blending of raw materials was rampant. It is from these negative memories and circumstances at the time that I find puerh tea produced in 2006 and 2007 to be a risky proposition compared to other years that are less driven by market speculation and bad practice.

I have mentioned this already in my Tea Market Series but it is important to reiterate it here - I believe that the first and most important step to ensure consumer protection is by ensuring that we have educated consumers. This is because the best person to consistently look out for your best interest is YOU. It is worth remembering.

5 comments:

  1. I like hearing more about your experiences personally. One possible boon for consumers with teas from those years is for people who simply want to drink the tea as a pleasant semi-aged puerh. When nobody wants to collect those years, the prices are low for people who want daily drinking tea. And I think it is still the case today about blending, region labels are faked to the point where if you want a certain region you should find a reputable dealer.

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    1. Many of those bad teas have been thrown away. Moreover, the stuff people tend to be happy with aren't really less expensive than in other years. 2007 was also just a very weird growing year.

      Also, let's take super-premium teas...When it comes to YQH, 2005 was notably the weakest year for western drinkers, not '06 or '07. And of course, there seems to be other 2005 that have done better, but wasn't imported here. For XZH, the weakest products really seem to be that first year '05 Fall teas. 2007 was definitely not a bad year for them.

      So just looking at superpremium stuff, it's pretty obvious that you can't really assume anything about the quality from any one year. 2007 wasn't really a bad year. 2009 was a great year. It does feel like 2003, 2005 (Think Changtai productions that year, for example) probably should be considered bad years. However, you can have good or bad tea from most producers all years.

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    2. Hello Cwyn, Shah,

      Thank you for sharing your experiences. Hearing about the experiences from other tea enthusiasts adds to the depth and appreciation of puerh tea.

      Whilst it is easy enough for me to say there are good and bad puerh teas produced every year. Depending on the many variables at play the ratio will vary from year to year. As a buyer looking for the best deals you always need to be on your game. From my experience I find that some years you need to exercise more caution than others. This is the heart of the message.

      That said at the end of the day the assessment of an item is done on a case by case basis. Cwyn, you really touched on an important point. We need to question tea labels a lot more. The vast majority of labels used for identifying puerh tea cannot be taken at face value and are often embellished for marketing purposes. Picking up on Shah’s experience, it’s all about the attention to details.

      My experience with the premium range of puerh tea is that they really are hit and miss. The good are exceptional and the not so good can be very average. Paying the extra money provides you with more opportunities (without the guarantee) and an increased chance to encounter the gems out there in comparison to staying with cheap to mid level items. I have only tried a few XZHs, some Ban Zhangs from 2006 if I recalled correctly but wasn’t overly convinced to make the purchase. On a brighter note in my opinion the YQH have some real gems in their 2004 lineup.

      Best, VP

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    3. You guys will have to educate me on the abbreviations. I have only been into puerh a few years so far so the learning curve is still being taught to me.
      M

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  2. Hello M,

    “XZH, YQH” are references to premium puerh brands Xi Zi Hao and Yang Qing Hao respectively. They are Taiwanese tea companies that promote themselves as offering high quality puerh tea.

    Best, VP

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