*Breaking News: Marukyu Koyamaen's Announcement

 

 

Ryan Ahn (00:00)
Hello and welcome to the Specialty Matcha podcast. My name is Ryan. This is my co-host Zongjun

Zongjun (Sam) Li (00:05)
Hello hello.

Ryan Ahn (00:05)
and we're the co-founders of Sanko matcha Product.

Zongjun (Sam) Li (00:07)
Yeah, we launched this podcast to discuss our learning journey, matcha share startup stories and interview experts. And today, we are releasing a very special edition of this podcast talking about breaking news that we saw online recently. So one of the major blend house, Marukyu Koyamaen is publicly apologizing to consumers about their

they will be running out, literally running out of selling matcha by the end of the year.

Ryan Ahn (00:39)
Yeah, pretty shocking announcement. And for the rest of this episode, pronunciation sake and for speed and efficiency, we're just going to refer to them as MK, especially because my Japanese pronunciation is so poor. I'll save embarrassing myself. it's a pretty shocking announcement. mean, the announcement is literally like, might run out of matcha.

Zongjun (Sam) Li (00:53)
Good.

Ryan Ahn (01:04)
coming from one of the largest, most established traditional blend houses. That was pretty shocking and sent some waves through the internet sphere. of people are giving commentary. find this really worthy of breaking news in the magic industry and wanted to sort of investigate further.

Zongjun (Sam) Li (01:22)
Yeah, this is literally like Nike posting about, you know, they're running out of shoes to be sold which is kind of crazy to think about.

Ryan Ahn (01:30)
Yeah

Really crazy. we reached out to a bunch of former guests on the show source their opinion and to gather different perspectives other than our own. So we're structuring this podcast sort of as a breaking new segment. recording this at the very last minute before we're publishing it. So the format's going to be a little different. We're going to talk about the announcement itself then kind of give some highlights of the online commentary that's out there in public.

And then we asked a bunch of people their opinions, who had very different perspectives the industry, including Cole, my matcha addiction, who's a matcha influencer and reviewer. he thought, we reached out to Ian from Yunomi of them are former guests and Ian runs Yunomi, which is the largest marketplace of artisanal Japanese tea online works a lot with small tea farmers.

So it's a really great perspective. And then we reached out to a tea farmer, Pau, is a future guest on an episode that is yet to be released, who also runs the blog Tea Nursery, which is a fantastic resource, if you want to learn more about production areas or cultivars. And he's like literally deep in the weeds a tea farmer himself in Kyoto Prefecture. So we sourced these different opinions and we've kind of

amalgamated it all together in this episode to hopefully give a pretty enriching breakdown of not only like what is this announcement but what are its implications and is there not enough tea and what are the bottlenecks to that are that are causing this issue.

Zongjun (Sam) Li (03:06)
it's pretty interesting to kind of review different perspective coming from different parties. our first thought is that this will really push consumers to kind of explore around maybe down to more niche, more or producers out there in Japan other than MK.

it seems like the situation is much more complex than we thought.

Ryan Ahn (03:33)
much more. Actually, my very first reaction seeing the headline was, wow, that's great. Like, matcha is really having its moment. seeing a company like them sell out and nearly run out of matcha, I mean, it just shows that this movement's really growing. you reach through the online discourse, there actually some pretty negative externalities about that we're going to touch on in the episode. anything, you know, it's really complex.

And it's interesting to see all these different opinions and kind of the same thing from many different perspectives. So move on to the first segment, which is the announcement itself. going to read off part of it Instagram

the title is Apology and Announcement Regarding Limit Restriction on matcha Products in the Current Situation. So, Dear Customers, Due to a sharp and increase in demand of matcha products in the past few months, the current demand has already...

our production capacity. This results in extreme low stock of all matcha products at this moment.

goes on to say that they're doing their absolute best to up with the demand that it's only possible for them to a year. there's very little that they can do this point. therefore they regret that a quantity limit restriction is now applied on all matcha products to ensure that it can reach as many customers as possible while stocks last.

And it also says here in the middle that there will be a high possibility of a complete out of stock before the next harvest season arrives. That's crazy. And even more crazy because the next harvest season, you're not immediately making matcha. you harvest the tea leaves, process it to tencha and then mill it. Typically that undergoes a resting period, which is a point that Pau made. products sometimes age for

usually around six months and they get released in the fall. But you know, they can also be aged for a year or two to help kind of cut off the bitterness because a lot of the bitter and astringent catechins degrade faster than the amino acid compounds, which are more umami. it's a way of sort of transforming a flavor profile to, to mellow it out by aging it even more. So it must be very tricky from a stock management, even keeping older stocks to create a lot of these blends that they have.

crazy. don't know. was your, or Zongjun, what was your first reaction when reading through the post sort of in their own language and the way that they phrase things?

Zongjun (Sam) Li (06:02)
it's interesting that they are actually doing some measurements of limiting people to buy their tea so that they can have enough tea to offer to more customers. Like I read part of the comment session that people are complaining that they go to their physical location in Japan and only to learn that they're

there isn't enough tea for them or the tea that they want to buy is out of stock. It's kind of crazy that people running into situations like this where they travel so far away the other side of the world to learn that something is not available anymore.

Ryan Ahn (06:42)
Yeah

crazy. And you know, MK is not the only company this is happening to. There are a lot of these traditional houses that have out of stock. MK themselves have had extremely low stocks over the past couple of months. And now they're basically saying, hey, we might run out of tea. So they're not even the only people that it's affecting. Zongjun and I were on the phone the day after this came out. And our initial reaction...

was, hey, this is going to move consumers into a state of exploration. have built this habit. Maybe they found a great value with a lot of these products and a lot of these blends. going to push them into a mode of exploration just like you do any time you don't have access to whatever you've built a habit with. it might benefit the other companies that do have much of stocks and might be less known.

And this might just be a case of having like these awareness pockets sets of macha consumers, where it's slightly more winner takes all, like because people are aware of these companies and they have great reputations and so many people are aware. And a lot of these cycles are being driven by platforms like Instagram and TikTok, right? A lot of market share goes to them.

And maybe this will be an opportunity for other less known companies get more market share and for consumers to build preferences and new habits with some companies that get less love online. as we talk to more people, we realize that that might be the case, but also there's a lot of complexities and

Zongjun (Sam) Li (08:16)
Yeah, it might even be the opposite of the case as we learned that a lot of these smaller houses are actually depending on these larger houses their production capacity. normal years, like these larger houses might have over capacity so that they can, you know, kind of them to smaller houses for, you

processing their tea. right now they're running out of capacity themselves. Like all these smaller houses might up not having any capacity to process their tea, which is to learn. surprising and really caught my attention as I was Pau's reply.

on our question.

Ryan Ahn (09:00)
you know, it's not just the tea industry that does this sort of thing. I know it's a big thing in craft beer is it's, you know, it's a really, just like building a tencha factory is a huge investment in capital equipment and land and risk, but you have all of this equipment that's sitting there. And typically you need to build it above your capacity so you can grow into your equipment. So as you produce more, as you sell more, you can create more.

There's no point in building a factory that's exactly at the limits of what you're selling now. even in industries like beer, it's very common to do contract brewing. that equipment's not just sitting there, it can make money brewing other people's recipes to create their products and then package it using their packaging. It's a huge thing to make sure that you're kind of squeezing the most out of your equipment. But what happens when there's a huge explosion from the equipment owners?

They're the ones who have the leverage and they need that capacity now. actually be a very negative externality for these smaller players that are reliant on other people's capital equipment for processing.

Zongjun (Sam) Li (10:06)
that's right. They really have no leverage. And right now, it's extremely expensive to build new facilities and procure new machineries for all of these shiage process to process alercha. learned that the last wave of construction of such facilities was about a decade ago. it has been a long time since any of these new factories being built.

Ryan Ahn (10:32)
apparently in lot of the tea growing prefectures, it's not as easy as just building a new building, right? Because you have to work with the local land and the local geography. And we were learning that in Kyoto prefecture, there's a lot

repurposing of old buildings that get turned into tea factories, simply because there's not enough land or they can't use the land in certain ways.

Zongjun (Sam) Li (10:49)
Mm.

Ryan Ahn (10:54)
They kind of have to work with a lot of existing infrastructure. Whereas in like places like Kagoshima, which are extremely large and flat, you can just build this gigantic facility. whereas in like some areas in Kyoto, it's just not case, which is something that Pau told us when we met him in Japan.

Zongjun (Sam) Li (11:12)
that's all very interesting. So Ryan, let's loop back to the original post made by MK. And was about the comment section underneath. a lot of people are blaming TikTok as the main contributor, I would say.

what do you think about that?

Ryan Ahn (11:36)
This is particularly weird for us. And I don't know anyone who's listening on this that's not on TikTok, because we are not either. So I would say this was blind spot for us on our news ecosystem. And it was really interesting because actually, up one step further, the first comment that I saw to this news on Instagram was from and Matcha who

as a matcha business in the Philippines. she was talking about all of this over consumption. she wrote, used to be consumed on special occasions like tea ceremonies, and that hoarding and over consumption doesn't look cool. And when I first read this, I actually was pretty confused. didn't quite get it. then I also read from matcha moments the Philippines as well, how

matcha is a really premium product and how many people are drinking all this great matcha and gulping it down in the form of a latte without thinking about it or knowing what this product is. They're just people with a lot of buying power, buying this great stuff and we'll call it watering it down or know.

Zongjun (Sam) Li (12:45)
You know,

Ryan, as a you know, this really reminds me of how people were complaining about, you know, all of these vintage Chateau L'Afrique getting procured and gulped by all of these businessmen in business parties in China. And there's just not enough supply for elsewhere in the world.

people were blending like a green tea into the wine and drink it as a whole.

Let me add some conscious green tea into it. Make it more drinkable.

Ryan Ahn (13:23)
didn't really understand this commentary completely until I was talking with Cole.

And this is what he wrote. I was asking him what he thought about this over consumption argument. And he said, yeah, I TikTok has really pushed over consumption. think that people just literally don't understand how fast matcha goes bad. I see people having full drawers or shelves of matcha, all unrefrigerated and all half consumed. And I was like, well, you're right. I guess I have seen that a little bit on Instagram that there's this whole culture of like building up your matcha stash.

like there's no way people are drinking that before it goes bad. And it is kind of a waste. And I never really quite considered that. he was commenting how someone had recently commented in one of his posts that think he does a very good job keeping low stocks and keeping matcha fresh, like as it's intended to be.

Zongjun (Sam) Li (14:06)
Yeah.

Ryan Ahn (14:17)
the first real thread in reaction to this news a culture of overconsumption.

Zongjun (Sam) Li (14:22)
guess inevitable

defense, it's inevitable for a lot of the beginners to kind of, especially in their exploration phase, really have a stash of matcha because they probably want to try all these matcha tastes like. I mean, like I have been through similar phase for...

for tea, for coffee, for wine, for spirits. only problem for matcha is that it really doesn't aged. like, it really is a fresh fruit. very different from other things out there that people might be migrating from.

Ryan Ahn (15:00)
and that just doesn't copy and paste over to matcha. you know, it's good and bad, right? You have a bunch of people buying a bunch of stuff, forming preferences, deciding what they like or don't like or where they find good value or bad value. on the other hand, you have a bunch of stale matcha that could have gone to someone who would drink it. It's kind of like a scarcity mindset versus an abundance mindset.

And like in a scarcity world, like what you said with Chateau de Fille, right? Like it's a bit of a shame that people who, it's not even people who don't even appreciate, let's assume that they appreciate all the flavors and can taste it and understand the history. Even if they do, right? It's still like, it's going bad.

Zongjun (Sam) Li (15:43)
that is really hard though, like, because you do have a growing demand and like growing amount of people, they are curious about trying more. And what are you going to do with them? Like giving them tea? Or like who is there to judge? Like, you you know nothing about matcha. Like people making those judgments was once a beginner too, right? Like they probably went through a very similar phase.

Ryan Ahn (15:58)
Hahaha

Mm.

Zongjun (Sam) Li (16:13)
and, looping back to, you know, the Chinese wine consumption, like you had that crazy phase about, you know, buying only Chateau Lafite from the Crème Delacrème. but, you know, later, right now you have a very interesting, wine culture and wine, know, appreciation scene here going on. know, people, are saturated and like those who are really into wine start, you know, taking wine seriously, start even

Ryan Ahn (16:12)
Very true.

Zongjun (Sam) Li (16:38)
growing wine and producing wine in China. And without those initial craze, like no one will essentially care about it at all. So I bet that, know, matcha is inevitably going to go through a very similar phase as you know, there just will be people flooding into the market and eventually, you know, like those.

Ryan Ahn (16:47)
Mmm. Yeah, that's a-

Zongjun (Sam) Li (17:00)
people who treat it as a hype relief and then left with those who care and they will become experienced drinker in the future.

Ryan Ahn (17:10)
Yeah, absolutely. Or, you know, form their own little like subculture, right? Like something that we've talked about before. If you look at like tea culture in Britain, they were importing Chinese tea, but they certainly were not importing any Chinese tea culture. it can evolve into its own thing. in a similar way, just like how you see people buying really good matcha and putting a giant scoop of agave into it and then whisking it up.

Zongjun (Sam) Li (17:14)
Uh-huh.

Ryan Ahn (17:36)
right to a purist that's horrifying. And there's an interesting comment here the comment threads. Actually, I think this was the most liked comment under MK's post. And it says, TikTokers ruining tea, get 115 likes. then people say, someone finally said it. I'm so annoyed. Someone else said, so true. then if you keep reading down, someone commented on how TikTok mania in America is mixing precious matcha with

Zongjun (Sam) Li (17:36)
Ha.

Ryan Ahn (18:03)
Oatly! now there's not enough matcha for tea ceremony practitioners.

Zongjun (Sam) Li (18:07)
Well the funny thing is

we were at Horii Shichimeien and the lady there told us that this matcha is good with oatly or oat milk.

Ryan Ahn (18:16)
it's interesting getting purist perspectives and then having a more  mind. might really like it with other things.

Zongjun (Sam) Li (18:24)
it a little bit unfortunate to see this dilemma exist for the time being? Because I do understand that people get angry about things that they really appreciate and things that they not only they appreciate, they are not able to buy at the moment and seeing them being kind of in their eyes spoiled with other things

can relate to the anger, but also at the same time, you know, like, maybe that's the reality that we need to deal

You cannot change the words.

Ryan Ahn (18:57)
yeah, wow, you can't change consumers. Anytime like people are blaming

consumers, too hard, right? industry is in service to consumers, whether or not they're tea ceremony practitioners or whether or not they're people who enjoy matcha in the latte. And that's just the reality. And no amount of huffing and puffing is gonna change that. is just for fun. very nice, amusing

of online discourse. wrote, seems like it's time to increase capacities and to buy some more land to harvest tea. To which someone responded, that's not how it works. Tea plants are not green beans.

Zongjun (Sam) Li (19:31)
Hahaha

Ryan Ahn (19:32)
Wonderful sampling of of this delightful discourse that exists within the online tea community.

One interesting thing in the comment threads was talking about limited stocks for people traveling to Japan and it seemed to be a pretty big topic where people would say, I'm traveling all the way to Japan, I wanna buy it there. planned my whole trip around this and please like save it for retail sales versus selling it online, to which a lot of people respond and this is a quote from someone, I live in France and I drink matcha for years now.

And trust me when I say that European brands of matcha aren't worth it. sales of great matcha gardens like MK, like Horii Shichimeien truly a gift for people like me. there were other people echoing that sentiment. you know, there are no right answers to this stuff. is very complicated. And what do you do in a world of scarcity?

It'll be interesting to see how that plays out, especially if they do run out of matcha. be interesting to see how it plays out.

Zongjun (Sam) Li (20:35)
on one hand, you have people like really die hard matcha lovers traveling all the way from their own country to Japan, maybe for the first time ever. They're so like excited and prepared to buy this matcha that they have been loving at the physical location that they want to visit and only to learn that the tea sold out.

But on the other hand, you have people who cannot probably afford to go to Japan or plan the whole trip and can only rely on online sales to try all of these wonderful things. It's really hard to assess the situation because me, I think that everyone should have the freedom to try good matcha.

should not stop anyone from buying anything. That's just not fair. It's almost obstacle for someone to assess something and that's just not fair for people.

Ryan Ahn (21:39)
Yeah, no, absolutely. know, matcha culture, you know, exists out of, you know, retail sales in Japan and that people have built businesses, people have built habits, people have built lifestyles or tea ceremony, that, you know, need to be supplied and that exist outside of Japan, right? From all of the culture that Japan has exported. I agree.

we reached out to, as I said, couple different people. One of them was Cole from My Matcha Addiction, asking him his thoughts in general, then Ian and Pau as well. And we're gonna kind of put them in this order because the commentary flows very nicely into understand where the bottlenecks are, why the bottlenecks are the way that they are. then...

the secondary and tertiary outcomes of the fact that there is this shortage. Cole wrote, there are a ton of matcha brands that pop up almost every day and it seems like they all seem to be sourcing from the same handful of farmers. know, Zongjun and I have went to Japan. This is so real. anyone doing sourcing abroad. It is hard to find farmers, farmers that are willing to meet with you.

you of have to rely on what's in English or finding people through Instagram. And it is very easy to discover someone else's supplier, even by accident, if not intentionally. is so real, the more we learn about sourcing in Japan. And we have a whole series coming out about that.

Zongjun (Sam) Li (23:15)
Yeah,

for a lot of the teas, it's just the same tea repackaged into different brands

Ryan Ahn (23:21)
then it's interesting like, whoa, I know exactly who this person bought that from. I can perfectly pattern matcha it. I'm like, This person's charging $28. This person's only charging 22. And I know this is the same product. we won't make any enemies. So we'll stop the commentary there. But Cole goes on to say, I do worry.

Zongjun (Sam) Li (23:26)
Bye

No!

Ryan Ahn (23:43)
that to meet demand, quality down or price goes up. And that in his opinion, I think it would be price that goes up in the short term. in the long term, see more farms pivoting towards 10-shot production, we'll talk about in a little bit as well. it does seem to be the consensus that price goes up and kind of makes sense, right? Classic supply and demand dynamics.

What do you think about raising prices? Do you think that's the right move or do you think just limiting stock? Well, clearly they've decided just to limit stock and not to raise prices. But what if they did raise prices and not limit stock?

Zongjun (Sam) Li (24:19)
I don't know. like as what they said in the announcement, they are trying everything. So guess they just have to try things and figure out what's the best solution for the situation. Because, you know, like, this is probably like the first time they are running into a situation like this.

Ryan Ahn (24:37)
in their 300 year history. They were founded in 1704. of crazy.

Zongjun (Sam) Li (24:44)
Yeah, that is not so much younger than Ming Dynasty China.

Ryan Ahn (24:49)
you know, this is not a small business by the way, just to put it into context, if you do some basic research on this company, this is a huge range, but it gives you a sense of how big they are. estimated they do between 10 to 50 million dollars in revenue a year. A pretty large business and I don't know how accurate or up to date this number is, and it's a huge range, but you know, they're pretty significant supplier to the quote unquote matcha economy.

Zongjun (Sam) Li (25:15)
Hmm.

Ryan Ahn (25:15)
also reached out to Ian Yunomi, who is an incredible wealth of knowledge, especially because his perspective is working so closely with so many small Japanese tea farmers, like hundreds of them. he has a of like the pulse of what's going on in the industry. we're very thankful that gave his perspective.

he thinks that demand largely driven by tourism Japan. he kind of separates matcha into two very distinct markets. You have which is grown because of tourism, and then you have international, which needs to be compliant for different regulatory agencies in the countries that are importing products from Japan. there has been a huge boom.

in tourism in Japan in general. Japan retail places cafes this is something Ian was telling us in person when we met him in Tokyo a few months ago, was that cafes are now putting matcha on their menu, not because Japanese customers want matcha or a matcha latte, it's because all the foreigners that are coming to Japan expect it to be on those menu. So even in Japan, there's the scramble.

Zongjun (Sam) Li (26:28)
Yeah.

Ryan Ahn (26:31)
to get enough supply in places where it traditionally wasn't.

Zongjun (Sam) Li (26:34)
Yeah, I mean, we kind of saw the situation, similar situation in some of the offline stores of these traditional houses. For example, we were in Lyon in Kyoto, and we were there to buy some tea and try their teas. And for about half an hour of us being in the store, there were just tourists and very, very old Japanese men.

And just very fascinating to see the demographic of consumers in those physical stores.

Ryan Ahn (27:09)
really foreign and you can really feel that when you're in Japan too. And if you talk to like really local Japanese people and you're talking about matcha, it's very apparent it is not cool. Like maybe their mother or grandmother studied tea ceremony and that's the extent to which they know or talk about matcha. care.

Zongjun (Sam) Li (27:14)
Mm-hmm. Mm-hmm.

Ryan Ahn (27:29)
Like,

like they're, you know, older generations obscure hobby. It's the impression that I get talking to like local people in Tokyo.

Zongjun (Sam) Li (27:34)
Yeah.

Yeah, into matcha working on matcha is almost like sounds like getting into weaving

for a lot of the younger people Japan. interesting to see, you know, how people assess this thing from different countries.

Ryan Ahn (27:55)
Yeah, So have these two very distinct markets and in some ways they're intertwined, right? Because you have the domestic market, which the growth is being driven by foreigners. And you also have the foreign market. And obviously the growth is being driven foreigners, is a lot of where this interest is coming from. So I'm going to read this directly from my conversation with Ian.

So he says, import brands at any scale are importing compliant matcha, which is lower in price and in quality, meaning more bitter, less umami, and less body than what is sold in Japan. So if we divide this Japan compliant and overseas matcha, demand for both are very high, coming from different markets. The effect on supply for both are similar though. It puts pressure on supply. that was the end of this quote.

Pau also reiterated this over and over and over about how this puts pressure on supply. And Pau later on in this podcast, is about the different bottlenecks. matcha production and how it's putting all of this pressure. And we'll talk about that in a moment. But going back to Ian's comments, overseas compliant matcha production can expand,

Japan-compliant matcha has significant limitations, I think. I do see more overseas entrepreneurs for Japan-compliant matcha without knowing the regulations they need to abide by. Compliance for the U.S. can be solved by the EPA establishing safety limits on pesticide residue based on reviewed research in Japan. Taiwan and the EU

take a much stricter approach in general, so it's unlikely. way, demand will push up prices and import brands will either have to raise prices or sacrifice their excessively high margins. for supply, for high grade matcha, I don't see it expanding much. we have more and more farms switching to tencha production. The industry could build more tencha factories, but any farmer co-op now,

that has Sencha factories

have sencha factories and replacing that adding existing factories will be difficult. And this is next part that Ian says made me pause and think that more than that, the demand being from foreigners creates a situation where you have a piece of Japanese culture that is being consumed by non-Japanese. And at the expense of

leaf tea or loose leaf that is in a way a destruction of Japanese tea culture rather than spreading. That is a really interesting negative externality that I wasn't thinking about. That you can, you know, there's a lot of tea made in Japan, it's not Tencha. if you switch it over to Tencha production, that has to be at the expense of something else.

Zongjun (Sam) Li (30:43)
that's quite an interesting phenomenon. I guess you kind of see that in other industry too.

to use a Chinese tea example to

in China, certain tea regions, you start to see some major cultivars or major type of tea overtaking the entire region's production. in some traditional regions, only you produce oolong you sometimes produce some green tea, some red tea, some white tea, now are just exclusively producing da hong pao or exclusively

certain type of cultivar. And they are just like gardens that have been grown and farmed for centuries and transformed the entire production into one specific cultivar. happening in China and a very similar reason. don't see that, I don't see Japan has any immunity this kind of a situation.

Ryan Ahn (31:42)
Yeah.

Zongjun (Sam) Li (31:42)
So

I agree with Ian.

Ryan Ahn (31:43)
it seems to be getting worse. Ian was later on saying that a famous tea growing region in Kyoto prefecture, he was on the phone with a small farmer earlier that day. And he was saying that big factories are setting up these corporate farms leased from older farmers. these big corporate farms, he said, are shading the field for all harvests, even autumn,

which weakens the plants and lowers the quality. So the sense is that the priority right now is not focusing on quality, it's focusing on quantity. And you know, as more of these farmers age out, that's probably a pretty attractive thing. Big corporate comes in, runs, takes over the operations and they have all the equipment and process that they need to then process that tea and bring it to market. Sounds like a pretty attractive proposal.

These huge blending houses, won't speak about MK specifically, but blending houses in general don't have transparent labels. When you look at their product, they don't tell you if it's first harvest. Sometimes they do if it's like a special product, but they're mainstream brands. They don't tell you anything about it, where it was from, how it was grown, what the cultivars were used, the blend composition is, the includes things like not first flush tea.

in a way, it's a way of increasing supply, but can hide behind this obscurity or lack of specialty standards.

Zongjun (Sam) Li (33:10)
that's a

sad

I can't really think of any remedy to counter with this situation because people are making more money growing Tencha and there is a growing demand of matcha in the world. And don't have that for Kabusecha, for

kukicha for Fukamushicha you just do not. Maybe there is a demand for which I think is very much the case. really, nothing that can help with the situation.

Ryan Ahn (33:46)
Yeah. And in some ways, you know, you look from a tea plant perspective, it's sad. If you look from the tea farmers perspective, it's sad. you look at like this consolidation that's going on the fact that power is getting concentrated, That's there's aspects of that that are bad. And from, if you're just looking through the lens of the consumer and you're asking, how do you get more matcha faster blending?

is a, and lack of transparency is actually a fantastic way to subtly quality increasing quantity greatly. Like it is a solution to creating more high quality products. Cause with the skilled blender, you know, you can blend out flaws and you can achieve profiles that you get maybe on net, right?

Zongjun (Sam) Li (34:25)
Hmm.

Yeah.

and

Ryan Ahn (34:40)
the algebra there quality slightly lowers, it is a kind of a way of creating this like, it's matcha's fungible. Like if there's an inflation, you can create more of it by, you know, just harvesting it more often.

Zongjun (Sam) Li (34:53)
Yeah, yeah, like,

with all these obscured poetic names, you are almost creating a fake diversity. But in fact, it's really just all different Yabukita and Okumidori getting planned together. yeah, that's a very interesting situation.

Ryan Ahn (35:04)
Hahaha

elegant solution in the short term albeit kind of sad as a tea person. it just goes to show, you you can view this stuff so differently depending on if you really put Japanese culture first, if you put tea farmers livelihoods first, if you put consumers first, if you put the heritage of the products first. There's like all these different viewpoints that you can project positive or negative.

to for supply shortages like this announcement.

Zongjun (Sam) Li (35:46)
Yeah, yeah, like it really depends on the perspective. Like, let's see if we are, you know, really going to preserve this cultural diversity, this product, diversity of Japanese tea. Like, what are we going to do with it? Like, we stop, we stop exportation, we, you know, kind of restrict the market to be of these teas to be consumed within Japan.

And now what? You have an aging population. You have a shrinking population of consumer. generation is not really getting into tea. you also have that are getting old. you really look inward, that you have a shrinking market and a shrinking industry.

like the higher end boutique production of Japanese tea.

Ryan Ahn (36:36)
problems are so complex.

Zongjun (Sam) Li (36:39)
It's almost a little bit desperate to think about.

Ryan Ahn (36:43)
well, mean, there's no good solutions. Culture will be lost. I mean, one thing is for certain, like quality is probably going to go down. Prices are probably going to go up. Culture is probably going to be lost. New culture is probably going to be made. you have a whole set of new consumers that can enjoy this thing that didn't even know that it existed 10 years ago.

you know, this is a bit of a tangent, but Pollan, the food writer, has a very interesting flip in perspective. If you read some of his books or some of his works, he puts the main character usually being the food or the plant. Like how did rice advantage of humans or corn take advantage of humans to spread to every corner of the earth?

And if you do the same thing with matcha, an interesting thought exercise if you put it as the primary character how it is taking over the world the different ways that it has quote unquote used humans to get there. I'm not saying that's the right framing, but it's an interesting thought experiment. from that perspective, matcha is doing pretty well.

Zongjun (Sam) Li (37:36)
Hahaha

Ryan Ahn (37:52)
segment of this is this very detailed response that we got back from Pau from Tea Nursery, we also have him on the podcast quite a few episodes from now, probably five or six. We have quite the backlog content, but it was a fantastic episode. He's super knowledgeable work other than his blog is to, he's a tea farmer.

Kyoto Prefecture. he did a really excellent job for us, at least for us understanding what some of the bottlenecks are in the supply lead to shortages like MK. start with the one that is like literally the plants processing and cultivation. So he wrote

tencha and other shaded teas like Gyokuro and Kabusei require a lot more of tension the growing phase. The cultivation involves meticulous application of shading, ensuring the correct timing and avoiding potential disruptions like wind storms could damage buds or open the shading cover. is just one example of growing differences that have to be considered. Let's not even talk about pruning fertilization.

any particularities of cultivar itself aside from the additional costs and labor, tools and equipment to grow those teas. that is like really interesting in that like yes farmers can pivot from growing other types of tea like Sencha to growing tencha. It's not that easy and I feel like this is a pretty like high level answer. you could write like a PhD dissertation

Zongjun (Sam) Li (39:13)
It's not that easy.

Ryan Ahn (39:23)
dissertation on the complexities of switching over that even, we won't ever understand, but that was really nice encapsulation of getting a taste of what that would be like. else he talks a lot about are and just the processing of tencha Ian mentioned, just not enough tencha factories in a lot of cases. something we talked about previously is that, you know, a lot of the

capacity that's owned by the big companies get leased out to smaller farmers. But a lot of the smaller farmers the ones that will get screwed if those big factories need their own capacity. there's also a pretty major of abundance in the ability to process more tea. So here's what Pau writes.

These factories are exceptionally costly to construct and maintain. Among tea factories, they are a rare sight to Tensho factories. regions or prefectures specialize in producing a particular type of tea leading to a higher presence these factories. For instance, Kyoto prefecture is home to large established high capacity facilities with their own brands. facilities often offer

of their capacity overhead to smaller farms, providing them with production space. farms can benefit from a well-run production process with skilled operators, eliminating the need for them to manage grinding equipment in addition to their usual farming responsibilities. demand increases, these overheads  to be reduced.

production capacity remains unchanged. The decision of these factories to reduce available spots for smaller clients has left farms scrambling to find alternative facilities to produce their goods. While it may encourage some farmers to establish their own processing facilities, I doubt it will be a widespread trend. The time to invest in construction of a Tencha facility was a few years ago, and some farmers did in several prefectures. And my hope is that it is paying off for those who

took the courage invest in one at the time, farmers will simply move to another factory that may not have a brand identity and focus solely on offering refining, blending, or grinding services, for instance. well-established brands are struggling to keep their stocks at bay,

you can read from announcement. So you can see how this affects the bigger quantity of products available feels only like a patched solution, is not much that can be done.

with all the production capacity available, if there is no high quality leaves available, not much that can be done.

Zongjun (Sam) Li (41:58)
very interesting not like the production, the sheer capacity of producing matcha becomes the bottleneck at this point. super asset heavy. It takes time and takes money to build a new one. And a lot of these smaller, more boutique farmers just don't have the ability to construct one, is very sad.

Ryan Ahn (42:23)
very sad. And goes on to write that regions might only have one of those facilities which limits leaf intake that area. Consequently, often prevents individual farmers from selling their own products they sell leaves to the company at the price set for that regional factory. this creates a complex relationship between

factories and the farmers who collaborate with them. While some areas have excellent cooperation between farmers and factories, others do not. Occasionally farmers may band together to establish their own factories and gain control over their livelihoods. However, this practice is becoming less prevalent as fewer farmers are willing to undertake the challenging and physical demanding of farming. The mere cost of the equipment and building the factory can result in starting debt.

Actually, there's a similar problem in the coffee world where a lot of these farmers just cannot afford capital equipment and facilities to do their own processing, which leads to some very complicated dynamics.

Zongjun (Sam) Li (43:11)
You know.

Hmm.

And I bet it's not just the capital requirement. Farming is hard, man. very labor intensive. And I cannot think of, the end of the day, after finishing taking care of the garden, you need to go to another site build this factory. That must be a nightmare.

Ryan Ahn (43:44)
And think

about it from succession planning. mean in Chizuoka, the average age of a tea farmer is over 65. I mean, why would you pursue this at the end of your career when you don't even know if you have a succession plan? It just doesn't make logical sense for most farmers to do this.

Zongjun (Sam) Li (43:52)
Yeah.

very true, very true.

Ryan Ahn (44:03)
And interestingly enough, a lot of the farmers that we see, Western vendor, Sorsum, that are very famous, that own their own facilities and the ability to grind or produce Tencha themselves, apparently still lease some of it out. they're buying Aracha from other farmers, processing it and selling it under their own labels. So in some way, anyone who decide these small companies that have the resources to commit to this type of equipment, kind of become...

like these larger companies controlling these factories that's just the economic model that works.

Zongjun (Sam) Li (44:38)
it will be interesting to see maybe one day there might be foreigners, foreign vendors or consumers realizing this situation and might also realize this could be an opportunity. There's really a production bandwidth problem going on in Japan right now.

Ryan Ahn (45:02)
Yeah, absolutely.

Zongjun (Sam) Li (45:04)
else?

Ryan Ahn (45:04)
So something

that Pau a lot about, this will be on our podcast with him later, are the producers that are kind of in the middle. he describes it as either a race to the top or a race to the bottom. We have very farmers that are well-funded and can invest in these types of things. And then you have gigantic farming operations that are selling very commodity matcha. And you have a bunch of people in the middle, which

don't own their own factories and don't necessarily have their own brand or any awareness to or international skills to build their own brands. wrote the medium spectrum of producers are stretched to either produce more at the expense of a ceremonial grade experience.

and this was in quote ceremonial grade, attempt to compete in a competition grade, quote, market significantly overhead costs, name recognition and a substantial risk some of those teas.

entire line of farmers is trying to navigate this market and they are most commonly found by overseas customers who only tap them because their initial options fail to meet their accounts needs. This can be due

pricing or volume issues or both. Sometimes brands simply receive an overwhelming number of outreach from overseas customers seeking products. Those brands and farmers can receive around 600 of such messages annually.

So he goes on to write, there, you're out to compete in a saturated market with minimal regulation. are factors like labeling terms, regional brand reputation, long standing company names, owning and operating your own factories that can give you a significant advantage. this includes things like award winning farms, highly sought after by both

In prefectures with long-standing tradition of Tencha and Matcha production like Uji Matcha, the prefectural tea brand MK perhaps the most for their private brand strength, consistently ranked the first choices for their clients overseas.

names are sought after by customers who are often unfamiliar with the product. As a large number of grow these leaves decrease due to falling prices and the retirement and closing of farms after the COVID pandemic, many areas have lost a lot of its capacity. was that the market would become a race the top customers seeking highest matcha experiences while simultaneously

to the bottom to meet the demand for industrial uses with summer or autumn leaves. products are commonly grown in more time-efficient methods and appear unable to meet the demand of some customers high volume, price, stone milled, quote unquote, ceremonial grade tea. demand is sometimes unreasonable as most customers seek the product that they can sell terms like stone mill or ceremonial.

sometimes paying little attention to other aspects. Really interesting. hitting too.

Zongjun (Sam) Li (48:08)
Yeah.

I mean, for people already on the top, right? Like they have, they already have the reputation. They have the money to keep experimenting and keep making better products. they probably also have the, the social connection to maintain their status on the ladder. for, you know, the mass market production, right? Like they,

probably already invested a lot of money in machineries, And now they already have a pretty sizable production lined up. All they need to do is just buying more machine and expand their garden and make it more flat so that they can run more GPS-controlled harvesters on the retail. And for people stuck in

Ryan Ahn (48:50)
Hahaha

Zongjun (Sam) Li (48:53)
in the middle, like where do they go? Like if they want to climb up the ladder, very difficult to or higher quality matcha. Like every year the weather is different, right? Every year is almost a different experiment. And if, you know, one harvest goes bad for one year, like for smaller farmers, that's the end of the story. Like have no money in your bank.

You you sell the lot and then you retired early. on the other hand, you would probably be a very easy solution to just go mass market, sign a big contract with one of the bigger names and just sell all of your leave as Aracha or even fresh leaf for them to process. also means giving up your dream or giving up your generations of, you know,

you're giving up your garden that has been taken care of by generations. So it's a really hard decision to make.

Ryan Ahn (49:48)
Yeah, and investing in quality is really hard decision to make. is fascinating. This whole conversation, I never thought about that as an externality. first reaction was, my word, is going to run out of matcha. This is great. It's in such a hype cycle. People love it. people will explore other brands. And then as we dig deeper into this, we're like, wait a second. There's only so much processing equipment. are these bottlenecks?

And what happens in cases where these gigantic companies run out of stock? And how might that affect other tea farmers? then, know, Ian's perspective on like these two distinct markets, both being driven by foreigners, but one domestic and one non-domestic, and where there's sort of fungibility in the ability to produce more or produce less and what not compliant also is not easy, when you're not a well-resourced company.

So to me, actually, all of this spells out that it might be net negative for small and medium sized producers are not already well capitalized, leading to a net destruction uniqueness and heritage that exists amongst all the tea farmers in Japan,

Zongjun (Sam) Li (50:59)
really a bright future as we assess this.

Ryan Ahn (51:03)
you know, we're trying to source tea for our mill that can mill matcha fresh. And, you know, the easiest people to discover as Westerners with very limited Japanese language skills are the people that are already on the top. They're the well-funded, well-capitalized groups.

Zongjun (Sam) Li (51:19)
You know, as we

were bouncing this fresh milled idea with a lot of these Japanese farmers that we talked to, they seem to be very interested too. we might actually have a unexpected market out there other than Europe and America and Southeast Asia as we wanted to target initially.

Ryan Ahn (51:44)
be cool to see if that could be a really nice way to change these dynamics, give farmers more options, to save culture, to give consumers more options. this was a way more complicated episode to research and record than we were expecting.

Zongjun (Sam) Li (52:00)
Hahaha

Ryan Ahn (52:02)
And we're very grateful Pau for Ian, for Cole, contributing.

making this possible with their unique perspectives. and...

nice that we have such a wonderful community to help share knowledge and resources to respond to this news. you enjoyed this episode or if you have anything to add the discussion here, if you disagreed with anything we said or you have a very unique perspective that adds to the conversation, we would be to release a part two to expand on these ideas further.

Zongjun (Sam) Li (52:18)
Yes indeed.

Ryan Ahn (52:35)
So please don't hesitate to reach out to us on Instagram or by email on our website, sankomatcha.com, continue this dialogue. you so much for listening. And if you enjoyed consider sharing it with a friend giving us five stars. with that, I think that's the end of this episode.

Zongjun (Sam) Li (52:52)
Awesome. you so much for listening.