THE OVERALL TEA SUPPLY CHAIN & ITS COST STRUCTURE

1. THE OVERALL TEA SUPPLY CHAIN & ITS COST STRUCTURE • The Starting Point – Historical Tea Supply • A look at the UK Tea Market • Breakdown of the Packer’s Cost Structure • A comparison of Retail & Auction Prices • A few Concluding Comments • =========================================== • Reminders  This is average data This averages all Packers Data This looks at Average Auction Prices April 2006 Data mainly for 2004 & 2005

2. THE OVERALL TEA SUPPLY CHAIN & ITS COST STRUCTURE • The Starting Point – Historical Tea Supply • A look at the UK Tea Market • Breakdown of the Packer’s Cost Structure • A comparison of Retail & Auction Prices • A few Concluding Comments • Reminders  This is average data This averages all Packers Data This looks at Average Auction Prices Data mainly for 2004 & 2005

3. Tea Price has fallen 3% pa in Real Terms 1957-2004 Note: Prices are based on London Auction Prices to 1998 and then for Mombassa auction price. (for Best PF1, Kenyan)

4. World Supply has continued to run ahead of Demand Source: ITC and LMC International

5. THE OVERALL TEA SUPPLY CHAIN & ITS COST STRUCTURE • The Starting Point – Historical Tea Supply • A look at the UK Tea Market • Breakdown of the Packer’s Cost Structure • A comparison of Retail & Auction Prices • A few Concluding Comments • Reminders  This is average data This averages all Packers Data This looks at Average Auction Prices Data mainly for 2004 & 2005

6. UK Definitions & assumptions • Retail prices exclude the impact of promotions. • Packers: Unilever - PG tips Premier Foods - Typhoo Tata-Tetley - Tetley ABF - Twinings Fairtrade - Clipper, Café Direct Taylors - Yorkshire • Retailers: Tesco, Sainsbury, Asda, M&S • Fair Trade premium €0.50 per kg (£0.34)

7. 2005 UK Tea Sales by Volume The market is dominated by TEABAGS +/- 90% Source: LMC International

8. Packer’s Average In-Store Prices £ per kg

9. UK Retail Prices are very steady in constant money terms Source: LMC International

10. THE OVERALL TEA SUPPLY CHAIN & ITS COST STRUCTURE • The Starting Point – Historical Tea Supply • A look at the UK Tea Market • Breakdown of the Packer’s Cost Structure • A comparison of Retail & Auction Prices • A few Concluding Comments • Reminders  This is average data This averages all Packers Data This looks at Average Auction Prices Data mainly for 2004 & 2005

11. The Make-up of the Retail Price

12. Packers Average Cost Structure 2004 (€m) 148

13. Margins(Profit as % of Sales )

14. THE OVERALL TEA SUPPLY CHAIN & ITS COST STRUCTURE • The Starting Point – Historical Tea Supply • A look at the UK Market • Breakdown of the Packer’s Cost Structure • A comparison of Retail & Auction Prices • A few Concluding Comments • Reminders  This is average data This averages all Packers Data This looks at Average Auction Prices Data mainly for 2004 & 2005

15. 2005 - Average Auction prices by segment£ per kg Source: LMC International

16. 2005 Average Prices Auction as a % of retail price Economy Products Source: LMC International

17. Auction Prices versus Retail* Prices in 2005£ per kg 8.69 8.12 7.06 4.64 4.33 * Net of promotions Source: LMC International

18. THE OVERALL TEA SUPPLY CHAIN & ITS COST STRUCTURE • The Starting Point – Historical Tea Supply • A look at the UK Market • Breakdown of the Packer’s Cost Structure • A comparison of Retail & Auction Prices • A few Concluding Comments • Reminders  This is average data This averages all Packers Data This looks at Average Auction Prices Data mainly for 2004 & 2005

19. Tea Value Chains£ per kg Upgrading to Speciality should be the future driver for change. Reduce plain teas.

20. Main reasons for Differences in Packer’s In-Store Prices • Advertising & Promotion costs • Packaging costs • Differing Supply Chain Efficiencies • Economies of scale • Market power with Supermarkets • Margin Strategy (Volume/Value)

21. RETAIL TEA SUPPLY CHAIN: UK Port - to - Supermarket Shelf CUSTOMERS WAREHOUSE PACKERS FACTORIES SUPERMARKET STORES ARRIVAL PORT RECEIVE REPAIR (?) (RE-)PALLETISE SAMPLE STORE TASTE CREATE BLENDS PICK PALLETS BLENDING PM PURCHASE TEA MACHINES PACKING OPS CODING DESPATCH STORE RECORD & RECEIVE QC CHECK STORE RE-PACK (?) PICK PALLETS (?) DISTRIBUTION ROUTE PLANNING DESPATCH UNLOADING UNPACK STACK ON SHELVES PROMOTIONAL DISPLAYS TRANSACTION SYSTEM SALES DATA ANALYSIS RE-ORDERING UNLOAD INSPECT SAMPLE QC CHECK DOCUMENTS CLEAR CUSTOMS CERTIFICATION (WAREHOUSING) TRANSPORT TO PACKERS TRANSPORT TO CUSTOMERS TRANSPORT TO THE STORES FINANCE & MATERIALS CHARGES FINANCE CHARGES FINANCE CHARGES PORT HANDLING CHARGES QA COSTS & TEA LOSSES TRANSPORT COSTS IT COSTS WASTE TASTING EXPERTISE HIGH LABOUR COSTS

22. RETAIL TEA SUPPLY CHAIN: UK Port – to - Supermarket Shelf CUSTOMERS WAREHOUSE PACKERS FACTORIES SUPERMARKET STORES ARRIVAL PORT RECEIVE REPAIR (?) (RE-)PALLETISE SAMPLE STORE TASTE CREATE BLENDS PICK PALLETS BLENDING PM PURCHASE TEA MACHINES PACKING OPS CODING DESPATCH STORE RECORD & RECEIVE QC CHECK STORE RE-PACK (?) PICK PALLETS (?) DISTRIBUTION ROUTE PLANNING DESPATCH UNLOADING UNPACK STACK ON SHELVES PROMOTIONAL DISPLAYS TRANSACTION SYSTEM SALES DATA ANALYSIS RE-ORDERING UNLOAD INSPECT SAMPLE QC CHECK DOCUMENTS CLEAR CUSTOMS CERTIFICATION (WAREHOUSING) TRANSPORT TO PACKERS TRANSPORT TO CUSTOMERS THE SUPERMARKETS ARE SQUEEZING THE PACKERS MARGINS VERY HARD TRANSPORT TO THE STORES FINANCE & MATERIALS CHARGES FINANCE CHARGES FINANCE CHARGES PORT HANDLING CHARGES QA COSTS & TEA LOSSES TRANSPORT COSTS IT COSTS WASTE TASTING EXPERTISE HIGH LABOUR COSTS

23. RAW TEA SUPPLY CHAIN: Manufacture – Auction - FOB PRODUCERS WAREHOUSE EXPORTING MANUFACTURE 1. ESTATE 1. ESTATE BUYERS WAREHOUSE TRANSPORT LOTS TRANSPORT LOTS INSPECTIONS CERTIFICATES CLEAR CUSTOMS PORT LEVY THC ORIGIN B/L ISSUE LOAD SAIL INSURE TO FOB CESSES ASSOC CHARGE MANUFACTURE SAMPLE QC CHECK PACK MARK PALLETISE STORE PICK PALLETS DESPATCH RECEIVE REPAIR PALLETISE SAMPLE STORE PICK PALLETS DESPATCH RECEIVE REPAIR PALLETISE SAMPLE QC CHECK STORE RE-PACK MARK FUMIGATE PICK PALLETS CONTAINERISE DESPATCH TRANSPORT CONTAINER AUCTION CHARGES BUYING CHARGES AUCTION CHARGES FINANCE CHARGES FINANCE CHARGES

24. RAW TEA SUPPLY CHAIN: Manufacture – Auction - FOB PRODUCERS WAREHOUSE EXPORTING MANUFACTURE 1. ESTATE 1. ESTATE BUYERS WAREHOUSE TRANSPORT LOTS TRANSPORT LOTS INSPECTIONS CERTIFICATES CLEAR CUSTOMS PORT LEVY THC ORIGIN B/L ISSUE LOAD SAIL INSURE TO FOB CESSES ASSOC CHARGE MANUFACTURE SAMPLE QC CHECK PACK MARK PALLETISE STORE PICK PALLETS DESPATCH RECEIVE REPAIR PALLETISE SAMPLE STORE PICK PALLETS DESPATCH RECEIVE REPAIR PALLETISE SAMPLE QC CHECK STORE RE-PACK MARK FUMIGATE PICK PALLETS CONTAINERISE DESPATCH THE PACKERS ARE SQUEEZING THE TEA PRODUCERS TO BECOME MORE EFFICIENT TRANSPORT CONTAINER AUCTION CHARGES BUYING CHARGES AUCTION CHARGES FINANCE CHARGES FINANCE CHARGES

25. RAW TEA SUPPLY CHAIN: Manufacture - Private Sale - FOB PRODUCERS WAREHOUSE EXPORTING MANUFACTURE 1. ESTATE 1. ESTATE MAINLY BY TAKING COST OUT OF THE SUPPLY CHAIN TRANSPORT LOTS INSPECTIONS CERTIFICATES CLEAR CUSTOMS PORT LEVY THC ORIGIN B/L ISSUE LOAD SAIL INSURE TO FOB CESSES ASSOC CHARGE MANUFACTURE SAMPLE QC CHECK PACK MARK PALLETISE STORE PICK PALLETS DESPATCH RECEIVE REPAIR PALLETISE SAMPLE QC CHECK STORE FUMIGATE PICK PALLETS CONTAINERISE DESPATCH TRANSPORT CONTAINER SELLING CHARGES FINANCE CHARGES

26. Main Conclusions • Packers margins are low (4-8%) • Retailers margins on branded are also low (5%) • Retailers final margins are higher on their own label (20%) • Depending on product type & components, 40-60% of the Retail price is Packers costs • Really only Tea Estates make money out of Fair Trade. Fairtrade remains niche & is outside the Auction Market Mechanism.

27. THE OVERALL TEA SUPPLY CHAIN & ITS COST STRUCTURE • Reminders This is average dataThis averages all Packers DataThis looks at Average Auction PricesData mainly for 2004 & 2005 THE END April 2006