Today, tea is one of the most important industrial cash crops of Nepal. Nepal produces approximately 16.29 million kilograms of tea which is around USD 25 million industry. In the year 2021, Nepal exported tea worth 24 million worldwide and 20 million to India. Similarly if we go south to our neighboring country India, they even have a huge market for tea with nearly 80 percent of the households in urban India and almost 75 percent of the households in rural India prefer buying tea. This accounts for USD 6.4 billion industry. Trade of tea between Nepal and India is a crucial part of the economy for both the countries. India imports 80 percent of total premium high quality Nepali orthodox tea which values around USD 20 million at a very cheap price, cheaper than the infamous Darjeeling tea with equally good quality and similar geo-climatic condition as Nepal doesn’t have direct access to the international market and lacks labs to test for quality assurance. This has been beneficial for the Indian traders. However, the producers of orthodox tea in India have not been particularly happy about it. This resentment has led them to demand an imposition of 100 percent customs duty and revision of the Indo-Nepal Treaty of 1950. This might even invite a trade war and it is important to understand that in a trade war there are no winners, only different degrees of losers.
To understand the flourishing of the tea industry in Nepal we need to look into our neighboring country India. Darjeeling fields were producing some of the world’s best teas by the end of the 19th century. Following the British colonial retreat, Darjeeling’s reputation increased and it swiftly acquired the moniker “Champagne of teas .” A few hours’ drive away, in Nepal, a loose-leaf revolution was just getting started in the country’s tea industry. The same kinds of sloping, high-elevation areas that gave Darjeeling its unrivaled reputation are now being used by growers in Nepal to plant tea bushes. But today, the infamous Darjeeling tea industry is suffering. The soil has suffered as a result of a century and a half of rigorous plantation. To meet consumer demand, it is expensive to switch to organic production practices. However, farmers in Nepal are creating amazing teas of their own at a fraction of the cost, frequently with younger, more vigorous bushes flourishing in comparably richer soil.
Despite these claims that Nepali tea is equally good and some even better, orthodox Nepali tea is not even half the price of Darjeeling tea, with bulk sales of Darjeeling tea costing anywhere between INR 320 and INR 360 per kg. Indian producers counter by claiming that the substandard quality of Nepal’s tea and the cheaper pricing are having a detrimental impact on India’s tea production for which they have been requesting for protectionism.
Tea industry has been continuously declining. Factors contributing to this decline include rising labor costs, a younger generation that is unwilling to work on plantations, problems with finances and management among others.
The latest Indian budget raised import duties on more than 50 items, ranging from auto parts and toys to candles and furniture, in order to protect uncompetitive small businesses and create jobs in labor-intensive industries but the cost here is significantly large. Tea is one of the most protected goods of India. The current import duty on tea in India is 100 percent. The Union government has been appealed to retain the import duty on tea at 100 percent by the United Planters’ Association of Southern India (UPASI). However, tea imports are duty-free under the 1950 Indo-Nepal Treaty. A committee of Parliament requested a review of the 1950 Indo-Nepal Treaty stating that the influx of low-quality products from the surrounding nations was jeopardizing the Indian tea industry.
Protectionist policies like this may benefit interest groups in the short run but eventually always backfire for the economy of countries. Does the country want consumers to have access to better quality products at a cheaper price or protect its domestic industry at any cost for a short period of time?
While protectionist policy is a lack of foresight from an Indian perspective, Nepal needs to implement its own bounce-back strategies if it wants to flourish. To leverage this we need a better understanding of the potential market size and competitive advantage of Nepali tea in the present context. Let’s look at the annual harvest of tea from the Darjeeling gardens. It is estimated to be roughly three million kilos and more than 10 million kilos—three times that amount—are sold as Darjeeling tea globally. Aging bushes are yielding less tea of inferior quality because plantation owners find it difficult to replace tea bushes on schedule due to the growing problems facing the Darjeeling tea business. There, the tea industry has indeed been continuously declining, and neither the owners nor the state or central government have been able to stop it. Factors contributing to this decline include rising labor costs, a younger generation that is unwilling to work on plantations, problems with finances and management among others.
Traders have been importing high-grown Himalayan tea from eastern Nepal and blending it with low-medium quality output from Darjeeling to sell the unholy blend as ‘Darjeeling Tea’, and thereby increasing their average value realization. India is Nepal’s largest customer, and any move to restrict exports will hit the industry hard. This also showcases a larger problem of dependency on just one country for a majority of exports. The global tea market size is huge, valued at $55,144 million in 2019, and is projected to reach $68,950 million by 2027, registering a Compound Annual Growth Rate (CAGR) of 6.6 percent from 2020 to 2027. Therefore this restriction can indeed be a blessing in disguise for Nepal to explore the opportunities around the world. Nepali tea has obtained its GI certification in the year 2021 as “Nepal Tea Quality from the Himalaya.” This would ideally open Nepali Orthodox tea’s path in the international market and would create its own niche. However, Nepali producers are still facing difficulties in trading outside India as Nepali tea doesn’t have a single lab to test the standard of tea before exporting and hence needs to be passed by the Central Food Laboratory in Kolkata to obtain export certification.
The major problem faced by Nepali tea entrepreneurs is the lack of testing laboratories to obtain export certification. Therefore, without a proper lab for testing, having our own trademark is insignificant to explore the international market. Government included the plan of establishing a food laboratory in the budget speech two years ago. It states: “The basic infrastructure development programs and capacity building will be operated in order to upgrade agriculture, food technology laboratories to internationally accredited laboratories gradually.” It further says that “pesticide residue tests for two additional classes of pesticides in food will be started. Organic agricultural products will be marketed nationally and internationally through promotion, certification, and brand promotion.” However, two years after the budget speech there is still no initiation to implement this which is a big discouragement to the farmers. If the plan formulated by the Ministry of Finance is initiated immediately as a response to the protectionism by the Indian government, multiple doors to export in the international markets will be opened, contributing significantly to the economy as a whole.
So, do we want to play the victim of a trade war or take this as a blessing in disguise? The choice is ours.
Sindhuj Thapa is a researcher at Samriddhi Foundation, an economic policy think tank based in Kathmandu. The views expressed in this article are the author’s own and do not represent the views of the organization. [email protected]