India likely to face hurdles in meeting tea export target

India’s dream of hitting the tea export target of 300-million-kg in the next three years, which is expected to generate ~70 billion, may remain unfulfilled as tea companies continue to face subsidy and incentive challenges.

According to the Indian Tea Association (ITA), the huge trade deficit with certain key partners is compelling the commerce ministry to push for an aggressive export strategy on favourable currency terms.

Hence, while India’s import bill in US dollar terms continues to remain high, the government is seeking to bill countries in rupee terms for primary commodities like tea.

“It is imperative that tea exports will remain at the forefront in this endeavour,” an official from the tea industry said.

ITA has noted that currently Indian tea exports stand at 252 million kg valued at ~50 billion and the Tea Board, after consultation with the industry, has targeted to take it up to 300 million kg.

However, what may play spoilsport in this initiative is India’s higher focus on crush, tear, curl (CTC) tea variety while global trends show a shift towards orthodox and green tea.

During 1950s, orthodox teas accounted for nearly the entire production base of 231 million kg but went down considerably to 120 million kg today owing to increased focus of tea companies on producing the CTC variety.

Today, CTC accounts for 90.1 per cent of the total production of 1,300 million kg while orthodox accounts for only 8.4 per cent and green tea the remaining 1.5 per cent.

Globally also, until recently, CTC had been in demand particularly in the middle-low income countries. However, both demand as well as global prices of the CTC variety have been stagnating in the last 2-3 years and a clear indication points to the rising demand for orthodox teas.

A sector official noted that it is extremely cost competitive for tea firms to opt for a changeover to CTC and during the earlier CTC boom, profits had surged for these companies.

The cost of orthodox tea production is also around 1.2 times more compared to the CTC type.

The ITA noted that over 50 per cent of the global export demand is for the orthodox and green tea varieties. But with India now focussing majorly on orthodox tea consuming countries in West Asia including Iran, Egypt, UAE, and others like Germany, USA and others, boosting orthodox

production is essential if it wants to achieve its target.

The industry, led by ITA, wants the commerce ministry to increase the orthodox subsidy from ~3 a kg to ~20 a kg, saying that this will help tea estates to change to orthodox production.

“For a changeover from CTC to orthodox, the plant and machinery needs to be changed. This involves a substantial amount of investment. Moreover, the factory (tea processing unit) also needs to be upgraded,” Tea Board deputy chairman Arun Kumar Ray said.

Azam Monem, director at McLeod Russel, said that even when it is subsidised, these companies will have to bear a ~5-6 per kg burden for a changeover.

Industry sources suggested that the Tea Board may not be keen in agreeing to a high subsidy rate as demanded by tea firms and may settle for a hike which is far below the amount demanded.