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Higher DEPB rates will improve tea exports

Rabindra Nath Sinha

KOLKATA, Nov. 29

THE domestic tea industry appears to have veered round to the view that efforts to widen its market spread have assumed urgency as our markets have witnessed changes and its key rival, Sri Lanka, despite being predominantly a producer of orthodox tea, ha s succeeded in having a wider market spread.

For the domestic tea industry, the prime task is to enhance the share of orthodox and green tea in the total exports. This will be possible when the existing aberrations in the product-mix are corrected. Which simply means that production of orthodox and green tea has to go up from the present levels.

The industrys contention is that it will be better placed to accomplish its task if the Union Government helps it by raising the DEPB (Duty Entitlement Pass Book) rates for orthodox and green tea.

The orthodox component of Indias tea production, which was 60 per cent in 1961, declined to 10 per cent in 2000. During the same period, the output of CTC tea has increased by 527 per cent. The share of orthodox has dropped by 62 per cent.

The production figures for CTC, orthodox and green varieties are given in the table. The percentage share of orthodox tea to total output for the listed years is 59, 43, 35, 19, 11, 12, 8 and 9 per cent. As for green tea, the share remained at one per ce nt except in 1971 when it was two per cent.

The reasons for the shrinking orthodox share are: Domestic consumption growth since mid-1970s has been entirely in the CTC category; the market in the erstwhile Soviet Union was high value orthodox-oriented and India was advantageously placed because of bilateral trade deals and the artificially fixed Rouble-Rupee value which, in turn, helped that country to absorb a large volume of orthodox teas; after disintegration and consequent disruption in established marketing channels as also virtual economic c ollapse, CIS became a price-conscious market, which further induced Indian producers towards CTC ; the unit cost of production of orthodox tea is more than that for CTC tea

In its anxiety to cater to the domestic market as also the new demand pattern in CIS, the domestic industry lost sight of the long-term potential of orthodox tea. Sri Lanka successfully exploited the situation by stepping up the share of orthodox tea in its total production to 95 per cent. The Lanka Government aided the industrys efforts.

Following economic recovery, Russia started shifting, slowly though, from CTC to orthodox. Sri Lanka cashed in on this shift too. It has been able to increase its orthodox tea exports to Russia from two-three mkg to nearly 50 mkg. Further, Indonesia and Vietnam entered the orthodox segment.

The green tea market has been witnessing fast growth, particularly in the last five years as R & D findings on health benefits started receiving publicity.

In contrast, the global export trade in CTC tea has remained stagnant despite increase in its production. Moreover, there are certain adverse factors peculiar to India. Indias cost of production is higher than that of Kenya, which is Indias key rival in the CTC segment. Because of Kenyas proximity to the UK and Egypt, Indias capability to compete with Kenya in the CTC segment is limited.

Further, under COMESA (Common Market for East and South Africa), the import duty on East Africas tea is very low in Egypt, which is 75 mkg CTC market. Finally, Pakistan, a major CTC market, sources its requirements from East Africa, and not from India, f or reasons that are well known. Indias share at 87 mkg is only five per cent in the global orthodox and green tea production of 1,698 mkg (the green tea component in this is 608.7 mkg). In the world demand of 808 mkg in this segment, India meets only aro und 10 per cent. Therefore, India has to raise production in this segment. The domestic tea industry, therefore, wants re-categorisation in the DEPB rate list and higher DEPB rates. Currently, the export product is defined as bulk tea / tea bags / tea in consumer pack, all of which have a DEPB rate of two per cent (Appendix 28A of EXIM Policy Handbook of Procedures / serial no. 1 of product code 67 in the food product group).

The re-categorisation suggested by the industry is (1) : bulk tea / tea bags / tea in consumer packs other than orthodox / green tea-two per cent DEPB rate (2) orthodox (including Darjeeling) and green tea in bulk / tea bags / tea in consumer packs-10 pe r cent DEPB rate.

Higher DEPB rates would mean improvement in gross value realisation from orthodox/green tea exports and that, in turn, will induce producers to hike both output and exports.