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Export of Tea and Lentils fromNepal

Prepared by:

Pradyumna R. Pandey, Moti B. Shrees andPrakash Ghimire

Field Study Team

• Mr. Jib Raj Koirala, Under Secretary, Ministry of Commerceand Supplies (MoCS)- Team Leader

• Ms. Kalpana Shrestha, Under Secretary, MoCS- Member• Dr. Pradyumna Raj Pandey, Senior Agriculture Economist,

Ministry of Agriculture and Cooperatives- Member• Mr. Suyash Khanal, Director, Trade and Export Promotion

Centre (TEPC)- Member• Mr. Rabindra Raj Paudyal, Section Officer, MoCS- Member• Mr. Moti Bahadur Shrees, Section Officer, MoCS- Member• Mr. Prakash Ghimire, Programme Officer, SAWTEE- Member

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Introduction• The Government Of Nepal (GoN) introduced Trade

Policy 2009, replacing the Trade Policy 1992

• GoN launched the Nepal Trade IntegrationStrategy (NTIS) in 2010 as an action-orientedshort- to medium-term strategy for export sectordevelopment and promotion.

• NTIS has identified four major challenges toNepal’s export sector: i) to diversify and expandthe export basket, ii) to diversify and expandexport destinations, iii) to move up the valuechain, and iv) to ensure a robust and positiveimpact of export on inclusive growth.

Introduction (Cont..)

• NTIS has identified 19 products—12 goods and 7services. Of the 12 identified goods, lentil and teaare two agricultural products that have high andmedium export potential and medium and highsocioeconomic impacts, respectively.

• This presentation is based on three-day trainingprogramme on “International Trading System” fortrade policy-related stakeholders, particularlyGovernment officials, on 7-9 February 2012 andField study in Eastern Boarder points from 21 to 27February, 2012.

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Objectives To assess the export trend of lentil and tea.

To examine the strength of export potential and explore themarket potential of these products.

To briefly analyze the value chain of these products.

To identify the majors barriers—both supply-side and marketaccess barriers—facing these products, and

To prepare recommendations for policy reform and agendasfor trade negotiations.

Major Tea Producing Districts

Districts Farm land of tea (in ha)Tea

gardenSmall

farmingTotal farmland

Jhapa 6107 2981 9088Ilam 1347 3794 5141Panchathar 382 456 838Dhankuta 230 212 442Terathum 37 207 244Others 960 5 965Total 9063 7655 16718

Source: NTCDB, 2012

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Growth Rate of Tea Production inNepal

Source: NTCDB, 2012

Cultivation and Production Trendof Lentils

Source: USAID, 2011

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Cultivation and Production and Share inTotal Production of Lentils

Note: Red color indicates top five values of respective columnsSource: Ministry of Agriculture and Cooperatives, 2010

D i s t r i c t C u l t i v a t io n a r e a( i n h a )

P r o d u c t io n ( i nm t )

S h a r e i nt o t a lc u l t i v a t io n

S h a r e i nt o t a lp r o d u c t io n

P r o d u c t i v it y ( m t / h a )

S a r l a h i 1 7 , 8 4 7 1 9 , 7 5 5 9 . 5 1 3 . 0 2 1 . 1 1D a n g 2 6 , 0 5 6 1 9 , 0 0 5 1 3 . 9 1 2 . 5 2 0 . 7 3R a u t a h a t 1 7 , 8 4 7 1 6 , 3 5 5 9 . 5 1 0 . 7 8 0 . 9 2B a r a 1 3 , 1 1 5 1 4 , 5 3 2 7 . 0 9 . 5 8 1 . 1 1K a i l a l i 1 8 , 3 0 5 1 3 , 1 8 6 9 . 8 8 . 6 9 0 . 7 2B a r d i y a 1 2 , 9 6 2 1 0 , 5 2 5 6 . 9 6 . 9 4 0 . 8 1P a r s a 7 , 3 4 3 8 , 2 8 4 3 . 9 5 . 4 6 1 . 1 3B a n k e 9 , 7 9 0 7 , 4 3 4 5 . 2 4 . 9 0 0 . 7 6S u n s a r i 6 , 9 3 5 5 , 7 5 3 3 . 7 3 . 7 9 0 . 8 3C h i t w a n 4 , 7 9 3 3 , 9 5 5 2 . 6 2 . 6 1 0 . 8 3T o t a l o f1 0d i s t r i c t s

1 3 4 , 9 9 3 1 1 8 , 7 8 6 7 2 . 0 7 8 . 2 7 0 . 8 8

T o t a l o fr e m a i n i n gd i s t r i c t s

5 2 , 4 4 4 3 , 2 9 7 4 2 8 . 0 2 1 . 7 3 0 . 6 3

T o t a l o fN e p a l

1 8 7 , 4 3 7 1 5 1 , 7 5 8 1 0 0 1 0 0 0 . 8 1

Current Export Performance: Tea andLentil

FiscalYears

Lentils (in Mt.) Tea (in Mt.) Nepal’s export share inWorld Import

WorldImport

NepalExport*

WorldImport

NepalExport#

Lentils Tea

1999/00 1074175 - 1343151 82 0.01

2000/01 1138504 15094 1387357 70 1.33 0.01

2001/02 1077372 6022 1452259 80 0.56 0.01

2002/03 1118432 5429 1385743 193 0.49 0.01

2003/04 1330364 7590 1431888 884 0.57 0.06

2004/05 1316448 2708 1451106 4,316 0.21 0.30

2005/06 1284462 4680 1469314 4,623 0.36 0.31

2006/07 1537973 8212.44 1547224 7,000 0.53 0.45

2007/08 1326148 18355.83 1685698 8,600 1.38 0.51

2008/09 1712214 56767.5 1567688 8,889 3.32 0.57

Source: FAOSTAT; * TEPC, 2012; # NTCDB, 2012; 2000

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World Market and Market Prospects

Source: FAOSTAT

Top Tea Importing Countries (in qty terms)

Source: FAOSTAT

EU(27)ex.int16%

Russian Federation12%

United Kingdom9%

UnitedStates

7%

United Arab Emirates5%

Egypt5%

Pakistan6%

Iran (Islamic Repub)3%

Japan3%

Saudi Arebia1%

Remaining33%

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Top Lentil Importing Countries(in qty terms)

Source: FAOSTAT

India17%

Bangladesh11%

EU(27)ex.int10%

Turkey8%

UnitedArab

Emirates7%

Sri Lanka6%

Egypt5%

Algeria4%

Pakistan4%

Iran (Islamic Rep.2%

Remaining26%

Applied MFN Tariff and Preferences Tarifffor Nepal in Major Importing Countries

S.N

Tea Lentils

Countries For Nepal MFN Countries For Nepal MFN

1 EU 0% 6.5% India 0% 30.4%

2 Russian Federation 0% 9.2% Bangladesh 0%* -

3 United Kingdom 0% 6.5% EU 0% 11.1%

4 United States 0% 3.2% Turkey 9.65% 33.1%

5 UAE 0% 3.1% UAE 5% 3.3%

6 Egypt 2% 10.6% Sri Lanka 4.48% 25.6%

7 Pakistan 10% 12.8% Egypt 0% 8.9%

8 Iran (Islamic Repub) 33.87% - Algeria 5% 25.4%

9 Japan 0% 15.3% Pakistan 0% 18.2%

10 Saudi Arabia 0% 3.1% Iran 5% -

Source: ITC, 2007, For MFN: WTO Tariff Profile 2011; *WTO Tariff Analysis Online 2011

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RCA of Nepal on Tea and Lentils

Years RCA on Tea RCA on Lentils2001 0.93 134.05

2002 1.37 185.11

2003 20.43 347.65

2004 18.39 188.27

2005 24.48 148.96

2006 21.68 109.92

2007 53.29 58.04

2008 55.41 341.60

2009 42.47 699.87

2010 51.81 540.53

RCA = Revealed comparative advantageSource: ITC, UN Comtrade, and FAO STAT.

Value Chain Analysis: Tea

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Value Chain Analysis: Lentils Market Access Barriers to ExportExpansion

Tariff Barriers: Exports of Nepalese tea and lentils have so far not been critically affected by tariffbarriers.

Para Tariff Barriers: The Government of India imposes a 3% customs cess on tea and lentils- Need to pay about IRs 3,000s per test in CFL, India per consignment.- Nepalese Containers heading to Bangladesh through Fulbari-Banglabandh route has to pay a certain

amount to a local development authority between Silguri and Panitanki of West Bengal. This isagainst the spirit of Nepal India Transit Treaty

Non Tariff Barriers: Phytosanitary Certificate (PC)- Nepal does not have Pest Risk Analysis (PRA) report and accreditation laboratories so far.- Bangladesh requires test of fumigation of Methyl Bromide in exportable lentils, however, others

generally no need.- India does not accept Nepal’s lab test report regarding tea export. Therefore, exporters need to go

CFLs in Kolkota, Sunauli or Luknow periodically.

Customs-related and other administrative hassles:- Nepali exporters are not getting cooperative facilitation to a desired extent from the Indian

administration, particularly customs officials and the police.- Importing firms and banks of Bangladesh are often found delaying payments.- An export consignment to Bangladesh has to face three holidays (weekend) in a week in three

different customs offices through which the consignment has to pass.Restrictive practices:- Nepalese tea is not allowed to participate in the Indian auction market in Kolkota. Therefore, they

are compelled to sell their products at a lower rate and losing opportunity to establish its own brandin the Indian market.

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Supply-side constraints to Export ExpansionDomestic investment environment- Poor security, law and order situation, physical threat to businessmen/industrialists, excessive

labour unionism and over-politicization in industries.- The implementation of the government’s security plan on the ground is weak.- High and rising interest rate, daylong power shedding, ever-increasing prices of petroleum

products, increasing wage rate and shortage of labour.

Problem of Inputs:- Poor irrigation facility and chemical fertilizers are affecting both the sectors. Lentil is cultivated in

marginal land as a rain-fed crop and there is almost no surface irrigation facility.- Farmers are buying fertilizers from unauthorized sellers. A tea farmer during the discussion said that

sub-standard fertilizers have “polluted” land and plants.

Domestic policies: Nepal should also explore the option of providing subsidies to its farmers so that theycan compete in internal and external markets.

Human capital:- Dearth of human resource in the sectors, mainly for cultivation, harvesting and processing activities

( Due to excessive labor migration)

Technological constraints: About 99 percent of lentil-processing plants are based on old technology.- Accredited laboratory facilities in both plant and food testing are lacking in the country.

Other constraints: Poor governance, Policy unpredictability, lack of storage facility, wholesalers receive adisproportionate share of the value in the domestic market, etc.

Bilateral Level• Negotiation with GoI is required to

– remove the custom cess, and the local development charge levied on Nepalicargo on the way to Bangladesh through the Fulbari-Banglabandh route,

– open its auction market to Nepali tea for the time being,– either remove the testing requirement or accept report of Nepalese

laboratories or establish such laboratories at major customs– create a permanent dispute settlement mechanisms to deal with bilateral

trade disputes with the participation of all stakeholders including exporters• Negotiation with Government of Bangladesh is required to

• create a permanent dispute settlement mechanisms to deal with bilateraltrade disputes with the participation of all stakeholders including exporters

Multilateral level• Harmonize the weekend holidays or develop alternative approach to facilitating

Nepal-Bangladesh trade.

Recommendations

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National level• In the long run, there is a need of tea auction market in Nepal for facilitating

export of tea in a formal way.• GoN has to bring a lentil farming extension programme. A scientific price

support mechanism would motive farmers to produce lentils.• In the short run, interest rate subsidy on credit to agriculture-based exporting

firms is recommended.• The government should explore the option of introducing a Ration Card facility

for tea industry laborers• Separate power grid in industrial areas is required to provide adequate power

supply to the processing firms adequately. For a long-run solution, electricitygeneration for domestic use should be increased.

• Government has to bring sustainable irrigation programme targeting teafarmers. Drip and sprinkler irrigation and their implementation in aparticipatory approach with farmers’ groups would address the problem ofirrigation for the time being.

• There must be timely distribution of quality chemical fertilizers to tea farmers.Establishment of chemical fertilizer-producing factories in the country (asprioritized by the Industry Policy 2010) could be an effective long-term solution.

National level• There is a need for harmonizing all local taxes.• Fees of NTWC seem higher for bulk exporters. Its rate should be set on

the basis of consignment instead of export value.• GoN has to initiate programme of GAP and GMPs in tea and lentil

sectors.• Eligibility criteria for export incentive are to be made liberal (To benefit

them who are exporting to India)• The number of trade unions has to be reduced. Prevailing rigid labour

law should be relaxed.• An all-party consensus on not politicizing labour unions is required.• The security situation should be improved and the rule of law ensured.• GoN needs to speed up the process of accrediting Nepali

laboratories, and initiate the process for mutual recognition withdestination countries.

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Thank you for yourThank you for yourkind attention !kind attention !