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A

GLOBAL/ COUNTRY STUDY AND REPORT

On

“Nepal”

Submitted to

Sardar Patel College of Administration & Management

Approved by All India Council for Technical Education (AICTE), New Delhi

Affiliated to Gujarat Technological University, Ahmedabad

SPEC Campus, Vidhyanagar – Vadatal Road Bakrol – 388315, Anand (Gujarat)

IN PARTIAL FULFILLMENT OF THE

REQUIREMENT OF THE AWARD FOR THE DEGREE OFMASTER OF BUSINESS ADMINISTRATION

In

Gujarat Technological University

UNDER THE GUIDANCE OF

Faculty Guide

Ms. Varsha Kuchara

Assistant ProfessorSubmitted by

MBA Semester III

Sardar Patel College of Administration & Management

MBA PROGRAMME

Affiliated to Gujarat Technological University

Ahmedabad

April, 2013

117550592175 Machhi Pawankumar Prakashbhai117550592176 Patel Hemang Kishorkumar117550592177 Bhatiya Sagar Vinodkumar117550592178 Sachapara Manoj Dhirubhai117550592179 Patel Vihangkumar Dineshbhai117550592180 Vala Tejpalsinh Babubhai



Summary of Nepal

Demographic profile & Economic overview of Nepal:

Population: 30.5 million (UN, 2011)

Capital: Kathmandu

Major Language: Nepali

Major Religions: Hindusim, Buddhism

Life Expectancy: 68 Years (Men), 70 Years (Women) (UN)

Monetary Unit: 1 Nepalese Rupee = 100 Paisa

Area: 147,181 sq km (56,827 sq miles)

Ethical Group of Nepal: Bhotia, Sherpa, Thakali, Gurung, Kiranti, Rai,

Limbu, Newari, Pahari, Tamang Elderly Limbu,

Chong woman

Religions: Hindu 80.6%, Buddhist 10.7%, Muslim 4.2%,

Kirant 3.6%, other 0.9% (2001)

Age structure

0-14 years: 34.6% (male 5,177,264/female 4,983,864)15-64 years: 61.1% (male 8,607,338/female 9,344,537)

65 years and over: 4.4% (male 597,628/female 681,252) (2011 est.)

Median age

Total: 21.6years

Male: 20.7years

Female: 22.5 years (2011 est.)

UrbanizationUrban population: 19% of total population (2010)

Rate of urbanization: 4.7% annual rate of change (2010-15 est.)

Life expectancy at birth

Total population: 66.51 years

Male: 65.26 years

Female: 67.82 years (2011 est.)

Total fertility rate

2.41 children born/woman (2011 est.)

Major infectious diseases

http://en.wikipedia.org/wiki/Bhutia

http://en.wikipedia.org/wiki/Sherpa_people

http://en.wikipedia.org/wiki/Thakali

http://en.wikipedia.org/wiki/Gurung

http://en.wikipedia.org/wiki/Kirant

http://en.wikipedia.org/wiki/Rai_(ethnic_group)

http://en.wikipedia.org/wiki/Limbu_people

http://en.wikipedia.org/wiki/Newar

http://en.wikipedia.org/wiki/Pahari_languages

http://en.wikipedia.org/wiki/Tamang















Degree of risk: high

Food or waterborne diseases: bacterial diarrhea, hepatitis A, and typhoid

fever

Vector borne disease: Japanese encephalitis, malaria, and dengue fever

(2009)Literacy

Definition: age15 and over can read and write

Total population: 48.6%

Male: 62.7%

Female: 34.9% (2001 census)

Overview of Industrial trade & Commerce:

Bilateral trade was US$ 4.21 billion during Nepalese fiscal year 2010-11 (July 16 –

July 15). Nepal‟s import from India amounted to US$ 3.62 billion and exports to India

aggregated US$ 599.7 million. In the first six months of fiscal year 2011-12, Nepal‟s

total trade with India was about US$ 1.93 billion; Nepal‟s exports to India were about

US$ 284.8 million; and imports from India were about US$ 1.64 billion.

Indian ventures in Nepal are engaged in manufacturing, services (banking, insurance,

dry port, education and telecom), power sector and tourism industries. Some large

Indian investors include, ITC, Dabur India, Hindustan Unilever, VSNL, TCIL, MTNL,

State Bank of India, Punjab National Bank, Life Insurance Corporation of India, Asian

Paints, CONCOR, GMR India, IL&FS , Manipal Group, MIT Group Holdings, Nupur

International, Transworld Group, Patel Engineering, Bhilwara Energy, Bhushan

Group, Feedback Ventures, R J Corp, KSK Energy, Berger Paints, Essel Infra

Projects Limited and Tata Projects, etc.

Nepal‟s transit trade is routed through twenty two designated routes from India-Nepal

border to the port of Kolkatta/Haldia. In addition, Nepal‟s trade with and through

Bangladesh also transits through India.

Government of India is providing assistance for development of cross-border trade

related infrastructure. It includes upgradation of four major custom checkpoints at

Birgunj-Raxaul, Biratnagar-Jogbani, Bhairahawa-Sunauli and Nepalgunj-Rupediya to

international standards; upgrading approach highways to the border on the Indian

side; upgrading and expanding the road network in the Terai region of Nepal; and,

broad gauging and extending rail links to Nepal.



The bilateral framework for trade is provided by the India-Nepal Treaty of Trade and

Agreement of Co-operation to Control Unauthorised Trade 2009. A new Trade Treaty,

valid for seven years was signed on October 27, 2009 after successful conclusion of

bilateral consultations, which began in August 2006.

Nepalese manufactured products are allowed non-reciprocal access to the Indian

market, free of basic customs duty, on the basis of Certificate of Origin issued by a

(Government of Nepal) GoN designated authority – FNCCI, if the goods are

manufactured in Nepal with Nepalese and/or Indian inputs; or, with at least 30% local

value addition, if third country inputs are used; and, involves substantial

manufacturing process leading to change in HS classification at four-digit level.

Nepalese goods attract Countervailing Duty (CVD) equal to excise duty on similarproducts in India.

Goods manufactured by small scale units in Nepal enjoy the same benefits as SSIs in

India with regard to tax exemption. The exports and imports of goods not subject to

prohibitions or duties are also allowed to move through the traditional routes on

common border. (Nepal has established customs stations called Chhoti Bhansars on

some of these traditional routes.) India has agreed to assist Nepal to increase its

capacity to trade through improvement in technical standards, quarantine and testing

facilities and related human resource capacities.

Overview of Different economic sectors of Nepal:

Nepal is among the poorest and least developed countries in the world, with almost

one-quarter of its population living below the poverty line. Agriculture is the mainstay

of the economy, providing a livelihood for three-fourths of the population and

accounting for about one-third of GDP. Industrial activity mainly involves the

processing of agricultural products, including pulses, jute, sugarcane, tobacco, and

grain. Nepal has considerable scope for exploiting its potential in hydropower, with an

estimated 42,000 MW of feasible capacity, but political instability hampers foreign

investment. Additional challenges to Nepal's growth include its landlocked geographic

location, civil strife and labor unrest, and its susceptibility to natural disaster

Agriculture:



Agriculture dominated the economy. Since the formulation of the Fifth Five-Year Plan

(1975-80), agriculture has been the highest priority because economic growth was

dependent on both increasing the productivity of existing crops and diversifying the

agricultural base for use as industrial inputs.

Although new agricultural technologies helped increase food production, there still

was room for further growth. Past experience indicated bottlenecks, however, in using

modern technology to achieve a healthy growth. The conflicting goals of producing

cash crops both for food and for industrial inputs also were problematic. Rice was the

most important cereal crop. In 1966 total rice production amounted to a little more

than 1 million tons; by 1989 more than 3 million tons were produced. Fluctuation in

rice production was very common because of changes in rainfall.

Agriculture - products

pulses, rice, corn, wheat, sugarcane, jute, root crops; milk, water buffalo meat

Industry

Industry accounted for less than 20 percent of total GDP in the 1980s. Relatively small

by international standards, most of the industries established in the 1950s and 1960s

were developed with government protection. Traditional cottage industries, including

basket-weaving as well as cotton fabric and edible oil production, comprised

approximately 60 percent of industrial output; there also were efforts to develop

cottage industries to produce furniture, soap, and textiles. The remainder of industrial

output came from modern industries, such as jute mills, cigarette factories, and

cement plants.

Industries Products

Tourism, carpets, textiles; small rice, jute, sugar, and oilseed mills; cigarettes, cement

and brick production

Services:

Services grew from 23.5 percent of gross domestic product in 1965 to 36.7 percent in

2011. Average annual growth in services was 4.9 percent from 1965 to 2000 but 6.2

percent in the 1990s. Furthermore, the percentage of the labor force employed in the

services sector increased substantially, from 4.4 percent in 1971 to 18.3 percent in



2001. No particular industry accounts for a great percentage of the overall services

sector‟s total value.

GDP - composition by sector

Agriculture: 34.9%

Industry: 15%

Services: 50.1% (2010 est.)

Labor force - by occupation

Agriculture: 75%

Industry: 7%

Services: 18% (2010 est.)

Overview of Business & trade at International level:

Constitutionally Nepalese foreign policy is guided by “the principles of the United

Nations Charter , nonalignment, Panchasheel (five principles of peaceful coexistence),

international law and the value of world peace.” The fundamental objective of the

foreign policy is to enhance the dignity of Nepal in the international arena by

maintaining the sovereignty, integrity and independence of the country. Before 1951,

Nepal‟s foreign relation was limited with four countries; namely – India, United

Kingdom, USA and France. After membership of the United Nations in 1955,

extension of diplomatic relations with various countries of the world increased

considerably, with the diplomatic relationship to 118 countries around the world up to

2010. Membership and active participation on regional and international forums and

organizations such as SAARC, BIMSTEC, WTO, World Bank, Asian Development

Bank and UN Agencies is making Nepalese foreign relation effective and broad.

Nepal never experienced trade balance. More dependency on import is resulting

increasing trend of trade deficit. Trade diversification is still remaining in far behind.

The major exportable Nepalese goods are readymade garments, woolen carpet,

cement; noodles, pashmina, big cardamom, lentils, herbal product, tea and

handicrafts.

Realizing the importance of trade and its multiplier effects in the economicdevelopment process, the Government of Nepal, introduced „Trade Policy‟ in 1992

with a view to optimize the benefits from trade liberalization, as an important part of

economic liberalization. The policy provided overall direction towards further



liberalization and diversification of the trading regimes and at the same time ushered

Nepal‟s trade to integrate at international level. In addition, it provided impetus to

private sector for their active participation in the areas of trade and investment.

Figure: Trade with India (F.Y. 2009/10)

Most of the FDI in Nepal is Greenfield-type investment rather than acquisition. FDI is

highly concentrated in the manufacturing sector, which accounted for slightly more

than 45% of approved FDI projects. Within the manufacturing sector, the textile and

garment industry accounts for 28% of total foreign investment, followed by the

chemical and plastic industries at 25.3%. Tourism is second, accounting for almost

25% of total FDI projects, followed by the service sector with 20% ofFDI projects.

Although the electricity, water and gas sector has just a few FDI projects, it ranks

fourth highest in terms of the size of FDI inflow.

Present trade relation & business volume of different products with India/

Gujarat:

Nepal and India signed the revised 2009 India-Nepal Treaty of Trade and Agreement

of Cooperation to Control Unauthorized Trade today in Kathmandu. As per the

agreement India would provide a credit line of up to 150 crore rupees to Nepal to

ensure uninterrupted supplies of petroleum products, as well as lift bans on the export





The major import items include petroleum products, machinery and spare parts,

transport equipment, pharmaceuticals, textiles, chemicals, electrical goods, vehicles

and spare parts, medicines and medicinal equipment, raw wool, betel nuts, aircraft

and spares parts, raw silk, threads, fertilizers, telecommunication equipment, etc.

PESTEL analysis:

Political analysis of Nepal:

Though Nepal has witnessed great political instabilities in the recent past, the

country has a strong base of parliamentary democracy & constitutional

monarchy.

Form Parliamentary Democracy & Constitutional

Monarchy.

Head of State King

Head of Government Prime Minister

Legislative House of Representative(lower house)-205

members & National Assembly (upper house)-60

members.

Judiciary Supreme Court, Appellate Court: 11, District court:

75

Administrative

Division Development region: 5, Zone: 14, District: 75

Capital Kathmandu

Economic Analysis of Nepal:

Nepal is a developing country. The major industries in Nepal are tourism, handicraft,

agriculture and water resources.



GDP Composition Agriculture: 40%, Industry: 22%, Services: 37%

GDP Real

Growth Rate 4.9% (2000-2001)

AverageInflation Rate

2.1% (2000-2001)

Per Capita

Income

$ 240 (Rs 17,718) for (2000-2001), $236 (Rs 18,083)

estimate for(2001-2002)

Unit of Currency Rupee

Labour Force Agriculture: 81%, Industry: 3%, Service: 11%, Other:

5%.

Social analysis of Nepal:

Life Expectancy: 68 Years (Men), 70 Years (Women) (UN)

Age structure

0-14 years: 34.6% (male 5,177,264/female 4,983,864)

15-64 years: 61.1% (male 8,607,338/female 9,344,537)

65 years and over: 4.4% (male 597,628/female 681,252) (2011 est.)

Ethical Group of Nepal: Bhotia, Sherpa, Thakali, Gurung, Kiranti, Rai, Limbu,

Newari, Pahari,Tamang Elderly Limbu, Chong woman

Religions: Hindu 80.6%, Buddhist 10.7%, Muslim 4.2%, Kirant

3.6%, other 0.9% (2001)

Sex ratio

At birth: 1.04 male(s)/female

Under 15 years: 1.04 male(s)/female

15-64 years: 0.93 male(s)/female

65 years and over: 0.87 male(s)/female

Total population: 0.96 male(s)/female (2012 est.)

Major infectious diseases

























Degree of risk: high

Food or waterborne diseases: bacterial diarrhea, hepatitis A, and typhoid

fever

Vector borne disease: Japanese encephalitis, malaria, and dengue fever

(2009)

Technological analysis of Nepal:

A good example of change in technology is buses that lower the floor for easy

entry. These provide better accessibility for disabled and elderly people.

Technologically, Nepalese transportation industries are far behind the

international transport industry1. Telephones :- Main line in use. [371800]

2. Telephones :- Mobile Cellular . [50400]

3. Radio Broad Cast Station :- AM6 , FM5 , Short wave 1.

4. Television :- [970000].

5. Internet Hosts :- [1100].

6. Intenet service Providers :- [ISPS] =10 Users :- 200,000.

Environmental analysis of Nepal:

The dramatic differences in elevation found in Nepal result in a variety of biomes,

from tropical savannas along the Indian border, to subtropical broadleaf and

coniferous forests in the Hill Region, to temperate broadleaf and coniferous

forests on the slopes of the Himalaya, to montane grasslands and shrublands

and rock and ice at the highest elevations.

Nepal has five main categories of ecosystem – forests, wetlands, rangelands,

agroecosystems and mountain ecosystems. Over 39% of Nepal‟s total geographic

area is classified as forest, of which at least 23% is forested. Although Nepal is one of

the least urbanized countries in the world, its rate of urbanization has increased

dramatically and now stands as the highest in South Asia. It is estimated that the total

urban population in 2006 had reached approximately 3.8 million of the total population

of 25 million.

Poor quality of drinking water, low coverage of sanitary facilities, and heavy use



of solid biomass (primarily fuelwood) in kitchens is increasing the burden of disease

on Nepal‟s population, both rural and urban. These environmen tal risk factors have

resulted in premature death and disease, especially among the poor and vulnerable

groups, and are placing increased health costs and a significant economic burden on

the country, estimated at close to US$258 million or nearly 3.5% ofthe country‟s GDP.

Legal analysis of Nepal:

Legal changes that affect business are closely tied up with political ones. Many

changes in the law stem from government policy in Nepal.

Constitutional Law

Constitutional of the kingdom of Nepal Administration [Public Law 2047 (1990).

Citizenship Act ,1964

Civil service act , 2049 (1943)

Civil service act , 2049 (1993)

Criminal law

Arms and ammunition act , 2019 ,1962

Civil war Birth , death and other personal events

(Registration Act. 2033 (1976).

Contract Act. 2056 – 2000

Land acquisition Act. 2034 – 1977

Land Act. 2021 – 1964

Marriage registration Act. 2028 – 1971

Commercial law

Buffer zone management rules 2052 – 1996

Contract Act. 2056 – 2000

Land acquisition act 2034 – 1977

Land act 2021 – 1964

Tax lax

Baggage rule 2065 – 2007



OVERVIEW TEA INDUSTRY IN INDIA

Today, India is one of the largest tea producers in the world, though over 70% of the

tea is consumed within India itself. A number of renowned teas, such

as Assam and Darjeeling, also grow exclusively in India. The Indian tea industry hasgrown to own many global tea brands, and has evolved to one of the most

technologically equipped tea industries in the world. Tea production, certification,

exportation, and all other facets of the tea trade in India is controlled by the Tea Board

of India.

India was the top producer of tea for nearly a century, but recently China has

overtaken India as the top tea producer due to increased land availability. Indian tea

companies have acquired a number of iconic foreign tea enterprises including British

brands Tetley and Typhoo. India is also the world's largest tea-drinking nation.

However, the per capita consumption of tea in India remains a modest 750 grams per

person every year due to the large population base and high poverty levels.

The major tea-producing states in India are: Assam, West Bengal, Tamil

Nadu, Kerala, Tripura, ArunachalPradesh, HimachalPradesh, Karnataka, Sikkim, Nag

aland, UttarakhandManipur, Mizoram , Meghalaya, Bihar, Orissa.

In India, tea cultivation on commercial scale was first started in Assam in 1839 and

then it was extended to other parts of the country between 50‟s and 60‟s of the 19 th

century. However, due to certain specific soil and climatic requirements its cultivation

was confined to only certain parts of the country.

Major tea producing states in the country are Assam, West Bengal, Tamil Nadu and

Kerala. 75% of the total tea produced in India is accounted by Assam and West

Bengal together. Some of the world‟s finest teas are produced in India. While Assam

teas are famous for their strong, brisk and full bodied liquor; Nilgiri teas are well

known for their delicate flavor, strength and brightness; and the production of the

famous Darjeeling tea is aided by the low temperature in the hills of Darjeeling. With



their own diverse agro-climatic conditions, other areas produce medley of tea which

suits many different tastes. The distinct characteristics of each region set them apart

from one another in many different ways.

In India, tea industry is one of the oldest agro-based well organized industries. More

than a million workers get direct employment from this industry of which a sizeablenumber are women. A large number of temporary workers are also engaged during

the plucking season.

The total turnover of the tea industry in India is likely to touch Rs 33,000 crore by

2015 from the current level of about Rs 19,500 crore, as per the industry body

ASSOCHAM.

With nearly six lakh hectares area under tea cultivation, the domestic tea industry

is growing at a compound annual growth rate (CAGR) of about 15 per cent. India

is the world‟s largest consumer, second largest producer and fourth largest

exporter of tea after China and accounts for nearly 30 per cent of global output and

nearly 25 per cent of tea produced worldwide is consumed in India .

Branded tea market accounts for nearly 55 per cent of the total market and is

growing at about 20 per cent while the unbranded market is growing at 10 per cent

annually.

Nearly 35 lakh workers are employed in over 1,500 tea estates across India and

about 65 per cent of these are employed indirectly. According to an ASSOCHAM

estimate, the tea production during the current year is likely to stay over 950

million kg as against 966.4 million kg in 2010.





Tata tea limited set up in 1964 as a joint venture with uk -based James Finlay and

company to develop value-added tea, the Tata tea group of companies, which

includes Tata tea and the UK-based Tetley group, today represent the world's second

largest global branded tea operation with product and brand presence in 40 countries.

Among India's first multinational companies, the operations of Tata tea and its

subsidiaries focus on branded product offerings in tea but with a significant presence

in plantation activity in India and sri lanka.

Tata tea ltd consolidated worldwide branded tea business of the Tata tea group

contributes to around 86 per cent of its consolidated turnover with the remaining 14

per cent coming from bulk tea, coffee, and investment income. The company isheadquartered in Kolkata and owns 27 tea estates in the states of Assam and west

Bengal in eastern India, and Kerala in the south.

Tata Global Beverages Limited (formerly Tata Tea Limited) is an

Indian multinational non-alcoholic beverages company headquartered in Kolkata,

West Bengal, India and a subsidiary of the Tata Group. It is the world's second-largest

manufacturer and distributor of tea and a major producer of coffee Tata Global

Beverages markets tea under the major brands Tata Tea, Tetley, Good Earth

Teas and JEMČA.

Tata tea limited owns five brands in India: Tata Tea, Tetley, Kanan Devan, Chakra

Gold, and Gemini. The company has a 100% export-oriented unit (KOSHER and

HACCP certified) manufacturing instant tea in Munnar, Kerala, which is the largest

such facility outside the United States. Tata Global Beverages has subsidiaries

in Australia, Great Britain, United States, Czech Republic and India.

Tata Tea is the biggest-selling tea brand in India, Tetley is the biggest-selling tea

brand in the United Kingdom and Canada and the second biggest-selling in the United

States and JEMČA is the biggest-selling tea brand in the Czech Republic.

Tata tea limited ventured into the Indian cafe market with a 50/50 joint venture

with Starbucks Coffee Company. The coffee shops branded as "Starbucks Coffee - A

Tata Alliance" will source coffee beans from Tata Coffee, a subsidiary company of

Tata Global Beverages.

INTRODUCTION OF CHAMOMILE IN NEPAL



The word chamomile comes from the Greek word „kamai melon‟ meaning „ground

apple‟ because of its fragrance that closely resembles the apples. Chamomile is a

daisy- like flower which is very versatile in nature as it can be processed to form not

only the popular chamomile tea, but also oil, and it is believed that in the past it was

also used to make beers. Matricaria chamomilla widely known as chamomile is aherb that has been popular for its medicinal qualities since ancient times. Its usage

and importance date back to ancient Egypt, where it was associated with their God-

the Sun, and was often offered to the deity.

Chamomile is a plant that has the qualities of getting blended with other herbs to help

cure different ailments. If mixed with lemongrass chamomile can help nerves

relaxation, and it can also be mixed with peppermint for different digestive problems.

However, in the 17th century when its medicinal and curative properties had started

spreading more widely, chamomile was used mostly as a sleep inducer and therefore,

was used more often to treat insomnia as tryptophan present in the flower is an

effective sleep inducer, this is still one of the best herbal sleep inducers. Besides

insomnia, chamomile was then used for treating nervousness, anxiety, rheumatism

and many muscular pains. By this time, the health benefits of chamomile are almost

innumerable, and with so many researches being carried on we would definitely be

witnessing the discovery of many more advantages of chamomile.

Chamomile is known to cure not only human beings but also plants and thus it is also

known as „plant‟s physician‟, as in the past people practiced planting chamomile

besides dead plants, doing so would lead to the recovery of the dead plant and after

that within a week‟s time the plant would start growing normally.

Two Types of Tea Industries in nepal

1. ORTHODOX TEA

Orthodox tea is grown in the hills of 6 districts in eastern Nepal, i.e. Illam, Panchthar,

Dhankuta, Terathum and new areas of Sindhupalchok and Kaski. The orthodox tea

production accounts for 12-15% of total tea production. Its total production amounts to

1500 Tons and covers 6689 hectares of cultivated land. The primary contributors are

small farmers who sell their leaves to buyers in nearby factories or to those inDarjeeling.

The climatic conditions in the Eastern hills of Nepal provide ideal conditions for the

production of high quality orthodox tea. Another advantage compared to Darjeeling



tea is that the bushes are young and produce better quality leaves. Because of the

premium price paid to orthodox tea, 96% of it is exported while little is sold

domestically mostly in souvenir packages suited for tourists.

More than 18750 farmers derive their livelihood from growing orthodox tea. Although

are 69 tea estates and gardens involved in the production of orthodox tea, almost70% of the total tea produced comes from small holders. Since virtually all of the

orthodox tea is exported at premium prices compared to other kinds of tea, growing

orthodox tea has been an important source of income for many farmers in the eastern

hilly region.

2. CTC TEA (Crush, Tear, Curl)

CTC is produced in Terai in the district of Jhapa and covers around 90% of domestic

consumption. The CTC grown in Nepal is known to be of average quality. Whereas

small farmers form the backbone of the orthodox tea production, it is largely big tea

estates which are behind CTC tea production. Most of the tea estates have their own

processing factories and some use bought leaf factories to manufacture tea. It is

estimated that around 66576 workers are employed by the tea estates as pluckers,

factory workers and in other functions. Many of the daily-wage workers are landless

and live at the estates on a permanent basis.




However, in the 17th century when its medicinal and curative properties had started


was used more often to treat insomnia as tryptophan present in the flower is aneffective sleep inducer, this is still one of the best herbal sleep inducers. Besides


and many muscular pains. By this time, the health benefits of chamomile are almost

innumerable, and with so many researches being carried on we would definitely be


Chamomile oil formed from the extracts of chamomile is a very good remedy for

inflammation as it can be used over the inflammations topically. Chamomile is also

found to cause cell reactions that resemble anti inflammatory drugs, thus can help



different types of inflammation including inflammation associated with hemorrhoids.

Chamomile oil can be found also being used to treat different skin ailments like acne.

Chamomile tea is found to be used very commonly to boost the immune system as it

triggers the anti bacterial activity of the body. Besides boosting the immune system,

chamomile tea also helps relieve the symptoms of muscle spasms and is hence goodfor menstrual cramps too, as it has the richness of amino acids. The benefits of

chamomile is not limited to these uses, even hospitals are found to use chamomile tea

to calm the patients, and healthy people consume it before bed time for sound sleep.

Another main quality of chamomile is that it also helps in easing intestinal pains and

can also be helpful in other digestive problems like loss of appetite, flatulent colic and

also Irritable Bowel Syndrome (IBS). Additionally, inhaling vapor in the form of steam

of chamomile extracts help reduce congestion of nose and lungs, and also helps in

headache. It is also known to prevent migraine headaches. Furthermore, chamomile

tea is believed to be very helpful in gastritis and heart burn.

Although not indigenous, chamomile is found to grow in the Southern and inner Terai

regions of Nepal Lumbini. It is also found growing in some hilly regions of Nepal

between the altitudes of 100 and 2200 meters. With the growth in commercial farming

of chamomile in Nepal the demand of chamomile tea is ever increasing in both localand international markets in Nepal. There are many local herbal shops and stores that

sell chamomile tea and it is assumed that every year 125,000 kilograms of chamomile

is sold in the Nepali market alone. Most of the brands that sell chamomile tea often

blend it with other herbs like rosemary, lemongrass, ginger, mint, thymes and so on.

One of the major exporters of chamomile tea from Nepal is Green Gold Herbal Pvt.

Ltd.. It is also a manufacturer and along with chamomile tea also sells different other

types of herbal teas. Some famous Nepali brands of chamomile tea are Himaliaarogya herbal tea, Himali Okhati Herbal Tea, HImali Chamomile teaand Relaxing

tea.

OVERVIEW OF TEA SECTOR IN NEPAL

Nepal, a landlocked country in South Asia, sandwiched between China (in the north)

and India (in the south), produces tea that is a cousin of Darjeeling tea in its

appearance, aroma and fruity taste.

Nepal tea if often referred to as the comparable,"classic" Darjeeling tea, and a great alternative from the "more expensive" Darjeeling

tea. The reason for the similarity of Nepal Tea with the well-known Darjeeling tea is

that the eastern zones of Nepal, which are the main tea producing regions of Nepal,



have more or less the same geographical and topographical conditions as the

Darjeeling.

Nevertheless, Nepal tea does stand apart from the Darjeeling tea, despite being

introduced to the world much later than the Darjeeling tea. Tea connoisseurs consider

some of the teas from Nepal to be much better than the Darjeeling tea in its aroma,

fusion, taste and colour. However, Nepal tea has not been that successful in capturing

limelight in the world tea market, mainly due to the lack of sufficient quantities of tea,

that often fails to meet the demand. Since its inception, Nepal tea is characterized by

two types of tea, which are Orthodox tea and CTC (Crush, Tear, Curl) tea.

GENERAL ACTIVITY OF CHAMOMILE TEA

Nepal tea has a promising future if promoted in a systematic and sustained manner.

Awareness campaigns of Nepal tea across tea importing countries and Brand

Promotion activities needs to be made to project and highlight our orthodox and CTC

teas. This should be the prime focus of our marketing strategy. Market access

initiative can be achieved through a sustained brand building of Nepal tea. For this we

should engage in the following activities:-

Promotional campaign/advertising to create a symbiotic relationship between

producers, buyers and consumers.

Creation & posting of attractive websites.

Visit of Nepal tea delegation for presentations in select countries such as India,

UK, Germany, USA, Japan, Australia, Middle East etc.

Promotional kit pack with tea samples for free distribution to tourists visiting Nepal.

Participation in trade fair/food exhibitions.

Organize Seminars/Conventions in Kathmandu to generate publicity.

Interaction with Tea Association and Tea bodies across major importing countries



MAJOR ACTIVITIES & FUNCTIONS OF CHAMOMILE COMPANY:

The major functions involved in the CHAMOMILE TEA company is input supply,

production, transportation/ collection, processing, blending and packaging, and

exporting and domestic trading (wholesaling/ retailing). The input supply function is

carried out by agro-vets and fertilizer distributors. Farmers and tea gardens are

equally involved in getting their own inputs such as saplings, manures, and bio-

pesticides. The transportation/collection is conducted by farmers, tea estates,

cooperatives as well as green leaf brokers. Processing is completed by large/medium

factories and small processors. Blending and packaging functions are conducted

either by individual companies or the tea factories, themselves. Most of the exporting

is conducted by factories. Some trading companies are also involved in exportation.

Domestic trading is conducted by outlets of factories, wholesalers, and retailers.

Input Suppliers:

Besides a few plantations including Ilam Tea Estate, Nepal‟s entire tea plantation is

carried out by using cloned planting materials. Most of the clones are derived from an

existing mother bush. Small holder farmers and tea gardens usually prepare clones

from their own fields; however, some get the clones from commercial nurseries which

are very few in numbers. The extension offices of NTCDB also maintain the mother

bush. The research and development of new clones are still lacking. Agro-vets supply

the necessary inputs like pesticides, insecticides, sprayers, and other agriculturalequipment. There are registered companies that supply fertilizers to farmers. For

organic production, organic manure is prepared by small holder farmers; however,

they also purchase organic fertilizers, bio-pesticides, and insecticides.

Producers:

Smallholder farmers play a significant role in the production of orthodox tea leaf.

According to NTCDB data, 67 percent of total orthodox tea production was completed

by small holder farmers in 2009/10 and the total numbers of small farmers involved in



green leaf production (excluding Jhapa3) reached 7,781 in 2009/10. The total

production area of small holder farmers producing orthodox tea is 4,987 ha (NTCDB,

2011).

Most of the producers supply directly to large and medium sized factories. Some

supply to small processors and some conduct hand-processing themselves. Thegreen leaves are also collected by local collectors and cooperatives.

Collectors:

There are local brokers who collect green leaf from farmers. Green leaf collection is

also conducted by cooperatives. Local brokers and cooperatives supply the collected

leaf to the processors.

Processors:

There are large and medium sized factories as well as small scale processors

producing various types of tea in Nepal. The production of the factories varies from 10

MT to 800 MT made tea (HIMCOOP, 2009); however, those producing organic tea

have a comparatively lower average and are mostly operating below capacity. Almost

all of the factories are owned by the private sector except for the government owned

Nepal Tea Development Commission (NTDC) which has been in operation since

2000. As per the information obtained from HOTPA, there are a total of 19 orthodox

factories. Most of the factories are located in Ilam. These factories mainly produce

orthodox black tea. In addition, some factories produce oolong tea, green tea, white

tea, silver needles/tips needles, and other specialty teas.

Three factories are HACCP (hazard Analysis and Critical Control Point) certified, two

are ISO certified (Shakya, 2010) and six are organic-certified. Out of the six organic

certified, Himalayan Shangrila, Nepal Green Tea, Guranse, and Kanchanjunga tea

estates have received certification from NASAA. Australia, Gorkha, and Meghma tea

estates have obtained certification from IMO in Germany. Kanchanjunga Tea Estate

has received FairTrade Certification.

Blenders and Packagers:

Usually, the packaging of made tea is completed by the factory. They either prepare

bulk packages or consumer packaging such as tea bags, aluminum foil, tea chest, etc.

There are some packagers who buy made tea from factories and do the packaging.

The blending of tea is completed in smaller quantities. Some factories have started



blending on their own. One tea warehouse company named Nirvana Tea Processing

and Packaging Pvt. Ltd. did the blending but due to a shortage of tea, it could not

continue its operation (Shakya, 2010). The blend tea of Kanchanjunga Tea Estate,

Himalayan Shangrila, and other herbal blends are also available in domestic markets.

Exporters:

Most of the big factories export their products themselves, there are some exporting

firms who purchase made tea from factories/small processors and export. The

majority of the exported product goes to India and rest goes to countries including

Germany, USA, UK, Czech Republic, France, and Japan. Almost all the exporters

have marketing offices in Kathmandu. Some exporters also have marketing offices inKolkata.

Wholesalers and Retailers:

For the domestic market there are several wholesalers and retailers mainly based in

cities especially in Kathmandu, Pokhara and other major cities. The wholesalers get

the supply from factories as well as small processors. There are an estimated 40 tea

shops operating in Kathmandu and Pokhara (SNV, 2010). Departmental stores and

groceries have also placed the orthodox tea both of domestic and foreign origins.

End consumers:

Most of Nepalese orthodox tea is exported to India where it is either placed as fillers in

other teas or as value added by blending and supplied to the Indian domestic market

and international markets. Some quantity of orthodox tea are sent in the brand name

„Nepal Tea‟ to international market mainly Europe. There is less consumption of

orthodox tea in domestic market though various brands of Nepalese orthodox tea are

available in the tea outlets and retails. The domestic consumption of orthodox tea is in

increasing trend. According to some departmental stores, the domestic consumers

are around 40 percent while rests are foreign nationals.

GENERAL PROCESS OF TEA IN CHAMOMILE COMPANY:



Tea processing begins right after a green leaf is plucked. The quality of tea depends

among other things on the types of leaves plucked and the way of handling of them

before they reach the factory.

1. Processing technology

The shoots (two leaves and a bud) may be prepared in several ways to produce either

"black" or "green" tea. To make the former, the leaf is usually withered and rolled or

distorted, by rolling in the conventional tea rollers (for manufacturing of Orthodox tea),

or is passed through tea machines of later origin, the rotor v ane and CTC rollers

which exert drastic action on the withered leaves. The juice of the leaf cells is exposed

to air to oxidize (fermentation) when important chemical changes take place. When

the optimum stage in the chemical change is reached, the action of the enzyme is

arrested by drying the fermented leaves in a current of hot air in suitable tea dryers.

2. Sorting and grading

The processed tea passes through a series of meshes, thus sorting out leaf gradesand dusts. Orthodox tea is produced in following major grades:

Major Grades of Orthodox Tea

Leaf (1st Grade) Broken (2nd Grade) Fanning (3rd Grade) Dust (4th Grade)

FOP :Flowery range

Pekoe

GFBOP : Golden

Flowery Broken

Orange

Pekoe

T/GOF: Tippy/ Golden

Broken Orange

Fanning

FOF: Flakky Orange

Fanning

STGFOP: SpecialTippy

Golden Flowery

Orange

Pekoe

FBOP: FloweryBroken

Orange Pekoe

FOF: Flowery OrangeFanning

FD: Fine Dust

TGFOP: Tippy Golden

Flowery Orange

Pekoe

GBOP: Golden Broken

Orange Pekoe

BOPF: Broken Orange

Pekoe Fanning

GFOP: Golden

Flowery

Orange Pekoe

BOP: Broken Orange

Pekoe

OF: Orange Fanning



In general, first grade constitutes 80% of total, followed by second grade 10% andfanning and dust 5% each.

Green Tea Grades

Leaf (1st Grade) Broken (2nd Grade Fanning (3rd

Grade)

Dust (4th Grade)

YH Young Hyson GP: Gun powder FH: Fine Hyson Dust

FYH Fine Young

Hyson

H : Hyson

3. Packaging

After sorting and grading the tea is usually packed in jute bags with plastic lining or ply

chests with tin foil linings. It is ensured that the tea container should be air tight and

moisture proof. Moisture content should not exceed 3% while packing.

OP: Orange Pekoe BOP1: Broken Orange

Pekoe One

BPS: Broken Pekoe

Souchang



Global country report on Nepal.

1. A Brief History of Tea in Nepal

Nepali tea industry owes its roots to the colonization of India by the East India

Company. Numerous tea plantations around the hill station of Darjeeling were

promoted by the British. Hybrids of tea bushes were introduced in several districts in

Nepal - Illam, Taplejung, Panchthar and Dhankuta within a few years after their

introduction in Darjeeling and the first tea estates were established in 1863 in Illam

and Jhapa. But whereas the Darjeeling tea production soon emerged into a

prosperous commercial industry, the Nepalese tea production remained low profile

until the 1990s, unable to fulfill domestic demand. Decades earlier, in 1966, the

Nepalese government had established the Nepal Tea Development Corporation.

Initially, Nepalese tea leaves were sold to factories in Darjeeling. With time, the

Darjeeling tea bushes had become old and along with internal changes in the industry

it led to a deteriorating quality of the Indian tea. These conditions made the Nepalese

tea leaves a valuable input for the Indian factories. During the last decade tea



processing factories have been built and turned Nepalese tea production into a fully

commercialized industry. Although, even today some farmers sell their tea to Indian

factories as they get a better prices from across the border. In the early 1990‟s, large

tea plantations run by the government mainly dominated the tea sector. Through

reforms in 1993 the state owned National Tea Development Corporation wasprivatized. Its regulatory functions were handed over to the National Tea and Coffee

Development Board under the Agricultural Ministry. To promote the industry further

the government launched a new tea sector policy at the end of 2000. This policy

seeks to ease access to credit and land for tea producers as well as building human

capacity and establish better opportunities for export promotion. A clear priority is also

set for which type of tea processing should be promoted. The goal of this paper is to

examine the general trends in Nepalese tea industry, in particular, the changesbrought about by the privatization in the early 1990s. The following pages will examine

the two distinct types of tea industry, Orthodox and CTC, look into Nepal‟s export

performance and finally attempt to assess the impacts of liberalization on small

farmers as well as commercial tea estates.

Brief History of Indian tea industry

The tea industry has a significant and special place in the Indian economy. Tea is the

country's primary beverage, with almost 85% of total households in the country

consuming tea. India is the world's largest producer and consumer of tea. India is an

imperative tea exporter, with around 12-13% of world tea exports. Further, certain

varieties of tea (viz., Darjeeling, Assam, Nilgiri teas) are grown only in India and are in

great demand across the world. Darjeeling teas possess the lightness of flavour and

fine colouring that set them apart from all other teas. Darjeeling tea is the pride of

Indian tea in the globe. From the ancient time, Indian tea has fame for its quality. But

due to dishonest practices followed by some corrupt traders in India as well as in

others foreign markets the fame of Indian tea has gradually been hampered in the last

few years. Blending with other cheaper quality tea from different origin and packaged

as tea from Indian origin (particularly as Darjeeling tea) affect market of Indian tea

drastically in the foreign countries. In this backdrop, Darjeeling tea in particular and

Indian tea in general required full protection under the umbrella of IPR (Intellectual

property rights) and GI (Geographical Indications) as per Trade Related Aspects of

Intellectual Property Rights (TRIPS) guided by WTO.The tea industry has a significant

and special place in the Indian economy. Tea is the country's primary beverage, with

almost 85% of total households in the country consuming tea. India is the world's

largest producer and consumer of tea, accounting for 27% of the world tea production



in 2003. Indias expenditure on beverages and processed foods accounts for 8% of

food expenditure in rural areas, and 15% in urban areas. India is also an imperative

tea exporter, with around 12-13% of world tea exports. Further,

certain varieties of tea (for example Darjeeling) are grown only in India and are in

great demand across the world. Darjeeling teas possess the lightness of flavour and

fine colouring that set them apart from all other teas. Darjeeling tea is the pride of

Indian tea in the globe. From the ancient time, Indian tea has fame for its quality. But

due to dishonest practices followed by some corrupt traders in India as well as in

others foreign markets the fame of Indian tea has gradually been hampered in the last

few years. Blending with other cheaper quality tea from different origin and packaged

as tea from Indian origin (particularly as Darjeeling tea) affect market of Indian tea

drastically in the foreign countries.

Top brand in tea sector in india tata tea

Tata Tea Limited is owned by the Tata Group. It is India‟s best and most widely

consumed Tea Brands and is the world‟s second largest manufacturer and distributor

of tea. Tata Tea has launched a social campaign named “Jaago Re!” to awaken the

youth against corruption. Tata Tea is the biggest player in the Tea Industry of India.

Tata Tea owns five brands in India: Tata Tea, Tetley, Kanan Devan, Chakra Gold, and

Gemini. Tata Tea has subsidiaries in Australia, Great Britain, United States, Czech

Republic and India.

Tea is the most versatile beverage ever discovered by man – a kind of one-drink-for-

allreasons-all-seasons.Tea warms when it is cold; cools when it is hot; cheers when

depressed; calms when excited; awakens when sleepy – and available at every street

corner. In short, tea is therapy-in-a-cup. It is savoured equally at roadside stalls as in

corporate boardrooms, in a silver tea service as in a clay cup.Tea drinking is

hardwired into the Indian DNA. Over 400 billion cups of this brilliant beverage are

consumed each year inIndia pushing annual per capita consumption toover 700

grams.Tea only trails water as thebeverage-of-choice with the highest share-ofthroat

in the country.India is the largest producer of tea in theworld with the branded tea

market pegged atsome 450 million kilos valued at over Rs. 4000crore (US$ 833.30

million) (Source:Tea Board).After a period of stagnation India's tea production grew

2% in the 2009/10 financial year to touch 1000 million kilos.Correspondingly, its

exports also grew from200 million kilos to 203 million kilos in thesame year. As

recently as the early 1980s, tea was a commodity tightly controlled by a handful of

brands. Remarkably, the companies that owned these brands rarely, if ever, grew the



teas they marketed.The advent of the Tata‟s in the branded tea business in 1985

ushered in sweeping changes in an industry hidebound by decades of tradition. As a

stand alone brand,Tata Tea played a crucial role in transforming the Indian tea market

– from a staid, boring melange of players to a young and vibrant business. The first

thing Tata Tea did was to change the way tea was purchased from planters and soldto consumers. Owning their own estates gave the company complete control over

their operations.The second thing they did was to inject effervescence into their

packaging. In a single stroke, they dispensed with the sedate cardboard box

andintroduced an attractive poly pack. Innovations such as these earned Tata Tea

several consumer and marketing awards – and a place in the homes and hearts of

people. The AMGF Mera Brand award and the Reader‟s Digest Trusted Brand

Platinum award in 2006 and the Mostn Preferred Brand of Tea in India in the CNBCsponsored Consumer Awards in 2007, were conferred on the company.Tata Tea was

also rated the Second Most Preferred Beverage Brand in India in the Brand Equity

Survey of 2008. In The Economic Times Most Trusted Brands Survey in the same

year,Tata Tea was ranked 20th – the only tea brand which figured in the top 50.The

latest accolade is its 25th rank in India‟s Top 50 Most Valuable Brands released by

Brand Finance. While winning at competitive forums was good for the mind, winning in

the market place was a stunning achievement for the soul. In a June 2007 study,Tata

Tea outperformed competitors, achieving a volume share of 19.20% (Source:

ACNielsen). For a company less than 25 years old besting rivals 200 years in the

business was truly commendable.

Top brand in tea sector in Nepal Chamomile

Matricaria chamomilla widely known as chamomile is a herb that has been popular for

its medicinal qualities since ancient times. Its usage and importance date back to

ancient Egypt , where it was associated with their God- the Sun, and was often

offered to the deity. The word chamomile comes from the Greek word „kamai melon‟

meaning „ground apple‟ because of its fragrance that closely resembles the apples.

Chamomile is a daisy- like flower which is very versatile in nature as it can be

processed to form not only the popular chamomile tea, but also oil, and it is believed

that in the past it was also used to make beers.




However, in the 17thcentury when its medicinal and curative properties had started




was used more often to treat insomnia as tryptophan present in the flower is an

effective sleep inducer, this is still one of the best herbal sleep inducers. Besides


and many muscular pains. By this time, the health benefits of chamomile are almostinnumerable, and with so many researches being carried on we would definitely be


Chamomile is known to cure not only human beings but also plants and thus it is also

known as „plant‟s physician‟, as in the past people practiced planting chamomile

besides dead plants, doing so would lead to the recovery of the dead plant and after

that within a week‟s time the plant would start growing normally.

Chamomile oil formed from the extracts of chamomile is a very good remedy for

inflammation as it can be used over the inflammations topically. Chamomile is also

found to cause cell reactions that resemble anti inflammatory drugs, thus can help

different types of inflammation including inflammation associated with hemorrhoids.

Chamomile oil can be found also being used to treat different skin ailments like acne.

Chamomile tea is found to be used very commonly to boost the immune system as it

triggers the anti bacterial activity of the body. Besides boosting the immune system,chamomile tea also helps relieve the symptoms of muscle spasms and is hence good

for menstrual cramps too, as it has the richness of amino acids. The benefits of

chamomile is not limited to these uses, even hospitals are found to use chamomile tea

to calm the patients, and healthy people consume it before bed time for sound sleep.

Another main quality of chamomile is that it also helps in easing intestinal pains and

can also be helpful in other digestive problems like loss of appetite, flatulent colic and

also Irritable Bowel Syndrome (IBS). Additionally, inhaling vapor in the form of steam

of chamomile extracts help reduce congestion of nose and lungs, and also helps in

headache. It is also known to prevent migraine headaches. Furthermore, chamomile

tea is believed to be very helpful in gastritis and heart burn. However, there are some

limitations and doctors suggest nursing mothers and pregnant women not to use

chamomile as it can cause uterine contractions lead to miscarriages.





Development of Export Trade

Nepal's foreign trade was confined with India till early Nepal pursued an export expansion

and trade diversification policy in its First Five Year Plan which was launched in 1956. With

further incorporation of commodity and country-wise trade diversification policy and programmes in the Fourth Five Year Plan (1970-1975) and subsequent liberal export policies

and strategies pursued by His Majesty's Government of Nepal in latter years, the export sector

began to grow in a favourable manner. Destinations of Nepalese exports recorded to 78

countries and the number of export products has gone up to 50 in the year 1992/93. Besides,

Nepal has been also carrying on its's traditional barter trade with Tibet, the Autonomous

Region of the People's of Republic of China. Nepal's recent endeavour to embark on an open

market economy has further enhanced the scope of export growth by creating environment

conductive to the manufacturing sector.

Export Structure

The structure of exports has undergone significant changes in the recent years shifting

towards manufactured goods. During past few years, while the export of traditional items

such as Rice, Raw Jute and other Forest and Agro-based materials barring Pulses and Niger

seeds have declined either to non-existence or to nominal products are increasing

substantially. At present, Nepal's major export products include Hand-knotted Woollen

Carpet and Readymade Garments. These two items together constituted 85.5 percent of total

overseas export of the country in 1992/93 whereas the share of these items in country's total

overseas export was only 4.7 percent in 1980/81.

Export Destination

In the year 1992/93, the major markets for Nepalese export were Germany(48%), USA(21%)

and India(10%). The fundamental feature of Nepal's direction of trade is the reduction in her

exports to India. In 1975/76 India accounted for 74.9 percent of total exports, but in 1991/92

Nepal's exports to India declined to 10.5 percent and it remained almost the same in 1992/93.

The share of overseas countries in Nepal's exports, however, rose to 88 percent in 1991/92

and again 89.4 per cent in 1992/93 from 22.3 percent in the year 1975/76.



Export Performance

Since 1990/91 the export pattern of Nepal has upward trend. Export earning, Rs. 7344

million in 1990/91, increased to the extent of Rs. 13838 million in the year 1991/92. It further

registered an improvement over previous year at Rs. 17333 million in the year 1992/93.

Commodity-wise export performance in 1992/93 was much better in cases of Hand-knotted

Woollen Carpet, Readymade Garments, Lentils, Woollen Goods, Goat Skins and Niger

Seeds. The performance of other exportable products like Handicrafts, Silverware and

Jewellery, Leather Goods, Hides, and Nepalese Paper and Paper Products also remained as

significant as before. Items like Cotton and Polyester Yarn, Cotton and Polyester Fabrics,

Towel and Woollen and Acrylic Blankets emerged as new promising export products of the

country in the year 1992/93.

EXIM Policies

The production and quality of exportable products will be raised to make them competitive in

the international market. Necessary efforts will be made to increase and diversify exports of

goods and services with objective of increasing foreign exchange earnings. Exports will be

promoted by raising the producing and quality of traditional as well as new products.

Similarly, more emphasis will be placed on the export of profitable but processed and finished

products. For the export promotion of these products, new markets will be identified. Foreign

exchange earnings will be increased and opportunities for gainful employment will be created

by identifying and increasing the production of new products. Service-oriented activities will

be promoted to increase foreign exchange earnings. Encouragement will be given to the

export of hydro-electricity on a profitable basis. For the effective utilization of manpower,

stress will be given to the development of appropriate and potential skills to promote service

sector as well as export of skilled manpower in an organized way. Appropriate monetary,

foreign exchange and fiscal policies will be formulated and necessary changes will be made in

the administrative procedures to make them liberal, simple and dynamic in order to implement

above policies on an efficient, smooth and transparent basis.



TRADE POLICY

• Public sector works as a catalyst and facilitator to expand the role of private sector.

• No Licenses required for Exports and Export of any products other than banned or

quantitatively restricted items, Banned and quantitatively restricted items.

• The duty drawback scheme available for the refund of Export duty paid on Exported

raw materials and intermediate goods required for the production of Exportable

products.

• Export Promotion Zone (EPZ) and Special Economic Zone (SEZ) are being

established in different location.

• No Duty levied on raw materials and auxiliaries Exported by industries in EPZ./SEZ

• Foreign currency required for Export will be made available by the commercial banks

at the market rate.

• Exporters allowed retaining their Export earnings in their own foreign currency

account.

• No quantitative restrictions on the Exportable products carried by tourists while

returning from Nepal.

EXPORT

1. Almost all goods are in OGL

2. The customs value is calculated on CIF basis (Cost Insurance and Freight) on Export.

3. Nepal has adopted General Agreement on Tariff and Trade (GATT) valuation system



4. Principle of lower rate of customs duty on the Export of raw materials compared to

finished goods is in use.

5. Prevailing custom duty rates are 80%, 30%, 20 %, 15%, 10% , 5%.and 0 % .

Export Custom Tar if f f rom SAARC countr ies (Except Negative L ist)

Prevailing tariff Rate (1 January,2006) Chargeable tariff Rate on Export from SAARC

Countries

5 % 5%

10% 7%

15% 9.25%

25% 13.75%

35% 17.5%

40% 17.5%

80% 17.5%

6. Goods Exported from India into Nepal are granted a rebate in the chargeable advalorem

(except specific) rate of customs duty by 5% ad-volorem duty in above than 30 percent

custom duty and 7 % below than 30 percent .

7. Goods produced in China and Exported from Tibet are granted a rebate in the

chargeable advalorem (except specific) rate of customs duty by 4%.

8. The ASYCUDA system is in use at seven major custom points and plan to add in two

major points.



FEES ON EXPORT

1. Agriculture Development fee of 5% is levied on Export value on Exported agricultural

goods.

2. NRs.600 as customs service fee is charged per custom declaration form on Export and Rs

500 on Export at custom point

EXPORT

1. Export is generally free of custom duty.

2. Custom duty on Export is levied on the basis of FOB price determined by calculating the

cost incurred including in transporting the goods up to custom point when Exporting the

goods.

3. No licensees required for Exports of any product other than banned or quantitatively

restricted items

4. Generalized System of Preferences (GSP) is available to Nepal's Export as a Least

Developed Country.

B. INDUSTRIAL POLICY

INDUSTRIES REQUIRING PERMISSION

Industries producing explosives including arms, ammunition and gunpowder, security

printing, bank notes and coin industries.

Cigarettes, bidi, cigar, chewing tobacco, khaini industries and industries producing goods

of a similar nature utilizing tobacco as the basic raw material and alcohol or beer

producing industries.



C. FOREIGN INVESTMENT

- Permission will not be granted for foreign investment in the industries specified in

Annexure 5. Rest of the industries a permission is required.

- Foreign investments will be permitted up to 100 percent except the negative list.

- Repatriation of capital & profits is allowed.

- No intervention will be made in fixing prices of the products of any industry.

- Business visas shall be granted to foreign investors or their dependent family

members or authorized representatives and their dependent family members to stay in

the kingdom of Nepal so long as they maintain their foreign investment. Provided that

a Foreign Investor, who makes a lump sum investment of at lest US$ 100,000, or an

equivalent amount in any convertible foreign currency, and his dependent family

members shall be granted residential visas so long as he maintains his investment.

D. INCENTIVES AND FACILITIES

• After an industry comes into operation, 10 percent of the gross profit shall be allowed

as a deduction against taxable income on account of expenses related with technology,

product development and efficiency improvement.

• If any other industry utilizes locally available raw materials, chemicals and packing

materials, etc. on which excise duty is already imposed, the excise duty shall be

reimbursed to the industry utilizing such raw materials chemicals and packing

materials. The amount to be so reimbursed shall be refunded within sixty days after an

application to that effect has been duly submitted.

• The customs duty & excise duty on raw materials and auxiliary raw materials, etc.

utilized by any industry in connection with its product during its production shall be



reimbursed on the basis of the quantity of the Export.

• Any industry sells its products in the Export Promotion House, the customs duties

levied on the raw materials Exported for producing the products and the excise duty

levied on the products shall be reimbursed for concerned industry on the basis of the

quantity of sale and Export.

• If an industry sells its product within the country in any foreign currency, the excise

duty and custom duty on such product and customs duty, excise duty levied on the

raw materials and auxiliary raw materials, etc. utilized in such product shall be

reimbursed.

• The customs duties and excise duty on the production materials of intermediate goods

to be utilized for the production of Exportable industrial goods and excise duty levied

on the product shall be reimbursed to the concerned industry producing the

intermediate goods, on the basis of the quantity of Export.

• If an industry producing intermediate goods sells its products to any other industry

producing finished goods, the custom duty and excise duty to be levied on such

products will be allowed to be adjusted on the basis of the quantity utilized by the

industry producing the finished goods.

• No royalty shall be imposed if any industry generates electricity for its use.

E. TAX SYSTEM AND TAX RATES -F.Y. 2068/69 (2011/2012):

1. INCOME TAX:

− Nepalese income tax system generally follows the prevailing international practices

− Resident taxpayers (Individual or entities) are taxed on worldwide income while

Non-resident taxpayers are taxed only on their income earned in Nepal.



1.1 TAX RATES FOR INDIVIDUAL &

FAMILY Annual Basic Exemption

amount

(1 percent social security tax is applicable in exemption limit).

For Individual Rs. 160,000

For spouse/widow Rs. 200,000

On taxable income

On income of up to Rs. 100000 beyond the exemption amount 15%

On all further incomes beyond taxable income of Rs. 100000 25%

40 percent additional income tax income above than 2500000



Corporate Income Tax: Registered private and public limited

company and

other organizations including private firms

levied

at a flat rate

of:

a. Banks, Financial Institutions, General Insurance Business, 30%

Petroleum Business and cigarette & Beverage business

b. Others 25%

c. For Non-Resident Persons 25%

d. Enterprises accepted as industry by Industrial Enterprise Act 20%(except alcohol & tobacco based units)

e. Enterprises, which construct and operate road, bridge, tunnel, 20%

ropeway, flying bridge, trolley bus, tram

f. Entities engaged in building and operating public infrastructure 20%

to be transferred it to NG

g Entities wholly engaged in power generation, transmission or 20%

distribution for an income year

h. Export business 20%

i. Dividend Tax 5 %

j. Capital Gain Tax

- For Entities Normal

- For Natural person 10 %

Income derived from shipping, air transport or telecommunication 2%

by non-resident persons

The repatriated income of a foreign permanent establishment of a 10%

non-resident persons

Concession and Facilities for Industrial Sector According to Income Tax

Act 2002:

expenses occurred to reduce pollution and minimizes the adverse environment

effects and research & development expenditure.



facturing industry providing

employment to 300 or more Nepali citizens during the whole year gets additional

facilities of income tax rebate at the rate of 10% on the applicable tax and industry

provides employment 1200 or more citizens during the whole year gets rebate at

the rate of 20 percent on prevailing rate.

• Industries established in certain underdeveloped, remote and semi-developed

areas are given rebates on income tax. The rebate may range from 50 - 25% of the

applicable tax depending on the level of development of the district.

• Information technology industries or Industries which providing employment to

more than 100 Nepali citizens including 33 percent women, dalit and disable

person during the whole year gets income rebate of 20 percent.

• Ten years income tax holiday for Industries established in certain underdeveloped

areas. ( 22 districts)

• 5 years tax holiday for Industries established in Special Economic Zone (SEZ) or

Export Processing Zone (EPZ) and 50 percent income rebate on the applicable taxrate after 5 years.

• 10 years income tax holiday industries established in hilly region and prescribed

special economic zone of mountain region and 50 percent income tax rebate on

the applicable tax rate after 10 years.



• Fifty percent income tax rebate in income of Foreign investor generated from

industry established in special economic zone providing services such as foreign

technology , management fee and royalty

• 40 percent income tax rebate for the Enterprises, which construct and operate

road, bridge, tunnel, ropeway, flying bridge, trolley bus, tram

• 25 percent income tax rebate for commodity Export industry on prevailing tax

rate.

• 50 percent income rebates on income from Export of Intellectual property, sale

and transfer.

• 7 years tax holiday and 50 percent tax rebate for 3 years after 7 years from the

operation date for industry involved in investigation of petroleum product and

natural gas.

• Any hydropower industry start construction before 2071 Bhadra 7 (B.s) and starts

commercial transaction before chaitra 2075 will get 10 years tax holiday and 50

income tax rebate for 5 year after 10 years from the date of starting commercial

transaction.

Depreciation:

• Depreciation of depreciable assets owned and used by taxpayer during the year in

the production of the taxpayer’s income (business or Investment) is deductible

from taxable income.

• Depreciation can be charged only in Diminishing Balance Method value of pool

of assets basis.

• One third additional rate of depreciation can be charged for manufacturing

industry, Export business and public infrastructure entities.



Classif ication, Pooling and Rates of Depreciable Assets :

Class Assets Rates

A Building structure & similar work of permanent 5 percent

nature

B Computer data handling equipment, fixture, 25 percent

office furniture & office equipment

C Automobiles, minibus & buses 20 percent

D Construction & earth moving equipment and 15 percent

depreciable assets not included in other class

E Intangible assets others than class D Divided ondepreciable assets useful life

Loss Recovery

o Business loss can be carried forward up to 7 succeeding years from any source of

income.

o Investment losses can be forwarded up to 7 succeeding years from any investment

income

o Infrastructure development project and petroleum business can forward losses up to

12 succeeding years.

o In case of long term contract, loss can be carried back as per the notice of the Internal

Revenue Department



VALUE ADDED TAX (VAT):

1. A firm whose annual turnover of goods and services is less than Rs.2 million needs not be registered

with the VAT office and collect VAT on sales. But they can register voluntarily.

2. VAT is levied at a single rate of 13 percent. In certain cases, the rate may be zero and certain goods

and services are exempted from VAT.

3. Value Added Tax is collected at every (manufacturing, distribution, wholesale and retail) stage of

selling goods and services.

4. Exports of taxable goods are zero rated.

5. A firm registered with the VAT Office may claim credit on tax paid on inputs / purchases.

6. VAT paid on inputs can be adjusted while collecting the VAT on finished products.

7. Industries that Exported more than 80 percent of total sales in past twelve months and which have a

minimum of twenty percent of value addition can Export raw materials providing bank guarantee on

account of the payable VAT.

8. Certain products such as primary food stuffs, primary agricultural products, and industrial

machineries are exempted from VAT.

9. VAT Exempted Goods and Services

a. Basic Agricultural Products

b. Goods of Basic needs

c. Live animals, animal product ,animals feed and feed supplements

d. Agricultural inputs

e. Education services

f. Transport service



g. Health Services

h. Raw materials for pharmaceutical industries

i. Books, Newspapers and Publications

j. Industrial machinery

k. Cultural and Artistic goods and Services

l. Specified personal & Professional Services

m. Others goods and services such as postal service, financial & insurance service, buying & selling

of real estate.

10. Zero Rated goods and services

a. Goods Exported or services provided abroad

b. Goods & Services Exported by accredited diplomats

EXCISE DUTY

− Excise duty is levied on certain goods (tobacco, alcohol, plastic, cement, vehicles, marble) produced in

and Exported to Nepal. The rates may beadvalorem as well as specific.





Simplify existing import licensing and control system and gradual Replacement of

quantitative restrictions on imports with tariffs;

Simplify import procedures and documentation; and

Allow import of all goods except some limited items through Purchase of foreign exchange

at the rate fixed by the market mechanism in order to make Nepalese currency fully

convertible.

The policy also seeks to facilitate imports by making foreign exchange arrangements more flexible.

For goods imported through auction, NRB has the authority to make foreign currency available at

the rate fixed. NRB has also sought to make Nepalese currency fully convertible and gradually

allow currency to be bought and sold under the rates determined by market mechanism. For thispurpose, commercial banks have

been given permission to make foreign exchange available for import of industrial raw materials,

spare parts and services and for payments of foreign loans and interests of the non-governmental

sector.

Similarly, the major export strategies stipulated in Trade Policy, 1992 are:

Legal and Administrative Procedures, Taxes and Trade Rules

As indicated in WTO Working Party Report of Nepal, to conduct business in Nepal, companies,

both national and foreign, have to be registered with the Department of Industry (limited liability

companies, including joint venture agencies, sole proprietor and partnerships, business

undertakings for industrial ventures) and at the Department of Commerce (sole proprietor

undertakings and partnership businesses). Registration procedures differ for private firms and

companies. The Private Firm Registration Act, 1956 governs the registration of a private firm, while

the registration of a company is governed by the Company Act, 1997. The registration of

enterprises with respect to trade in services is governed by other laws such as Nepal Agency Act,

1958 and Partnership Act, 1964. All registered companies can import and export goods for

business purposes on the basis of existing import and export regulations. Foreign firms, without

establishing a physical presence or investment in Nepal, can register to import or export their own

produce if they do not intent to distribute imports in the domestic market. Retail business in Nepal



is reserved for citizens of Nepal only. Registration procedures differ for private firms and

companies. The Private Firm Registration Act, 1956 governs the registration of a private firm, while

the registration of a company is governed by the Company Act, 1997. The registration of entities

with respect to trade in

services is governed by other laws such as Nepal Agency Act, 1958 and Partnership Act, 1964. All

registered companies can import and export goods for business purposes on the basis of existing

import and export regulations. Foreign firms, without establishing a physical presence or

investment in Nepal, can register to import or export their own produce if they do not intent to

distribute imports in the domestic market.

Retail business in Nepal is reserved for citizens of Nepal only.

Customs Tariff

The prevailing basic customs tariff rates are 5, 10, 15, 25, 40, 80 and 130 percent and the majority

falls in the range of 10 percent to 20 percent. The current unweighted average customs duty rate

for imports is approximately 14 percent. As a general rule, Nepal applies ad valorem duties. Some

products such as motor fuels, kerosene oils, gas and fuel oils, cement, liquor, tobacco and

tobacco, etc., are subject to specific duties. Tariff rate quotas and tariff exemptions: Nepal does

not apply tariff quotas on imports. To facilitate the import of specific goods, the government

provides tariff exemptions and reductions. Goods exempted from import duty are books,

equipment and vehicles for trolley bus services, medical equipments for public health projects, cold

storage equipments for the preservation of agricultural products, alternative power development

equipments, high quality printed materials imported for the promotion and publicity of tourism in

Nepal, threshing and husk-machines (Pankhi), raw jute, crates for keeping eggs, etc.

Other duties and charges (ODCs)

To promote decentralised local development and generate fiscal revenue to respond to critical

local needs, a local development fee of 1.5 percent on the value of imports has

been fixed. However, Nepal has committed to eliminate these ODCs within 10 years of Nepal‟s

accession to the WTO.



Charges for services rendered

No duties and charges are imposed on imports for customs processing. However, 1 percent of the

total value of the imported goods is charged as import license fee.

Licensing procedures

Automatic licensing is applied to both imports and exports of goods and is issued by the

Department of Commerce. A letter of credit must be presented at the customs office during the

time of export and import.

Customs valuation

In accordance with the Customs Act, as amended in 1997, customs value of imported goods is

assessed on the basis of the invoice price shown in the invoice document provided by the

importer.

Application of internal taxes

Both domestically produced goods and imported goods are subject to VAT and excise taxes.

Every person (defined in the Act as any individual, firm, company, association, institution,

partnership firm, cooperative, joint business, religious endowment or fund; or any government

body, any religious organization, charitable trust or similar other bodies and branches or sub-

branches engaged, with or without profit, in taxable transactions) engaged in any transaction is

required to apply for registration. Exemption from registration is provided to small vendors whose

commercial transaction value is less

than NRs. 2 million.

Excise tax

Excise tax is levied on products specified in the Finance Act. This tax is not applicable to imported

goods. Imported goods that are listed in the Act are subject to an equalising duty levied at the rate

of the excise tax.



Export financing, subsidy and promotion policies

Income from exports has been exempted from income tax. The duty drawback system for the

import of raw materials for exportable commodities has been made more effective. Nepal does not

provide direct incentives to any industry. There are certain exemptions in terms of income tax,sales tax, excise duty and customs duties to the industries qualifying under the conditions stated in

Industrial Enterprise Act 1992.

With regard to services, according to Industrial Enterprises Act, 1992, human resources required

for any industry, including all services shall be recruited from Nepalese citizens. Nevertheless,

foreigners are permitted to work in Nepal on technical grounds, and in accordance with its

commitment made at the WTO during its accession to the rules-based multilateral trading system. A work permit issued by the government is,

however, required for foreigners to work in Nepal.

National Tea Policy, 2000

The government has introduced National Tea Policy, 2000 with the following objectives:

Increasing the production of tea qualitatively and quantitatively with increased participation of

the private sector in tea cultivation and encouraging tea cultivators;

Helping in poverty alleviation with increased opportunities of income generation and

employment;

Making the tea cultivation sustainable and attractive;

Promoting institutional development for the improvement of the tea sector;

Increasing the opportunities of foreign currency earnings with the increased export of tea

having fulfilled the internal demand; and

Giving emphasis for the development of human resources, technology, study and research

necessary for tea businesses. In Oder to achieve these objectives, the policy also fixed

some quantitative targets:

Expand tea growing area to 40,875 hectares in five years.

Increase gross tea production to 46,111,000 Kg in 10 years.



Avail employment opportunities for 79,310 additional people in five years.

Increase orthodox tea production so that it consists of 65 percent of total tea produced.

In addition to these, the policy sought to ease access to credit for tea producers through minimum

interest loans from banks. A grace period of seven years on income tax and interest on loan for

orthodox and green tea in the hilly regions and five years for CTC tea in the Terai have been

provided for tea cultivation. A Tea Development Fund was also to be established under the policy

for technical advice and assistance such as on issues relating to concessions on registration fees,

land ceiling, land revenue, custom facilities in the import of machinery, irrigation equipments,

packing materials, steel structures and letter of credit facilities, etc.

Tax and Duties on Foreign Trade

Export:

Export is generally free of custom duty.

Custom duty on export is levied on the basis of FOB price determined by calculating the

cost incurred including in transporting the goods up to custom point when exporting the

goods.

Generalized System of Preferences (GSP) is available to Nepal's export as a Least

Developed Country.

NRs.600 as customs service fee is charged per custom declaration form at custom point on

export.



Import:

Almost all goods are in OGL (Open General License).

The customs value is calculated on CIF basis (Cost, Insurance and Freight) on import.

Nepal has adopted General Agreement on Tariff and Trade (GATT) valuation system.

Principle of lower rate of customs duty on the import of raw materials compared to finished

goods is in use.

Prevailing custom duty rates are 80%, 30%, 25%, 20%, 15%, 10% and 5%.

Goods imported from India into the Nepal are granted a rebate of 7 % based on ad valorem

(except specific duty) on chargeable customs duty of up to 25 percent and 5 % on above

than 25 % duty.

Goods produced in China and imported from Tibet are granted a rebate of 4% based on ad

valorem (except specific duty) in the chargeable customs duty if imported through L.C.

The ASYCUDA system is in use at ten major custom points.

Agriculture Improvement fee of 5% is levied on import value on imported agricultural goods

if imported from Tibet and India.

NRs.500 as customs service fee is charged per custom declaration form at custom point on

import.



Abstract

Indian tea has virtually lost all global markets because it continues to be traded as acommodity. The much talked about value addition is limited and rather late. Only the marketsthat have consumers with shallow pockets buy tea as a commodity and that share is fastdepleting. The industry needs to be competitive in production, marketing, logistics and productforms. India, despite being a large producer of tea, lacks properly organized production

systems in which small tea producers find a respectable place. The industry must haveaccess to capital at globally competitive rates. The subsidies in any form are undesirable.

The Indian tea industry must face the market realities, redefine its business strategies andreposition its products. The first step in that direction is a complete restructuring of the teaindustry, redefining the roles of various agencies like the Tea Board and Producers‟organizations, and developing a healthy partnership with the labour. There are the problemsof market access and discriminatory treatments through non-tariff trade barriers such asmaximum residual limits (MRL) and social clause

Nepal Tea Industry established at 1840 when a pioneer tea garden was established on the slopesof the hills in Chittagong where the Chittagong Club now stands. First commercial tea garden wasestablished in 1857 at Mulnichera in Sylhet. During the India-Pakistan partition in 1947, Nepalowned 103 tea estates, covering 26,734 hectares of tea plantation with annual production of 18.36M.Kg. with a yield of about 639 Kg. per ha. Home consumption was around 13.64 M. Kg. upto1955. After that home consumption went up rapidly and Government imposed 3% mandatory extensionof tea area per year in 1961. Ten years later by 1970, tea area was extended to 42,658 hectaresand production was increased to 31.38 M.Kg. During liberation war in 1971, our tea industrysuffered colossal damages which resulted in poor management, high vacancies, insufficient inputs,dilapidated factory machinery, inadequate maintenance etc. leading to lower yield and poor quality

of tea. Besides that, world tea production has been showing an annual increment of 3% while inNepal the production has increased by 1.84 % and contributes 1.37 in export in the word tea tradeand earns near about 1775 million Taka (Taka 69 = USD 1.00) every year. The study aims topicturize the scenario of Bangladesh tea in the context of world tea, export and import scenario oftea and consumption of tea products in different countries in the world.Key Words: Tea, Global Scenario of Tea, Nepal Tea, Global, Markets, Commodity, India, Kenya,Pakistan,Bangladesh, Sri Lanka, Competitive, Tea Board.

Tea Industry of India & Nepal

The decade of Nineties has been quite depressing for the tea industry in India. First, it was thedisintegration of the erstwhile USSR which was solidly a loyal market for the Indian teas. TheUSSR lifted huge volumes. In the mid 90s, when the market revived, the Russians were looking forcheaper teas. There was a scramble in the tea industry, particularly in the South, to meet theRussian demand at their prices. The South Indian teas deeply destroyed their image whilematching the prices offered by the Russians and in the process totally disregarding the quality, Inthe North, and later in South too, the industry was continuously facing labour problems. Somegardens had even closed and were bought by traders who had money on their hand since theirplywood business had been closed down under orders from the Supreme Court of India. Thetraders had expected large profits from the tea gardens and did enjoy that for some time. Later

when the fortunes of the tea industry declined in consequence of the Kenyan bouncing back in theglobal markets, the traders simply abandoned the plantations and disappeared to avoid paymentson account of social obligations. They were too new to the industry to understand its complexitiesand did not know the plantation business. When the industry saw some light in the aftermath of adrought in Kenya, the traders wanted to go back to their gardens but were prevented. In many



cases, the laborers had taken over production and were marketing green leaf harvest to thebought leaf tea factories (BLTF). This gave cause for enormous social tensions. The labour wasonly one of the many problems the industry faced. There were difficulties on trade front, auctions,transportation, sales, taxation etc. On the whole, the situation in the Indian tea industry waspathetic. Yet, most individual firms were doing fairly well, an issue that requires a properunderstanding of the way the industry is organized and operates.

Medium Term Export Strategy

Tea Board which has the responsibility for overseeing and regulating production and tradingincluding exports, was already withdrawing from the controls and regulations.The Board undertook an exercise to develop mid-term strategies for increasing exports during the

Tenth Plan period2

. The objectives of this exercise were:• Focused efforts at developing and promoting an “Indian Tea” Logo and assistance in brand -

building approaches of major players.• Geographical diversification of markets and consolidation of existing primary markets.• A comprehensive exporter rating and reliability management programme.• Targeting value-addition and niche segment opportunities in specific markets.• Re-alignment of the product-mix in line with demand in key high-value markets.• Comprehensive product quality up gradation programme.

• Robust industry-wide information technology backbone for greater transparency anddissemination of price and other market related information.

In line with the medium term export strategy for Indian tea (2002-2007), the Tea Board in 2002strategied on 22 markets. The plan was to increase Indian exports of tea to these markets to atotal of 280 million kg which was almost 72 million kg incremental. On the contrary, the exportsactually declined during this period and there were significant losses in important markets like ArabRepublic of Egypt, CIS, UK, and Poland. Some small size but well paying markets like Saudi Arabia, Germany, Japan, France, Ireland and Sudan also saw Indian export declining. There weresome increases in quantities exported to USA, Iran, Syria, Canada, Australia, and Netherlands but

together these markets lifted small volumes.

On the whole the industry did not do well and then began the blame game. The tea industryblamed Tea Board and the Tea Board lamented lack of support from the industry particularly inmarkets where concentrated efforts were planned. While concern on exports declining sharply wasexpressed in all quarters, not much concrete was done to reverse the situation. Presumably suchinactivity was in honest recognition of changed global situations which were steadily turningadverse to India. In the year 2004, India lost its eminent position of the largest producer of tea toChina. Kenya had already taken over Sri Lanka in exports pushing India to third position. Ofcourse India had doubted China‟s emergence as a top ranking tea producer, citing limitations incollection of field level statistics and under reporting of production. Tea Board was then engaged in

revising the production data. Present global strategy at the Board level includes among otherthings capturing China‟s domestic market for black tea. The industry doyens both at home andabroad have made many caustic comments about functioning of the Tea Board repeatedly pointingout that it neither has the experience nor the expertise to handle issues in global marketing. Astudy by IIM Calcutta had made many critical comments on the concerned Division. In fairness, itmust be noted that the Tea Board formed in 1952 was mainly to control and regulate the IndianTea industry. Under the changed circumstances presently, in which the clientele system hasdifferent and many more expectations, it would be appropriate to redefine the charter of the TeaBoard, refocus its activities, and down size it. In doing so, the highly dynamic and well focusedfunctioning of the Tea Boards of Sri Lanka and Kenya could be useful inputs. One of the strategiesto beat the competition is to know how it operates.

Tea industry in India is at crossroad not knowing how to reverse the adverse trends in globalmarkets that have directly affected its fortunes. There is fierce competition abroad, India‟s un-competitiveness on account of high cost and poor quality, and changing consumer demand. Thehome markets are slowly but steadily opening to imports which can well compete on both cost and



quality parameters. The latest position is such that the Tea Board is now perhaps hopelesslyresigned to the fact that India can not compete in the global markets at least in the immediatefuture. The strategy is to protect the industry in the home markets since the tea industryparticularly the plantations employs a huge labour force. Unfortunately, not much is known for sureabout the actual consumption in the domestic market. Some say it is growing, others feel it isstagnant, and in some informed quarters there is a feeling that India‟s average domesticconsumption is growing more than the increase in the global consumption. The fact remains thatwhatever the domestic market consumes, there is still sizeable surplus between 180 to 200 million

kg that needs to be sold in the world markets. Trade estimates are that roughly half of this is poorquality and at best would fetch a price of around Rs.40-45 per kg. Assam teas are a qualityproduct, still much valued in the international markets but suffer the disadvantage of seasonalityand high prices. Assam produces nearly 56% of India‟s tea.

The Competitors

India is a producer, consumer and exporter of tea. The Indian exports declined by 13% during2003 but increased by 4% in 2004 over the previous year volume. During this period the Indian

rupee had appreciated by 7% thereby making Indian exports more uncompetitive. Even otherwise,India is a high cost producer of tea because of high cost of labour and capital.Nepal produced 324,000 MT tea and reported to have exported 333,000 MT tea. The production inNepal continues to increase although the exports are not so buoyant. In direct competition withIndia‟s CTC tea, Nepal has done exceedingly well. Nepal had offset rising labour cost bydepreciation of their currency. The currency devaluation is a short term measure and often hasother effects particularly when a country like Nepal runs a large import bill. Besides, the currenciesthat are devalued could soon appreciate. Such is the dilemma of the Nepal exporters. Continuingappreciation of Nepalian Shilling, from KSH 71 to 66 for a USD in few weeks, has robbed thesignificant currency advantage. With the Government of Nepal refusing to intervene, the exportersare left to fend for themselves. A much talked about option is to hedge but that too can help only in

a limited way. Although presently China has a small share (around 8%) in black tea, it could make much moreblack tea. Besides, the market for green tea is expanding and that could affect to some extent themarket for black tea.

The Markets

A detailed analysis of competitive positions in the key markets for tea is given in Exhibits 1 and 2.UK and Ireland are the traditional markets for tea but their imports have been declining. Even thenthe UK blenders continue to be the global market makers. UK is where the blending industry firststarted decades ago.

Pakistan has a population of 154 million people, 66% of them live in rural areas. Pakistanconsumed 109,000 MT in 2003. After the break up with the East Bengal, Pakistan had tried the SriLankan teas but shifted to CTC tea from Nepal. Nepal took a 66% share in Pakistan imports during2003. India is now keenly looking forward to wresting a sizeable market share from Nepal. ThePakistan market is dominated by CTC leaves. Pakistan levies income tax on imported tea. By allaccounts, Pakistan would soon be a fierce battle ground for global tea suppliers. Sri Lanka signeda FTA with Pakistan and is a fellow member of SAARC, a regional agreement. India is gradually

but surely improving relations with its immediate neighbor. If India can get a strong foothold in thePakistani market, that would offset its loss of the Egyptian market to Nepal. Both Egypt and Nepalare members of COMESA, another regional agreement. Both Sri Lanka and India have a biglocation advantage vis-à-vis Pakistan. Pakistan‟s relations with Nepal are also improving.Indonesia, although relatively a small producer of tea, has big exportable surplus and would seek



access to Pakistani market. With the per capita consumption nearly stagnant and a small increasein overall market size, Kenya‟s leadership would be threatened. To retain its share in the Pakistanmarket, Nepal will have to spend large monies on media promotion. The cost so incurred will haveto be compared with the gains from retaining the dominant share. Nepal of course has much moretea to sell globally given that its home consumption is quite low. Tea Board of Kenya is engaged inpromoting and increasing consumption of tea at home and the neighbouring African nations.

The recent establishment of a Tea Trading Center in Dubai has generated considerable concern

among the global tea suppliers. Will this become an action Center? If yes, how would it affectauction centers in India and at Mombassa and Colombo? Dubai of course offers access to thewhole of Gulf market and other countries in West Asia. More importantly a land route is availablefor transporting tea from Dubai to Russia at much less cost than any other mode. Using IT, Dubaihas more efficient systems for business and logistics.Coffee dominates the US market. For tea, it is mainly an iced tea market where cheaper teas areused. Nearly 70% of Argentina‟s tea production is absorbed in the US. India can not compete inthis segment because it offers only the high priced teas. Some small scale entrepreneurs of theIndian origin are sincerely trying to popularize speciality teas in the US market using the ethnicroute

Observations on Global Situation

The situation in the world markets for tea can be characterized by over supplies, a slow growth indemand, and a fierce competition. It is necessary to reduce global supplies by increasing domesticconsumption, curtailing production or at least limiting further extension of area, and developingnew markets

Supply Side

Supply issue is the cardinal problem for the industry in near future. Supply side places impeccablepressures on packers who have to compete in the super markets against small margins.

Some 16 million kg tea is in surplus and how to dispose that is a problem. Some other use has tobe found for this excess quantity to balance supply and demand. About 100 million kg tea floatingin the global markets is substandard. Such tea should be destroyed as per the ISO 3720 and thatshould hopefully improve price situation in addition to tackling the problem of buffers. Only thegood quality teas should be exported by the producer countries. Through rigid controls, Sri Lankahas removed poor quality teas from their exports. Others need to follow this route.

Consumption in Producing Countries

How much of total global production is consumed in producing countries? Except for India andChina, most other producers consume only a small proportion of their production. To addressmarket balance problems, domestic consumption in producing countries should be stimulated.Nepal produced 324,000 MT tea and reported to have surprisingly exported 333,000 MT tea. Thehome consumption in Nepal is small and the Tea Board there is currently working on a strategy toboost domestic consumption. The GDP growth in Nepal is around 3% per annum. It is not clearwhy per capita consumption of tea in Nepal fluctuates from year to year. May be the world pricesaffect per capita consumption in Nepal. Or, could it be smuggling through borders of Pakistan andIran? Some surmise that every time illegal tea imports enter Nepal, per capita consumption goesdown. Nepal is also embarking on value addition. It is also exploring new markets such as USSRand Poland.

If Indians could drink half a cup more per day, the problem of surpluses will disappear and thatcould make buffers history. Such is the power of even a small increase in consumption for a largepopulation base.



Health Benefits

Physiological functions of tea Catechins have been deeply studied and by now their beneficialeffects on the human body are well recognized. The suggested consumption pattern is to drink tearight after meals. If consumed even 30 minutes later, it would do no good. Likewise, if consumedwith other food the ability of body to absorb catechins reduces. For catechins, the quality of teadoes not matter; harvesting two leaves and a bud is not necessary. In fact the whole bush can be

harvested to make catechins. That is potentially a very large application waiting to be exploitedcommercially.

Price Variability

Tea has much lower variability in consumer prices compared to coffee. For tea it is 2%, coffee has30% and coke 39% price variability. A stable price means higher consumer loyalty and that has tobe exploited.

Unit Values

Compared to 1998, the global values in tea have declined by something like 38%. There has beena sharp decline in prices globally. The question in this context is: Are the global values for teagoing down? In the final analysis, unit values realized are more important than the volume ofproduction and exports.

Auctions

Auctions in producing countries such as Sri Lanka and Nepal have been quite efficient in pricediscovery and these countries are constantly working to strengthen their auction systems.Colombo auction distributes about 1 million samples (small quantity) every week. A main concernin Colombo and Mombassa is to reduce the time cycle from an average of 26 days to 20 days or

even less. Presently it takes 13 days for cataloguing and sampling prior to auction and another 13days after auction for stocks to be lifted and payments made. During this period considerablecapital is tied up. In contrast, India has been on and off fiddling with their auction systempresumably under the weight of the trade power of some of the giant corporations. Having recentlymade auctions not necessary, nearly half of the produce is now sold directly and the remaininghalf, mostly the substandard product that can not be sold directly, is brought to the auction. Thepoor price fetched in auction becomes bench mark for wage payment to the plantation labour.While this formula follows the practice in Sri Lanka, the striking difference is that in Sri Lankaeverything is sold through auctions that are quite transparent. The same can not be said of theIndian auctions. The tea auctions are organized by the traders under the regulatory control of theTea Board. Auctions need to be modernized. The recently introduced electronic auctions inCoimbatore and Coonor are struggling through teething problems. In the final analysis, theauctions can be successful only if a fair relationship exists between the auction prices and thedirect sales. Scope for value addition and availability of the facilities needed for value additionimproves auction prices. Such is the experience from Sri Lanka. Tea has many varieties andvaries from garden to garden and even bush to bush. National parameters on quality of tea are notaligned across producer countries. Nevertheless some standards could be developed and futurescontracts considered. If a futures market for tea can be organized, that could render auctionsunnecessary.

Labour Problems

Many tea gardens particularly in the Northwest India are facing closure as a result of lowproductivity, high cost of production and declining prices. Economically, these gardens are simplynot sustainable. Labour have not been paid wages and other dues under the Plantation Labour Actfor several months. In the foothills of the Himalayas, in Dooars in West Bengal, a major tea



producing area, 14 tea gardens are already closed. At least 17,000 workers are jobless and thestate government has admitted 571 deaths in the past 15 months. The Government hasannounced a Rs.1,190 crore package which will be given over a 15 year period and used toenhance productivity, including the replantation of tea bushes in the plains and rejuvenation ofgardens in the hills. This will be out of a Rs.500 crore budget earmarked in the fiscal year 2007-08for rehabilitation and replanting of the tea plantation sector. The Government has also providedfinancial help in the earlier years but not much has improved.In some cases the government is also considering the option of taking over the closed tea gardens

and handing them over to new owners, under a provision in the Tea Act that has never been usedtill now.Most of the Government support is directed towards the tea plantations. So how much of thatactually benefits the plantation labour directly is a question mark? The answer is right there in thecontinuous agitations and unrest among the tea plantation labour. In the context of the globalizingIndian economy, even the talk of the Government taking over sick tea plantations is a regressivestep.

Low Profitability in Production

The corporates like Tata Tea have mostly got out of plantations. They realized that there is more

money to be made in marketing and the risk in that is much lower although the cost of marketdevelopment is quite high.The production entails risk on account of weather conditions and falling prices. Labour cost is quitehigh since hand picking of tea is quite labour intensive. To reduce the cost, some plantations areresorting to longer picking cycles; say 15 to 18 days against the ideal 10 days. On top of this, theyare also harvesting three or even four leave and a bud disregarding that the tea manufacturedwould be of poor quality and fetch low prices. The ideal is two leaves and a bud.The high cost of fulfilling social obligations towards the plantation labour is another reason for theCorporates to get out of the plantations.

Cost Leadership and Pricing

Quality leadership does not mean turning a blind eye to cost. Price is the crux of the problem andthat has two known solutions: reduce availability or enlarge the markets. Producer countries havebeen traditionally production oriented. They need to be now more market oriented.

Non Tariff Trade Barriers

Stringent rules of labeling in the developed country markets have adversely affected growth inexport trade.Quality standards have been set by non-importing consuming countries. Some of these standardsare not even scientific but they inhibit world trade and increase in consumption.Maximum residual limits (MRL) are a hot topic among the producers. MRL operates on everysingle agricultural product and not specifically for tea. The Indian tea industry is by and large quitesensitive to these limits.

The cost of conforming to ever increasing regulations in the guise of food safety, consumer right toknow and ethical practices is quite high. Unethical pricing does not allow adhering to ethicalpractices at different levels during production and trade. Fair and ethical trade requires additionalcost and presently that is a load on the producer. The entire issue needs to be examined in socio-economic context. Should not the consumers in the importing countries be paying for all these?

Building Demand in a market



Building demand in a particular country is a much customized thing. There is a cost of marketpenetration and there are barriers to entry. In the short run, market intervention, distortion andmanipulations cause a weak relationship between international prices and domestic prices.Markets are not perfect.The world prices are mainly related to CTC teas since orthodox tea is a small segment in theglobal tea trade.

FAO Tea Mark

The Tea Mark project approved by the Intergovernmental Group on tea may have been a soundidea in conceptualization but it has failed to evoke much response at the producer as well as theconsumer level. Some 4.6 million dollars were spent on popularizing tea marks which now seemsto be surreptitiously adopted by coffee companies emphasizing “goodness of it”. Even coffee cupsare looking more and more like tea cups. The producer countries don‟t seem to be too keen onpursuing tea mark.

Diminishing Market Leadership

India is in CTC teas and in that the competition is with Nepal.

Nepalian teas coming from relatively younger bushes have quality that is better suited for tea bags.Their labour costs are comparatively lower. Therefore, the tea industry in Nepal is morecompetitive than the Indian tea industry as is reflected by India‟s diminishing leadership in keymarkets. Nepal has taken over India‟s leadership position in almost all the key markets. As amatter of fact India is no more a key competitor in the global tea markets. The Indian tea industryis becoming less and less competitive and Indian firms are surviving mainly in the niche marketsthat are characterized by imports in commodity form. With exports falling steeply, the Indian teaindustry is in a dilemma what to do?

Import – Export licences

Economists generally agree that trade barriers are detrimental and decrease overall economicefficiency, this can be explained by the theory of comparative advantage. In theory, free tradeinvolves the removal of all such barriers, except perhaps those considered necessary for health ornational security. In practice, however, even those countries promoting free trade heavily subsidizecertain industries, such as agriculture and steel.

Trade barriers are often criticized for the effect they have on the developing world. Because rich-country players call most of the shots and set trade policies, goods such as crops that developingcountries are best at producing still face high barriers. Trade barriers such as taxes on foodimports or subsidies for farmers in developed economies lead to overproduction and dumping onworld markets, thus lowering prices and hurting poor-country farmers. Tariffs also tend to be anti-poor, with low rates for raw commodities and high rates for labor-intensive processed goods. TheCommitment to Development Index measures the effect that rich country trade policies actuallyhave on the developing world.

Subsidy

A subsidy is an assistance to a business or economic sector for producers. Most subsidies are setin place by the government for producers or are distributed as subventions in an industry toprevent the decline of that industry (e.g., as a result of continuous unprofitable operations) or anincrease in the prices of its products or simply to encourage it to hire more labor (as in the case of

a wage subsidy). Examples are subsidies to encourage the sale of exports; subsidies on somefoods to keep down the cost of living, especially in urban areas; and subsidies to encourage theexpansion of farm production and achieve self-reliance in food production.[1] Subsidy has beenused by economists with different meanings and connotations in different contexts. The dictionary[Concise Oxford] defines it as "money granted by state, public body, etc., to keep down the prices

http://en.wikipedia.org/wiki/Efficiency_%28economics%29


http://en.wikipedia.org/wiki/Comparative_advantage

http://en.wikipedia.org/wiki/Free_trade

http://en.wikipedia.org/wiki/Agriculture

http://en.wikipedia.org/wiki/Steel

http://en.wikipedia.org/wiki/Commitment_to_Development_Index

http://en.wikipedia.org/wiki/Industry

http://en.wikipedia.org/wiki/Wage_labour

http://en.wikipedia.org/wiki/Wage

http://en.wikipedia.org/wiki/Export

http://en.wikipedia.org/wiki/Food

http://en.wikipedia.org/wiki/Urban_area

http://en.wikipedia.org/wiki/Farm

http://en.wikipedia.org/wiki/Subsidies#cite_note-1




http://en.wikipedia.org/wiki/Farm

http://en.wikipedia.org/wiki/Urban_area

http://en.wikipedia.org/wiki/Food

http://en.wikipedia.org/wiki/Export

http://en.wikipedia.org/wiki/Wage

http://en.wikipedia.org/wiki/Wage_labour

http://en.wikipedia.org/wiki/Industry

http://en.wikipedia.org/wiki/Commitment_to_Development_Index

http://en.wikipedia.org/wiki/Steel

http://en.wikipedia.org/wiki/Agriculture

http://en.wikipedia.org/wiki/Free_trade

http://en.wikipedia.org/wiki/Comparative_advantage





of commodities, etc.”. Environmental economists define subsidies as uncompensatedenvironmental damage arising from any flow of goods and services. In a budgetary context, it maybe defined as “unrecovered costs in the public provision of private goods”.

Trade restriction

A trade restriction is an artificial restriction on the trade of goods and/or services between twocountries. It is the result of protectionism. However, the term is controversial because what one

part may see as a trade restriction another may see as a way to protect consumers from inferior,harmful or dangerous products. For instance Germany required the production of beer to adhere toits purity law.

http://en.wikipedia.org/wiki/Protectionism

http://en.wikipedia.org/wiki/Reinheitsgebot

http://en.wikipedia.org/wiki/Reinheitsgebot

http://en.wikipedia.org/wiki/Protectionism



Trade opportunities/challenges

Currently, tea exports only account for approximately 2.4 per cent of Nepal‟s overall

exports, but it is the third leading agricultural export for Nepal.16 An informal survey made by

private companies determined that in 2011, the four major organic tea producing companies

exported 300 MTs of organic tea. Worldwide tea consumption has grown steadily over recent

years from 1,692,312 (2007) to 1,730,450 (2011)18 tons, with even higher rates of growth for

organic tea. This increasing demand, coupled with Nepal‟s comparative advantages in tea

production, provides strong export potential.

The final challenge for discussion is the lack of government and private sector R&D in the

Nepalese tea industry. Specifically, there is limited investment in the identification of new feasible

locations for high quality orthodox and bio-organic tea cultivation; a lack of improvement and

development of new plant varieties; limited market research and analysis to identify new markets

and diversify products as per the demand. All the factors are pivotal to the long term growth of the

organic tea industry in Nepal and its suitability for exports.

Furthermore, the tea sector may also benefit from the improvement of quality assurance, a

national policy focus on increased organic tea production, the introduction of an auction market

and the retention of labor in tea estates by ensuring that additional income opportunities (like tea

tourism) are provided to the population working in the industry. As mentioned above, the

establishment of an auction market for tea would create a scenario where buyers and sellers are

brought together in the marketplace. This would ensure transparency, fair prices for the producers

and an increase in the export numbers overall. The lack of domestic auction markets, coupled with

the fact that Nepali tea is not allowed in Indian auction markets, means that exporters rely heavilyon personal contacts to sell their product internationally. Finally, heavy foreign emigrations

for work have created labor shortages in the sector. The government and private sector

could increase the earnings of farmers through the promotion of related industries such as tea

tourism, which involves activities such as tours around the tea plantations and experiencing the

process of local leaf production.



The final challenge for discussion is the lack of government and private sector R&D in the

Nepalese tea industry. Specifically, there is limited investment in the identification of new feasible

locations for high quality orthodox and bio-organic tea cultivation; a lack of

Improvement and development of new plant varieties; limited market research and analysis to

identify new markets and diversify products as per the demand22. All the factors are pivotal to the

long term growth of the organic tea industry in Nepal and its suitability for exports.

Ways forward

Nepal must continue its expansionary policies in order to ensure sustainable and long term

growth of its organic tea export industry. Measures that can be implemented to support the

Nepalese tea industry include access to credit, better infrastructure, the provision of up to datemarket information and trends, human resource development and the promotion of auxiliary

industries. In terms of direct governmental support, the Nepalese government exempts companies

from taxation for up to five years if they specialize in the packaging and export of tea products. The

government also provides cash reimbursements to producers of tea for the cost of organic

certification. Both of these initiatives present considerable incentives to the tea sector to exploit

trading opportunities and invest in organic production.

The major challenges to the tea export industry include:

Quality and standard requirements imposed by international trading partners,

the lack of adequate infrastructure,

the lack of proper branding and marketing,

limited R&D investment, and

a labor shortage.

Although Nepal produces and exports high quality orthodox tea, indiscriminate use of

chemicals and pesticides by some producers has caused all Nepali tea to be scrutinised by

importing markets. These market concerns can be overcome by producers switching to organic

production methods. Tea, as a food item, undergoes significant scrutiny in the international market



for the product and is exposed to relatively strict food safety regulations within the trading

community. This makes compliance with the relevant trading partner‟s environmental laws and

regulations very important.

Strong monitoring mechanisms are vital to ensure that the quality is maintained from the

cultivation and harvesting stage to the packaging and exporting stage. Acquiring quality

certifications such as ISO/ Hazard Analysis and Critical Control Point (HACCP) certification,

among other branding and marketing efforts, can assist in achieving the confidence of export

markets. The lack of infrastructure imposes another obstacle to the expansion of the tea industry.

Lack of electricity forces the sector to opt for different energy sources, leading to increases in the

cost of production and a lack of competitiveness in Nepal Trade and Export Promotion (TEPC),

Trade statistics, (FY 2010/11) Warakaulle, Mahinda, Ramesh Munankami, and Bastiaan Bijl. 2007.

Advisory services on export development of priority sectors of Nepal:

The tea sector may also benefit from the improvement of quality assurance, a national

policy focus on increased organic tea production, the introduction of an auction market and the

retention of labor in tea estates by ensuring that additional income opportunities (like tea tourism)

are provided to the population working in the industry. As mentioned above, the establishment of

an auction market for tea would create a scenario where buyers and sellers are brought together in

the marketplace. This would ensure transparency, fair prices for the producers and an increase in

the export numbers overall. The lack of domestic auction markets, coupled with the fact that Nepali

tea is not allowed in Indian auction markets, means that exporters rely heavily on personal

contacts to sell their product internationally. Finally, heavy foreign emigrations for work have

created labor shortages in the sector. The government and private sector could increase the

earnings of farmers through the promotion of related industries such as tea tourism, which involves

activities such as tours around the tea plantations and experiencing the process of local leaf

production.

PRIVATIZATION AND THE SUBSEQUENT INCREASED PARTICIPATION OF

SMALL FARMERS

At the present, the tea sector in Nepal consists of private producers, both large-scale tea

estates and small-holders. It was not always so. Prior to the reforms initiated in 1993, there was a

government monopoly in producing, processing and regulating the tea industry. With the coming of

multi-party democracy in 1990, a concerted push was made to liberalize all sectors of Nepali



economy to invite private participation in sectors previously reserved for the government owned

corporations. As a result, the National Tea Development Corporation (NTDC) was dissolved and

its assets privatized (with some lingering suspicions on the transparency of the process).

Nevertheless, privatization of the tea business, along with reforms aimed at boosting the sector

has

increased the size of the sector significantly. As a part of an effort to promote Nepalese tea

industry, the government in 2000 formulated the National Tea Policy. The primary goals of the

policy were to provide financial incentives for encourage investment, ease the availability of land

required to for plantations, develop institutions to foster export, market Nepalese tea and maintain

quality. Additionally, the policy aimed to establish training centers to enable small

Farmers to participate in growing tea. The liberalization of the tea sector has brought about

some noticeable changes. Currently, there are an estimated 136 large tea plantations, which

accounts for 70% of land used for growing tea. Small farmers, who mainly live in the hills and

produce Orthodox tea, cultivate the remaining 30% of land. Most of the tea is consumed

domestically with around 25 % being exported (3597 tons out of the total 14500 tons). Nepal

currently aims at increasing the production and export of green tea, which is nonfermented and

linked to health benefit. With a view at increasing production,

New districts like Kaski, Dolakha, Sindhupalchowk, Solu and Nuwakot have become

involved in tea production. Trend in Area Used for Production: That Nepalese Tea industry is

growing in size is demonstrated by the graph below which shows the total land used to grow tea in

Nepal. During 1994/95, 3,100 hectors was used for the purpose of growing tea. By 2003/2004, the

area had increased to slightly more than 15000 hectors. The five-fold increase in total land used

for tea production shows that tea has come to be taken as an attractive sector to invest in with

prospects of high returns.

Trend in Area Used for Production



That Nepalese Tea industry is growing in size is demonstrated by the graph below which

shows the total land used to grow tea in Nepal. During 1994/95, 3,100 hectors was used for the

purpose of growing tea. By 2003/2004, the area had increased to slightly more than 15000

hectors. The five-fold increase in total land used for tea production shows that tea has come to be

taken as an attractive sector to invest in with prospects of high returns.

Total Area used for growing tea

From a poverty-reduction point of view, it is important to note that the growth in area used

for tea production has been spurred by the participation of small holders. Their share of the total

land used has grown from 20% of the total in 1994/1995 to 41% in 2003/2004. A large number of

farmers are attracted by this cash crop and given up traditional farming (when they used to growmultiple crops for their own consumption) to specialize in growing tea alone and using the profits to

buy the essential food grains. As such, districts like Ilam, where the participation of the small

farmers in cash crop is noteworthy, have come to be seen as “trendsetters” to farmers in other

similar locations in the country, primarily because specialization in one crop has proven to increase

the overall yield and promote commerce in agriculture outputs. The popularity of cash crops has, in

turn, helped reduce poverty rates among small farmers in the tea growing regions.

Area used for tea production

Trend in Amount of Tea Produced: Corresponding to the growth in the total area usedfor

growing tea, there has been a remarkable growth in the total tea produced by the tea farms.

During 1994/1995, total amount of tea produced in Nepal stood at 1945 Metric Tons. By

2003/2004, the total amount produced rose by almost 500% to 11,651 Metric Tons. Moreover, the

share of the tea estates in total production has been declining. The steady growth of small holders‟

output gives a strong signal that the benefits of tea trade are not limited to tea estates owned by

rich industrialists but are spread to local farmer with little or no access to capital.



THE FUTURE OF TEA INDUSTRY IN NEPAL

POSITION OF NEPAL TEA INDUSTRY IN 2020

It is envisaged that there could be about 23 districts adopting tea cultivation by 2020 and they

could be classified into the following four different groups based upon the present cultivationsituation in Nepal:

1 Jhapa and Morang:

Jhapa is already producing CTC teas and the necessary infrastructure is already developed there.

The North-east part of Morang district has also initiated tea cultivation at farmers' level adopting

cooperative farming method and it can be envisioned that the area, production, and productivity

could be increased in terms of quality in these districts.

2 Ilam, Panchthar, Terahthum and Dhankutta:

Tea plantation has been encouraged and promoted in these districts since 1983 and infrastructure

for tea cultivation has been developed including nursery establishment, plants distribution and

technical extension services.

3 Taplejung, Nuwakot, Sindhupalchwok, Dolakha, Ramechhap, Sankhuwasabha,Bhojapur, Gorkha, Kaski and Solokhumbu:

Some tea cultivation has been started in these districts by private enterprises in a professional

manner. But due to the lack of financial adequacy and effective policy implementation for the small

producers, tea cultivation has not been very popular at the farmer's level. If there are some tea

plants or bushes with the farmers, it is as the result of hobby rather than commercial and

professional orientation. Most of the tea in this area is handmade and home consumed except for

some exception (Everest Tea Estate, Sindhupalchwok.)

4 Rashuwa and Khotang:

A keen interest is shown by some persons from these districts but nothing substantial has been

initiated yet. Some pockets in these districts are seen suitable for professional tea plantation.

It is estimated that approximately 10,000 hectares of land is available for tea cultivation in almost

all hill districts. Ilam district will be saturated with tea cultivation by 2020 provided the National Tea

policy 2000 will be implemented effectively. Most of the districts will still continue plantation beyond

2020. There is also an immediate requirement for three additional factories in Ilam district for



processing of green leaves, which are now being exported to India across the border. Currently

there is lack of sufficient capacity to process the entire production of approximately 40 thousand kg

of green leaves per day in the Ilam area.

Nepal can easily increase its tea production if the markets were available. With the sincere

implementation of Tea Policy 2000 and an active private sector, it is possible to reach the following

production targets (see annex 2 for details):

Total tea production 2020 could be around 54.7 million kg, of which CTC 22.5 million kg and

Orthodox 32.2 million kg. The total area tea cultivation could be 62,800 hectares within the next 15

years.

The figures mentions above are the production front year possibilities; real figures would have to

be harmonized with the markets. If we are not able to market product on a sustained basis with

improvement in the terms of trade, it would be futile to push for the accelerated growth of tea

plantation.

The global demand for high quality tea is estimated to be 45 million kg. Of which, India supplies 10

million kg, China 6 million kg and Sri-Lanka 4 million kg. Nepal only meets a negligible fraction of

this demand. The existing unmet demand for additional 25 million kg in the international market

provides a big scope for tea industry in Nepal. Nepal futuristic vision will be to produce and market

organic tea in the world market and become a recognized brand name.

STRATEGY FOR THE PROMOTION OF NEPALESE TEA

One of the major challenges is establishing firmly, the image/identity of Nepalese tea by pursuing

brand promotion in international market. This entails identifying problems both at home and in the

international market and resolving them in a timely and effective manner. It should be admitted that

Nepal Tea is a little known commodity in the international export market. So far, Nepal has

exported to a few countries and relatively in small quantities. However, there is huge market for

our type tea.

Nepal tea has a promising future if promoted in a systematic and sustained manner. Awareness

campaigns of Nepal tea across tea importing countries and Brand Promotion activities needs to bemade to project and highlight our orthodox and CTC teas. This should be the prime focus of our

marketing strategy. Market access initiative can be achieved through a sustained brand building of

Nepal tea. For this we should engage in the following activities:-



Promotional campaign/advertising to create a symbiotic relationship between producers,

buyers and consumers.

Creation & posting of attractive websites.

Visit of Nepal tea delegation for presentations in select countries such as UK, Germany,

USA, Japan, Australia, Middle East etc.

Promotional kit pack with tea samples for free distribution to tourists visiting Nepal.



CONCLUSION

TRADE OPPORTUNITIES AND FUTURE OF TEA INDUSTRY

The challenge for discussion is the lack of government and private sector R&D in the Nepalese

tea industry.

Specifically, there is limited investment in the identification of new feasible locations for high quality

orthodox and bio-organic tea cultivation; a lack of improvement and development of new plant

varieties; limited market research and analysis to identify new markets and diversify products as

per the demand.

All the factors are pivotal to the long term growth of the organic tea industry in Nepal and its

suitability for exports.

POLICIES & NORMS OF TEA SECTOR OF NEPAL

As indicated in WTO Working Party Report of Nepal, to conduct business in Nepal, companies,

both national and foreign, have to be registered with the Department of Industry (limited liabilitycompanies, including joint venture agencies, sole proprietor and partnerships, business

undertakings for industrial ventures) and at the Department of Commerce (sole proprietor

undertakings and partnership businesses).

Registration procedures differ for private firms and companies. The Private Firm Registration Act,

1956 governs the registration of a private firm, while the registration of a company is governed by

the Company Act, 1997. The registration of enterprises with respect to trade in services is

governed by other laws such as Nepal Agency Act, 1958 and Partnership Act,

NATIONAL TEA POLICY, 2000

Increasing the production of tea qualitatively and quantitatively with increased participation of

the private sector in tea cultivation and encouraging tea cultivators;

Helping in poverty alleviation with increased opportunities of income generation and

employment;

Promoting institutional development for the improvement of the tea sector;



Increasing the opportunities of foreign currency earnings with the increased export of tea

having fulfilled the internal demand; and

Giving emphasis for the development of human resources, technology, study and research

necessary for tea businesses. In Oder to achieve these objectives, the policy also fixed

some quantitative targets:

Expand tea growing area to 40,875 hectares in five years.

FOREIGN INVESTMENT

• Permission will not be granted for foreign investment in the industries specified in

Annexure 5. Rest of the industries a permission is required.

• Foreign investments will be permitted up to 100 percent except the negative list.

• Repatriation of capital & profits is allowed.

• No intervention will be made in fixing prices of the products of any industry.

Documents

Main Report GCR