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
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
was privatized. 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 changes brought 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. 3
2. The Two Types of Tea Industries
(i). 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 in Darjeeling.
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.
Present status in the orthodox industry
Production (Mil. Kg/yr) 1.5
Area / ha 9775
Tea estates 63
Small farmers 18750
Factories 19
Small farmers share in area
(percentage)
77
Small farmers % share in production 67.8
Export as % of total production 96
Source: GTZ & handouts and WinRock
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, almost 70% 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.
(ii) CTC Tea
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.
Present status of the CTC industry
Production / tons 13000 4
Area (ha) 8951
Tea estates and gardens 94
Small farmers 8744
Factories 25
Small farmers % share in area 26.62
Small farmers % share in production 28.6
Export as % of total production 40
Workers 50000
Source: handouts, NTCDB & GTZ
In both type of industries, CTC and Orthodox, the Nepalese tea industry has undergone
large expansion during the last decade and has been an important source of employement.
A Tea Policy came into force in 2000, which prioritized orthodox tea production given its
natural qualitative advantage. INGOs like the GTZ and WinRock are currently supporting
orthodox tea promotion (marketing, branding, code of conduct and technical trainings).
However, the coverage may be inadequate and there is a need for further assistance to
many more farmers. The sector is facing a number of problems with inadequate
infrastructure, excess use of chemicals, low-skilled labor, and a lack of well-planned
strategy for upgrading the production process as well as marketing the finished good.
3. Nepal’s Export Performance in Tea
Until 2003, the volume of tea exported annually from Nepal was around 80-100 tons,
after which the tea sector saw an exponential rise in exports of more than a thousand
percent, largely as a result of liberalization carried out ten years earlier. However, the
value of tea per ton was more or less constant until 2002 when it started to decline. If one
calculates from the figures below, the value per ton in 2002 was $ 4487.5 whereas in
2004 it had declined to only $ 1206 per ton.
Over the last 10 years, Nepal has become increasingly self reliant on tea and import of
CTC has decreased substantially. Initially the import of CTC was meant to cover
domestic demand, but has now has been substituted by domestic production. Compared
to the value of exported tea the value of imported tea has decreased in the beginning of
the 2000, but then recovered in 2004. The value in 2001 was $ 2215/ton, which decreased
to $1165/ton in 2003, but rose to $ 2412/ton in 2004. Therefore, in 2004 Nepal paid more
than twice as much per tons for its imported CTC tea to cover domestic consumption than
it received for its exported CTC surplus production. 5
Nepal's Tea Trade 1994 - 2004
0
1,000
2,000
3,000
4,000
5,000
6,000
1994
1995
1996
1997
1998
19
2000
2001
2002
2003
2004
Year
Import 1000$
Export 1000$
Figure: Total Exports and Imports 1994 – 2004
Source: FAO 2006 (The figures are consistent with those presented at the Tea Board homepage.)
Despite the relatively positive growth figures Nepal’s tea export is still very small and
only makes up 0.2% of the worlds total tea export. And whereas the value of the world’s
total tea export has had a negative growth rate of -1% per year between 1999 and 2003,
Nepalese tea export has grown by 70% per year in value during the same period.
1
According to WTO/UNCTAD’s COMTRADE figures from 2004, Nepal traded 3597
tons of black and green tea, 3481 tons of black (fermented) tea and 116 tons of green tea.
The tables below provide an overview of Nepal’s total tea export in 2004, as reported by
importing countries. The figures however do not show whether the tea is orthodox or
CTC. There is also an inconsistency in data. For example, figures by Nepal Trade
Promotion Center show that Nepal only exported 421 tons of Black tea in 2004/5, which
is far from the 3481 tons illustrated below. Here, we rely on the data submitted by
importing countries in place of what is collected by Nepalese authorities.
1
Source: International Trade Centre6
Importers of
Nepal green tea
(package not
exceeding 3 kg)
Export value in $
1000
Export
Quantity
in tons
Unit
value in $/tons
Export
Growth
In value between
2003-2004
5, p.a.
India 118 100 1,180
Germany 110 9 12,222 36
USA 12 1 12,000 0
Total 240 110 2,182 112
Note the big difference in unit price when sale goes to Germany and to the USA
compared to export to India. The tea exported to EU & USA is most likely to be orthodox
tea whereas the tea sold to India is CTC.
Importers of
Nepali black
tea(package not
exceeding 3 kg)
Export
value
in $
1000
Export
Quantity
in tons
Unit
value in
$/tons
Export
Trend in
value betw
2000-2004
% p.a.
Export
Trend in
quantity
between
2000-2004
% p.a.
Export
Growth
In value
between
2003-2004
5, p.a.
India 2,005 1,769 1,133 127 112 423
Germany 289 41 7,049 110 91 58
Japan 23 2 11,500 24 23 109
Total 2,317 1,812 1,279 117 110 302
The top two importers for Nepali black tea are India and Germany, same as with green
tea. Similarly, per unit value of tea exported is much lower ($1,133) compared to the tea
exported to Germany ($7049) and Japan ($ 11,500).
Importers
of Nepali
black
tea(package
exceeding 3
kg)
Export
value in $
1000
Export
Quantity
in tons
Unit
value in
$/tons
Export
Trend in
value
betwee
‘00-‘04
% p.a.
Export
Trend in
quantity
between
‘00-‘04
% p.a.
Export
Growth
In value
between
‘03-‘04
5, p.a.
India 1,556 1000 1,556 85 74 -27
Pakistan 728 631 1,154 -25
German 163 23 7,087 9 -3 -50
Netherlands 72 13 5,538
Japan 19 1 19,000 -15 -28 5
Total 2,548 1,668 1,527 59 65 -27
Extracted from the tables above Nepalese export went to 7 countries in 2004.
India 2869 tons $1,290/ unit
Pakistan 631 tons $1,154/ unit 7
Germany 77 tons $8,777/ unit
Holland 13 tons $5,538/ unit
Japan 3 tons $15,252/ unit
Belgium 2 tons $5,000/ unit
US 1 ton $12,000/ unit
From the table above, we can infer that the more expensive orthodox tea is being
exported to Europe and the cheaper CTC tea is being exported India and Pakistan. Nepal
clearly receives a much better price for its tea in Europe, Japan and the US than it does on
the Indian market. Nepal could do better by selling its tea to overseas markets, including
Russia who is one of the major importers of CTC. However, one of the problems
mentioned with sales to Europe is that there is a lack of coordinated and planned market
strategy, where all tea is collected and not sold in piece meal. For example, a major
obstacle for Nepalese tea industry identified in the GTZ market analysis was that German
buyers were not interested in buying small portions of tea. Similar problems seem to
occur in the CTC industry when orders come from Russia and US – the demanded
amount cannot be met. Initiatives are being done now by tea grower’s association to try
and collect the tea in big containers in order to fulfill bulky demands.
4. 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 8
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.
.
Total Land Used to Grow Tea
0
2000
4000
6000
8000
10000
12000
14000
16000
94/95
95/96
96/97
97/98
98/99
99/
00/01
01/02
02/03
03/04
Area ha
Figure: 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 grow multiple 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. 9
Tea Plantation Trends
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
94/95
95/96
96/97
97/98
98/99
/00
/01
01/02
02/03
03/04
Year
Area in Hectors
Estates
Small Holders
Figure: Area used for tea production
Trend in Amount of Tea Produced: Corresponding to the growth in the total area used
for 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.
Total Production in Tons
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
94/95
95/96
96/97
97/98
98/
/00
00/01
01/02
02/03
03/04
Year
Tea Estates
Small Holders
Figure: Tea Production by Tea Estates and Small Holders 10
According to WinRock figures, there were 157 tea estates and gardens and almost 27
thousand farmers involved in producing, refining and selling tea. The amount produced
by the tea estates was only marginally greater than the total output from the small
holders. The estates and the tea factories provided employment to as much as 105000
people.
Status of tea sector - 2004
Area / ha 15900
Total Production / tons 14500
Tea estates / area (ownership) 8912
Tea estate production. / tons 7790
Small holders / area (ownership) 6989
Small holders’ production. / tons 4816
Number of small holders 8700
Number of tea estates 85
Number of workers 54000
Number of factories 42
Source: NTCDB, GTZ & handouts
5. Conclusion
Like coffee, tea is a cash crop with steady international demand. With hilly Nepal’s
climate and terrain suitable for premium niche product in the world market, tea has a
potential to benefit large segments of rural population and lift them out of poverty and
stagnation.
Growth in the tea sector in Nepal was spurred by the trade liberalization policies adopted
in early 1990s. Since the end of state monopoly in 1993, numerous tea estates have been
established by industrialists and businessmen. Simultaneously, small farmers have been
attracted to growing tea as the demand and prices for orthodox tea bring higher returns
than traditional crops. As an example, the amount of land used for growing tea has
increased by five times and production has increased by more than 500% compared to the
pre-liberalization figures. More importantly, significant growth in land use and
production both are due to increased participation of small farmers in producing tea. In
numbers, small farmers’ share of the total land used for growing tea more than doubled in
ten years (from 20% in 1994/95 to 41% in 2003/04). Similarly, small farmers’ share in
total production also rose from 5% in 1994/95 to 33% in 2003/04. Furthermore, although
the numbers vary according to their sources, Nepalese tea sector directly employs around
105000 people. The beneficiaries of these employees are many more and are estimated
to be around 420000 persons. These are encouraging figures which suggest an expansive
role of this cash crop is playing in providing Nepalese farmers with alternative to
traditional, low-yield, subsistence farming.
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