Nepali Times
Economic Sense
Tea time


Last week's Tea Meet and Expo showcased the first organised endeavour in Nepal to bring together the different groups involved in the tea trade. This focus on a potential agribusiness is long overdue, and people like Dr Shakya of the Agro Enterprise Centre at the FNCCI helped a great deal in bringing this forum to fruition. It is time for us to examine where Nepal stands vis-?-vis this industry.

Despite favourable climatic conditions and topography, Nepal has not been a big player on the world tea scene. Though the hills adjacent to Darjeeling have the potential to produce the same class of tea, we have not been able to exploit this potential. Last decade saw a spurt in new plantations, especially in the mid-nineties, after a surge in tea prices on account of a world wide fall in production. The herd mentality in Nepal then saw rampant unplanned plantations of tea, and from being a country that hardly met half its consumption needs in the early nineties we are now more than self-sufficient.

If production has increased quantitatively the issue of quality remains as pertinent as ever. Complete disregard for quality and constant price undercutting have rendered this industry one of the more difficult ones to run in Nepal. Retail prices having remained nearly constant over the last eight years, and this will be an interesting aspect to watch in the future.

The industry, plagued by a strong labour-politics nexus, has also seen a surge in manpower costs. Coupled with the increase in prices of other inputs, especially electricity, it has made the viability of many units questionable. Overheads are rising and revenues falling-obvious indicators of an industry in trouble.

It is not the intent, again, to point fingers at the government, but we definitely do not have a long-term policy conducive to the growth of such an industry. This industry has a long gestation period, and certainly has lots of gains on account of economies of scale. Therefore, unplanned mushrooming of plantations may not be the best way of going about this business.

World-wide, tea is a business that is mostly conducted by multinationals operating on a large scale. If Nepal wants to be a world player, there has to be a conducive environment for such players to operate. This could range from having enterprise-friendly labour laws to options on long-term finance. It is useless to harp upon potential (like we often do about our water resources) until we have the right environment for investors.

The demand for tea across the world has not increased much over the years, but supplies certainly have. Improved technology has cut the cost of production and any country wanting to be a major player needs a strong competitive advantage. Sri Lanka, for example, is doing very well in producing quality tea at very competitive prices, and poses a threat to India. Apart from traditional countries that are now doing better, countries like Thailand, Indonesia, Vietnam and even Turkey are experimenting with tea. Competition for Nepal will continue to increase.

One advantage Nepal has is access to the large Indian market, but here again quality is a key issue. Exports to Europe and Japan may have potential but it is important that Nepal creates a niche brand for itself. We have seen with the carpet industry and now with pashmina, that being in the rat race makes us compromise on quality. One can only hope that tea exports don't follow this predictable, depressing route.

Yes, these are times to be euphoric and talk of Nepal's potential to be a tea great, but there are many issues that lie between the cup and the lip.

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(11 JAN 2013 - 17 JAN 2013)