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NEPAL

ADVISORY SERVICES ON EXPORT DEVELOPMENT OF PRIORITY SECTORS OF NEPAL

SECTOR STUDY ON TEA

June - September 2007

MAHINDA WARAKAULLE International Consultant on Tea

RAMESH MUNANKAMI

National Consultant

BASTIAAN BIJL Trade Consultant – Market Information, Market Analysis and Training

Project NEP/A1/01A A project financed by the EU and ITC under the Asia Trust Fund

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While efforts have been made to verify the information contained in this document, the International Trade Centre UNCTAD/WTO cannot accept responsibility for any errors that it may contain. The views expressed in this report can in no way be taken to reflect the official opinion of the European Union, the Trade and Export Promotion Centre and ITC. The usual disclaimers regarding responsibilities apply to this report.

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Preface This sector study is part of the Technical Cooperation Project “Advisory services on export development of priority sectors of Nepal” (NEP/A1/01A). The project is implemented by the International Trade Centre UNCTAD/WTO (ITC) and the Trade and Export Promotion Centre (TEPC), and co-funded by the European Union and ITC through the Asia Trust Fund (ATF). The project is intended to identify products that show good export potential, taking demand and supply side issues into account, and to formulate practical recommendations for the development of Nepal’s most promising exportable products, with a view to develop and diversify Nepal’s export potential. The project consists of two phases. The first phase of the project consisted of a comprehensive Export Potential Assessment, looking into the export potential of 14 non-traditional products. During the second phase the five most promising are studied in more detail, engaging international product specialists. The results of the Export Potential Assessment were presented to representatives of Nepal’s private sector, Government and donor community in February 2007. Following this meeting it was decided to study the following products in more detail during the second phase of the project: large cardamom, pulses, Chyangra cashmere and silk products, floriculture and tea. The present study must be seen in this context. The sector study on Tea was prepared by Mr. Mahinda Warakaulle (International Consultant on Tea), Mr. Ramesh Munankami (National Consultant), who conducted a number of interviews with enterprises concerned in Nepal, and Mr. Bastiaan Bijl (International Trade Data Analyst). The sector study builds on the results of a fact-finding and needs-assessment mission conducted in Nepal in June 2007 (see Annex I for mission programme). During this mission, the ITC Consultant entertained a number of meetings with individual companies, exporters, producers, traders, government officials, and business associations. The main findings and recommendations of the report were consequently presented to - and validated by - key sector stakeholders during a workshop in Kathmandu in August 2007. The authors would like to thank Mr. Koen Oosterom, Office for Asia-Pacific, Latin America & the Caribbean (OAPLAC), ITC, for his support. Lastly, the authors would like to thank all enterprises concerned who kindly answered the ITC questionnaire and key sector stakeholders who engaged in meaningful discussions with the team and volunteered their views and knowledge. For further details on the present study, please contact Mr. Koen Oosterom (email: [email protected]).

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Abbreviations and Acronyms Used ADBN Agriculture Development Bank of Nepal AEC Agro - Enterprise Center ATF Asia Trust Fund CoC Code of Conduct COP Cost of production CTC Cut, tear and curl DOA Department of Agriculture FCL Full container load FNCCI Federation of Nepalese Chamber of Commerce and Industry GL Green leaf HACCP Hazard Analysis and Critical Control Point HIMCOOP Himalayan Tea Producers Cooperative HOTPA Himalayan Orthodox Tea Producers Association ISO International Standards Organization ITC International Trade Centre MOA Ministry of Agriculture MOC Ministry of Commerce MOF Ministry of Finance MOI Ministry of Industries PAC Pakribas Agriculture Centre (Research) PE/PP Polyethylene/polypropylene MRL Maximum residue level NARC Nepal Agriculture Research Council NASAA National Association of Sustainable Agriculture of Australia NPC National Planning Commission NR Nepal rupee NTCDB Nepal Tea and Coffee Development Board NTDC Nepal Tea Development Corporation NTA Nepal Tea Association NTPA Nepal Tea Planters Association SAARC South Asian Association for Regional Cooperation SAFTA South Asian Free Trade Agreement TEPC Trade and Export Promotion Centre Terai Low level land mass SP Selling price

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Table of Contents Preface .................................................................................................................................. iii Abbreviations and Acronyms Used ................................................................................... iv Table of Contents.................................................................................................................. v 1. General Context and Executive Summary........................................................ 7 1.1 Background and Objective ..................................................................................................7 1.2 Coverage of the Study ........................................................................................................8 1.3 Parties involved...................................................................................................................8 1.4 Key Findings: Obstacles and Short Comings .....................................................................8 1.5 Recommendations ............................................................................................................10 2. The tea Industry in Nepal ................................................................................. 16 2.1 The Sector in General .......................................................................................................16 2.2 The global tea market .......................................................................................................18 2.2.1 Overview of world production and trade ...........................................................................18 2.2.2 Trends in world consumption ............................................................................................24 2.3 Export of tea from Nepal ...................................................................................................24 2.3.1 Growth in national tea exports ..........................................................................................24 2.3.2 Export of tea to India .........................................................................................................25 2.3.3 Export of tea to countries other than India ........................................................................26 2.4 Tea production in Nepal ....................................................................................................27 2.4.1 Growth in tea cultivation and production...........................................................................28 2.4.2 Type of tea produced ........................................................................................................29 2.4.3 Yield and Cost of Production (COP) .................................................................................30 2.4.4 Geographical distribution of production ............................................................................31 2.4.5 Crop diversification............................................................................................................31 2.5 Tea development ..............................................................................................................32 2.6 Processing of Tea .............................................................................................................33 2.6.1 Basic household units .......................................................................................................33 2.6.2 CTC processing units:.......................................................................................................34 2.6.3 Orthodox tea factories:......................................................................................................34 2.7 Availability of raw material, price and quality ....................................................................35 2.8 Rules, regulations and standardization in the sector ........................................................38 2.9 Quality and international competitiveness ........................................................................38 2.10 Existing studies, strategies and policy papers in the sector .............................................39 2.11 Socio Economic Impact of the Sector ...............................................................................41 2.12 SWOT Analysis .................................................................................................................43 3. Bilateral, Regional and Multilateral Trade Agreements................................. 44 3.1 Bilateral agreements .........................................................................................................44 3.2 Transit Agreements...........................................................................................................44 3.3 Regional Trade Agreements .............................................................................................44 3.4 Pertinent provisions under the WTO agreements.............................................................45 3.5 Implications of these agreements for the sector in Nepal: ................................................46 4. Obstacles and shortcomings for exports....................................................... 48 4.1 At the Farmers and Company Level .................................................................................48 4.2 The enabling environment, both public and private ..........................................................48 5. Export Services in Nepal.................................................................................. 50

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5.1 The Government Institutional Supports ............................................................................50 5.2 The Private Agencies and NGOs......................................................................................51 6. Recommendations and Action Plan................................................................ 54 6.1 Recommendations for farmers, producers and exporters ................................................54 6.2 Recommendations for the business environment.............................................................57 6.3 Micro-level action plan ......................................................................................................58 6.4 Meso-level action plan ......................................................................................................59 6.5 Macro-level action plan .....................................................................................................60 6.6 Prioritization of action plan – If we have a million ….........................................................61 6.7 Conclusion.........................................................................................................................68 Annex I: Timetable of Meetings and Activities: .....................................................................................69 Annex II: geographical distribution of tea cultivation.............................................................................72 Annex IV: List of contacts in main two potential markets......................................................................75 Annex V: Flow chart ..............................................................................................................................77 Annex VI: Guidelines for good leaf standards and processing.............................................................78 Annex VII: Composition of a typical tea beverage ................................................................................79 Tables Table 2.1 - International trade in tea .....................................................................................................19 Table 2.2 - Production of Tea according by CTC/Orthodox in various countries, 2005 .......................19 Table 2.3 - Major Importers of black tea in bulk....................................................................................21 Table 2.4 - Major Importers of black tea in <3kg packages..................................................................22 Table 2.5 – Pakistan’s Imports of black tea- mainly CTC in bulk, 2003-2006 .....................................23 Table 2.6 - Major Importers of green tea in bulk...................................................................................23 Table 2.7 - Major Importers of green tea in <3kg packages .................................................................24 Table 2.8 - Growth in cultivation and trade of Nepalese tea.................................................................25 Table 2.9: Export and Import of Tea from/to Nepal to India (Q in Kg., Value in ‘000Rs.).....................25 Table 2.10 - Export of Nepal Black and Green to other countries except to India................................27 Table 2.11: Total Tea Production and Tea Plantation Area..................................................................29 Table 2.12 - Type of tea produced 2005/06..........................................................................................29 Table 2.13 - Geographical distribution of production ............................................................................31

1. General Context and Executive Summary 1.1 Background and Objective Nepal is a landlocked country with a highly literate population of 28 million, with land area of 147,181 sq km that stretches 885 km from east to west. It enjoys diverse weather and climatic conditions where the topography ranges from 305 m to 8848 m altitude, about 70% hilly areas having ideal conditions for agriculture development and crop diversification. Administratively, the country is demarcated into 5 development regions, 14 zones and 75 districts whilst ecologically it can be divided into the mountain, hill and lower or Terai regions. Over the years the importance of some agricultural crops such as paddy and jute have declined sharply due to loss of export markets and farmers changing to other cash crop and to tea cultivation which seem to be more remunerative and eco friendly. Currently, Nepal depends heavily on exports of hand woven carpets and ready made garments which bring in nearly 60% of their annual export earnings. With the phasing out of the Multi Fibre Agreement from 1st January 2005 and the decline in export demand for the carpets, the significance of these two major items, which dominated the export sector, is declining and facing increased threats. India is the main trading partner of Nepal and the official figures indicate that 68% of export and 67% of import trade of Nepal is with India. If the unofficial figures are added on, these percentages will be above 80. This dependence makes the economy of Nepal vulnerable. The decline in their rice and jute exports, dependent mainly on this one market caused these two items to lose their importance as a sustainable agriculture commodity bringing in earnings to the rural farmers. Against this background, the Government of Nepal requested the support of the Asia Trust Fund to identify products that show good export potential, taking demand and supply side issues into account, and to formulate practical recommendations for the development of Nepal’s most promising exportable products, with a view to developing and diversifying export business. This study is in the spirit of a quest to diversify and lift Nepal’s exports away from its overdependence on Carpet and Clothing exports. A comprehensive Export Potential Assessment looked into 14 non-traditional product sectors and five sectors were identified as having high potential for further export development. Further in-depth studies were conducted on the five product sectors that included large cardamom, lentils, tea, Pashmina and silk based products, and floriculture products. This document covers the study on Tea. An immediate purpose of the study is to assess the export promotion potential of tea products and to present the findings, conclusions and recommendations at a roundtable meeting of stakeholders that will validate the main findings and endorse a future course of action. The objectives of this study are to identify the priorities for export policies, determine the strategies, recommend practical action programmes and provide guidance to the government, the private sector and the donor agencies for the export development and promotion of tea from Nepal.

1.2 Coverage of the Study The study on tea focuses on supply side issues, backward and forward linkages, buyer requirements, trade data, obstacles and shortcomings for export, export support services, implications of regional and multilateral agreements and the recommendations with action plan. The coverage of the study includes:

- Overview of the sector and opportunities - Key obstacles and shortcomings for export - Consequences of multilateral, regional and bilateral trade agreements on the

sector - Export Services in Nepal of interest to the sector - Action Plan for further development of the sector. - Wise spending on recommendations for future projects – “If we had a

million....”

1.3 Parties involved The major parties involved in the study are the Government of Nepal, the European Union, the International Trade Centre UNCTAD/WTO, and the Trade and Export Promotion Centre (TEPC). The other responsible supporting agencies for the programme or project implementation are the Ministry of Industries, Commerce and Supplies, Ministry of Agriculture and Cooperative, Department of Agriculture, Nepal Agriculture Research Council, Nepal Tea and Coffee Board (NTCDB), Agro-Enterprise Centre of Federation of Nepalese Chambers of Commerce and Industries (FNCCI), Local Chamber of Commerce and Industry, Bilateral and Multilateral Donor Agencies, Himalayan Orthodox Tea Producers Association (HOTPA), the Nepal Tea Planters Association (NTPA), the Nepal Tea Association (NTA), Himalayan Tea Producers Cooperative (HIMCOOP). 1.4 Key Findings: Obstacles and Short Comings This report highlights the current obstacles and shortcomings in production, processing and marketing, focusing on the areas that need be improved so that Nepal tea can gain a firm foothold in the international tea market both for quality and supplies. Shortcomings for Exports: Shortcomings or gaps for export are the factors missing – and which could facilitate existing and potential export.

a) The past efforts of all stakeholders have helped increase the production of green leaf at small farmers, cooperatives and tea estates. But the processing capacity has not developed to cope with the increased production of green leaf. As a result, Nepal’s tea sector is selling raw materials to Indian factory instead of value adding in the country and exporting the finished tea. Additional processing facilities will thus help increase Nepal’s tea export. On the other hand, the recent restriction imposed by India in the imports of green leaf from Nepal has raised a serious fear among the farmers, specially the small farmers, which may be detrimental to this sector.

b) Certifications and test reports on the products from accredited laboratories/ authorities are not available.

c) Accredited and equipped laboratory not available to test and analysis of samples for exports. Many buyers and countries require test reports on residue level, heavy metal, radiation clearances with each consignment. Orders are held up for long periods till the results are released from laboratories overseas.

d) Insufficient product diversification to interest buyers of speciality range of teas into niche markets.

e) No brand image still built to make global buyers aware of Nepal tea and their quality.

f) Only small parcels of lots are available to be offered out. No blending or mixing facilities available to cater to the demands of buyers who require bigger consignments. Inconsistent quality and non-uniformity of products with no supportive certificates causing difficulties to make good blend mixes.

g) No central marketing facility, such as an auction market to attract sellers and buyers to one location.

h) Lack of human resources and professionally qualified and experienced personnel to promote tea sector. And there is no institutional setup that generates such human resources in the country.

i) No market information system available to give guidance to exporters on current trends, price movements in other auction centres, changes in consumption habits, etc

j) Facilities to add value to the basic product are not available. This has been due to the overdependence on Indian exporters and marketers performing this function using blend mixes of both origins with Nepal tea “lost” in their identity.

k) No research facilities of tea including for promotional and marketing linked with research, which will help in developing new products suitable for changing market demand.

Obstacles for Exports Obstacles or bottlenecks to export are the existing factors reducing or delaying or otherwise disturbing existing and potential export.

a) Cost of inputs and mainly electricity with interruptions to supply, affect quality, increase the cost of processing and the exportable item becomes too pricey. The State’s supply of electricity to essential business houses such as tea factories should be made available on an uninterrupted and continues basis. The machine downtime and effect to quality of product can be at high cost.

b) Bank loans are difficult to obtain and interest rates are high. Export prices can be higher by 1-2 USCts per kg, which is sometimes the difference between a contract or refusal mainly to the bottom level of tea.

c) Packing material such as plywood chests/paper sacks, all imported, and used for packing tea for export to India and other destinations are not eligible to a duty rebate. This duty of 10—15%, if waived, will make the product more competitive.

d) Export trade is not supported by the Government. Exporters are levied a VAT payment of 13% which although refundable is very difficult to get back. Thus

finances are scarce and export cost pricing calculations has to include such costs

e) Exporters unable to deliver as per standard accepted by buyers resulting in loss of credibility of Nepal trade.

f) Although bilateral and multilateral trade agreements have been entered into with various Governments, no real benefits have still accrued to Nepal except with Pakistan.

g) Delays and hold ups at Indian seaport and in transit effecting delivery times.

h) Route via India to the Bangladesh seaport of Chittagong should be developed to overcome delays, and facilitate shipments to Pakistan, Poland and elsewhere.

i) Policies in India affecting consignments to some buyer countries.

j) Tea policy and NTCDB are conceptually well established but are ineffective. These should either be abolished or made seriously effective. The government’s commitment should be clear and transparent.

k) Little Government support for active participation in international trade fairs to showcase Nepal tea.

1.5 Recommendations Recommendations for farmers, producers and exporters

a) Infrastructure: Green leaf farmers are located in areas, which have poor infrastructure. Although they are able to produce the leaf in quantities, transport is affected by using methods, which are unsatisfactory such as on animal back, bicycles, causing damage to the leaf in transit. The bags used for plucking are also not the current recommended types which have now been designed to keep the leaf intact as well as allowing it to “breathe’ without causing fermentation before it arrives at the factory premises. Access to the farmer’s premises quickly and in vehicles that are suitable should be made available to the providers of ancillary services. Recommend the import of commercial vehicles suitable to the industry on duty free basis.

b) In opening of new land, good agricultural practices must be strictly followed

to ensure minimum damage to soil and environment. Thus soil erosion and leaching can be minimized whilst organic population can be preserved. The physical properties of soil such as density, porosity, and moisture retention must be well addressed to minimize adverse effects of weather.

c) In order to tap into new markets, it is important to look into product

diversification, taking into account the trends in volume of imports by target countries and their preferences in taste and tea grades.

d) Tools and Implements: As the NTCDB has in their program a scheme to

supply tools and implements at subsidized costs the new type of plucking bag should be imported free of duty and made available at reduced cost so that the leaf quality can be preserved.

e) Quality Controls: Whilst the farmers should ensure that their pluckers are

following the practice of selective plucking, the factories should be very strict

in their controls of leaf intake to reject all unsuitable and damaged leaf at factory door.

f) Political Interference: Government should support the factories to run their

business in the best practical manner to achieve quality products without allowing labour or outside influences to dictate terms to factory staff on good management practices.

g) Agricultural Inputs: Tea extension staff and the individual farmers must be

more vigilant regarding the indiscriminate use of chemicals and pesticides. Although it is a difficult task, the state machinery should be used effectively to patrol the borders so that import of inferior quality inputs not only to the tea industry but agricultural crops in totality is protected by not allowing substandard and banned cheap products.

h) Health Hazards: Some factories and packaging plants are unsuitable for tea

processing and are a health hazard. A scheme must be evolved by the NTCDB to register all tea farmers, processors, however small their operation. Regular inspections of their premises should be undertaken so that inferior, substandard and polluted products are not put out into either export or domestic market.

i) Certifications: As far as possible most medium and large export oriented

factories should be encouraged and assisted to obtain the ISO/HACCP certifications as a strategy for future marketing.

j) Packaging Material: All packaging material is imported either from India or

Sri Lanka through Indian traders. The industry is at present too small for any commercially viable enterprises to produce the needs of the industry only. Hence there will have to be continuation of imports for export packaging for the time being. With bilateral trade agreements, such as with Sri Lanka and multilateral agreement with SAFTA under SAARC countries already in force, opportunities should be created to import packaging items directly on a duty free basis .eg multi-wall and rigid type aluminium foil lined kraft paper sacks from Sri Lanka.

k) The traditional plywood chests, which were discarded from use some time

ago, are still being used for exports into India. These items are imported and re-exported. Duty concessions should be available for such transactions. As it is not an environmentally friendly form of packaging material, its use should be discouraged and the use of rigid paper sack should be promoted.

l) The made tea is packed into PE/PP bags and are stored till they are ready for

use. This form of packaging, particularly in the Terai areas where temperatures and humidity can be very high will speed up the deterioration of the product. In such instances dispatch of the made, packed and ready product to more suitable storage facilities should be done without delays.

m) The same applies to the export cargo, which is held up in covered trucks for

many days in transit to Kolkata port in open storage areas. Whilst some instances can be beyond the control of Nepal, it is always prudent to develop an efficient system for clearance of cargo with minimum delays being incurred. Improvement and minimizing documentation requirements is one method of reducing down time.

n) Quality of Product: Above recommendations, if carried out, should ensure a product of better quality than what is presently available which would be the ultimate goal of the producer and processor and the tea industry as a whole. Further enhancement to quality can be achieved if the manufacturing practices are adjusted to different times of the season to make optimum use of the leaf quality and their inherent characters to bring out the maximum natural flavour, aroma and strength.

o) Test Reports: There are no laboratories or survey companies capable of

conducting tests and analyses on residue levels, heavy metal presence, fungal infestation and issuing reports that are required by the larger section of international trade today. This is a big disadvantage, as samples of teas awaiting export have to be sent to laboratories in India and Germany for such tests to be performed. There have been many instances where such samples have been found to be contaminated and thus orders having to be cancelled. Once the consignment is rejected, there is no “home” for it. Therefore the need to have a well equipped laboratory in Nepal. However there are limitations in setting up a laboratory by a private enterprise as well as any international survey company due to the volume of business being commercially unattractive. The alternative would be to strengthen the existing Government Food Testing Laboratory with a mandate to do commercial testing of export samples of all agricultural products to become a profit center whilst at the same time to devote a part of the time to conducting research and development.

p) Information System: There seem to be a total lack of information gathering

in the industry with little or no active attempt to collect, analyse and distribute the information to the stakeholders. The Agro Enterprise Center of FNCCI puts out some information but this is insufficient when market information and current developments are the essential information that an exporter requires. A website is to be developed by the NTCDB which is an excellent concept and all stakeholders should be involved in it’s design as the information required by each different sector is different and it takes time to get an information system designed with a professional planner. This must include as much as possible, information on world markets, speciality market segments, demand patterns, new concepts in tea consumption and a whole array of inter-related subjects from which the interested visitor can drawn on. The trade attachés in all the embassies overseas must be used as a constant source of information gathering and updating. A full list of buyers of all types of tea in every consuming country must be incorporated into the database so that they can be accessed. Furthermore the information of the individual export companies in Nepal with the types of tea they can offer showing the leaf appearance and cup quality in the form of photographs can be included in the website, for an annual fee, so that the exercise becomes a viable proposition for the NTCDB.

q) Export Marketing: The tea industry in Nepal is small. The volume exported

currently is around 0.23% and production is 0.32%, out of the total global output. (ITC statistics). With this small quantity entering the world market, it is difficult to build up a brand image unless with personal contacts and constant interaction. Furthermore any promotional and advertising would be at a prohibitive cost. Therefore it is more prudent to work with marketing and distributing companies who are experienced in handling food items and specifically beverages and tea. As the orthodox tea is considered a special product, it would also be more beneficial to work with the Speciality Tea

Associations and such bodies established in a number of countries. HOTPA/HIMCOP are already working closely with the American Speciality Tea Association and are developing the product within the parameters set down by them to facilitate entry to their market segments. In every country, there are tea buyers who supply the cafes that serve special blends and varieties of beverages including tea and these buyers must be contacted by participating in trade fairs where special teas are exhibited and their business solicited. Negotiate with international brand owners and get into JV partnerships with them to supply and ensure Nepal teas are included in these branded products.

r) Two marketing entities have been formed in the orthodox and CTC sectors to

do the marketing function under the names of PLANTEA and HIMCOOP. Merging them to form one marketing company or association with a board representative of stakeholders in both sectors for the improvement of market share in the global market for Nepal tea in totality needs to be seriously considered.This company to undertake the promotional and market intelligence work, market planning forecasts, future trends, market information and international statistics. It should be the driving force to establish the Nepal Tea logo and brand in the global market. The company must monitor the quality available for export through the respective associations. This private company composed of senior and experienced persons should direct the affairs but also ensure that the interests of all parties are met fairly.

s) It is also necessary that the seedling and clones developed in Nepal be

protected. Nepal must strive and develop Geographical Indicators, mainly for the orthodox tea areas, similar to Darjeerling in India and Dimbula/Nuwara Eliya in Sri Lanka so that branding and marketing such produce can be done. The production and processing and the quality of the final product in such clearly defined and identified areas has to be closely studied and special features associated with them classified to use them as a marketing tool.

t) Research and Training: Like all other areas of the industry this too lags

behind. Research has been generally neglected. Due to the vicinity of India and easy access, progress at field level and development of new plant varieties, usage of inputs, and technology have all been directly or indirectly brought into Nepal. All the machinery is of Indian origin except those in the older factories some of which are from UK. Therefore the tea produced/processed bear a very close similarity to the Indian Darjeerlings and CTC’s.

Any potential research instincts have been suppressed to the extent that innovation in the industry or changes in the style of manufacture, or applying subtle changes to the methods of manufacture, have not been introduced. It is very necessary to establish a Research station, which is specific to tea with all the relevant divisions of an agricultural based commodity in place to look into agronomy, physiology, pathology, bio-chemistry, manufacture, extension, training, information and now the important aspect of marketing to look into new product developments with global consumers in mind.

There is a need to establish a tea training centre or tea school to develop human resources required for the tea sector.

Recommendations for the business environment

a) Business Environment and Export Services: With the privatization of the tea industry, the Government controls were gradually removed in the operations of the large tea gardens and factories, which they controlled. However, contributions in certain areas, which are essential in giving directions to the industry, have also lost their significance, which is detrimental. The NTCDB, which still remains under Government control and is responsible for giving direction and guidance is lacking in performing their duties. On paper the program is well thought out looking into all aspects to solve the shortcomings. However the main positions on the Board must be with the now important private sector, who’s task is to drive the industry forward. The composition of the present Board is not fully and really representative of all stakeholders. Hence there is lack of purpose and direction and almost all the programs, which are outlined on paper for the betterment of the industry, still remain largely unattended. Financial constraints seem to affect even the extension and training programs which have been severely hampered and farmers are left to seek advise from their Indian counterparts for almost all their inputs both advisory, technologically and guidance on application of agri-inputs. Immediate revamping of the direction in which the NTCDB should focus and methods to obtain financial assistance from the Government must be treated as priority. The industry must be willing to contribute their share to the common cause, as it has been handed over to them to develop the industry. Therefore it is essential that their attitude towards the Government authorities and statutory bodies change and work in a combined manner in a cohesive way so that all stakeholders become willing partners to get moving forward. It is also essential that a scheme should be drawn to bring in finances by way of a Cess payment, membership payment, contribution towards advertising and promotion etc from the now private industry to swell the coffers of the NTCDB for their use in extension, expansion, research, training, information and marketing which can be developed to benefit all.

The environment is also not conducive to conduct business in a smooth way due to political interference and disruptions to normal work at field, factory and city levels, interruptions to supply of essentials, high costs, tax levies, import duty on necessary inputs which need to addressed by the Government and some changes introduced if the industry is to move forward. Export services at present are lacking and this aspect too has to be drastically improved not only on the state side but also with the private sector’s participation.

b) Export Financing: There is only one international bank, the State Bank of

India, operating in Nepal. There are a few Banks with foreign collaboration established such as Standard Chartered Bank, Himalayan Bank, Nepal Bangladesh Bank, Nabil Bank, Nepal Investment Bank. Many local banks are operating, some specific to one sector like the Agriculture Development Bank, whilst others such as Nepal Bank Limited, Rastriya Banjiya bank, Machhapuchera Bank, Kumari Bank, Lakshmi Bank, Everest Bank, NIC Bank, Bank of Kathmandu, Nepal Commercial and Credit Bank. Although these banks are able to handle export financing and documentation, they do not have the network of correspondents overseas to facilitate transaction, which hinders the smooth transactions in banking matters. There are no financial facilities available to exporters at favourable rates. There are no incentive schemes for the development of exports, such as pre-shipment finance. There is also no

Export Credit Insurance scheme available to safeguard exporters in the event of default from overseas buyers which is now a grim reality. Factoring opportunities are not available. The Government has to look at opening up opportunities for more foreign participation not only in the fields of finance and banking but also joint venture partnerships and land ownership by foreigners.

c) Route via India to the Bangladesh seaport of Chittagong should be developed

to overcome delays, and facilitate shipments to Pakistan and Poland.

2. The tea Industry in Nepal 2.1 The Sector in General The tea industry began in 1863 in the Himalayan area with the first factory for processing built in the district of Ilam in 1878. Although tea was known as a commercially viable crop, it was not until 1982 that it’s significance as an export earner was identified by the government with the designation of eastern districts (Jhapa, Ilam, Panchthar, Terhathum and Dhankuta) of Nepal as tea zones. From then onwards, the Government provided assistance to the tea growers and processor in a modest way for its development. The industry began to be more organized and recognized as a potentially significant sector with the government promoting the establishment of the Nepal Tea and Coffee Development Board Act in 1993 and setting up of the Tea Board. A National Tea Policy was introduced in year 2000 to support the growth of the sector. The Government divested their holdings so that the private sector would become the engine of growth for the industry envisaging that tea would be one of the major crops for poverty reduction in the rural and Hill areas and become a significant export earner. Against this background, there has been a significant increase of export in quantity and value of tea over the past years. Nonetheless, tea constitutes only 0.5% to the total export earnings of Nepal commodities at present. Due to the varied weather conditions and soil composition, tea is grown in two areas, under significantly different agro-climatic regions, in the Terai and the hills. It is a seasonal crop with no harvesting in the cold period. The first flush leaf comes out in May/June and followed by the second flush. The rainy period starts in July and more weathery teas are processed at this time, which are lower in quality. Again in August/September, the leaf improves with good sunshine and dry winds to give the Autumnal teas with better quality. This quality differences are more pronounced in the orthodox teas. Nepalese tea plantations, benefiting from diverse agro-climatic conditions, have comparatively young bushes with 29% of smallholder farmers owning bushes less than 5 years old. The bushes are grown both from clones and seed stock varieties and should enable the producers to capitalize on these natural conditions to increase, diversify product range, and improve on quality with proper application of new developments using modern technology. However, because of individual or separate interests and insufficient willingness to work together in a cohesive manner to achieve a common goal, these aspects have not been addressed by the vast array of authorities, organizations, associations and local bodies involved in the tea business. There appears to be a lack of committed focus and outlook for the betterment of the industry as a whole. A large number of small holder farmers are engaged in growing tea in both areas and they now account for 26.5% whilst the bigger estates produce 73.5% of CTC tea. Over 30,000 people are directly involved in the industry with a large percentage being rural women. Therefore this industry has the potential to empower rural women through poverty alleviation and has become the focus of attention of many international organizations and many NGO’s. The tea produced in the Terai region originates predominantly from clone bushes, which are very similar to those of the Indian Siliguri region, and producing similar

CTC type of tea. They reportedly produce around 12 m kgs per annum in 23 factories, using Indian lines of machinery. Although data available in general, seem to be inaccurate, a guesstimate is that around 20m kgs of green leaf goes to Indian factories across the border. Orthodox tea grown in the hill regions mainly from seedling varieties is very close to the Indian Darjeerling type, the processing too, being similar. With tea growing areas very close to each other, across the borders of the two countries, the plant material used come from the same mother bushes and clones. As the machinery used for processing being the same supplied by Indian manufacturers, the final product range of Orthodox tea is same/similar. Over 90% of the produce is exported to India officially/unofficially whilst the small balance find their way to international speciality tea markets in small parcels at attractive prices. A guesstimate, based on available data indicates that approximately 17- 20 m kgs of green leaf from the hill areas find it’s way to Indian factories in the Darjeerling area. Reliability of data It should be noted that accurate data is not available, in-spite of there being many authorities, institutions, associations, cooperative units, farmer groups, NGO’s and INGO’s working in the sector. There seem to be a lack of a cohesive working environment being followed and implemented so that a united national development effort is lacking. There is a large volume of trade in many countries across the borders, a fairly high percentage of which is done unofficially or smuggled. Tea is one item, which is traded heavily in this manner. These porous borders are a haven for unofficial business in tea. Large quantities of tea, produced in countries such as China, India, Bangladesh, Iran, Turkey, Nepal and many other countries remain therefore unaccounted for. Most of this trade goes unchecked and cannot be quantified, although most governments in these countries accept it and even encourage it. It must be noted that the per capita consumption in the Asia producer region, which is normally high, particularly in China, India, Vietnam and their neighbouring countries cannot be correctly calculated and even guesstimates may not be accurate. This is due to the rapid expansion in land area and increased production, a high amount at cottage level, all of which are not monitored and recorded. Most of produce in border areas enters neighbouring countries via unofficial channels. Therefore customs data in these countries are inaccurate. This situation is spread even to the CIS states, Afghanistan, Pakistan, Iran, as cross border trade and smuggling is common. As no one source is able to provide a comprehensive picture, different data sources are used in this report to present production and export figures, i.e. National Tea and Coffee Development Board, TEPC, Department of Customs and ITC databases. Differences in methods of measuring and recording data (official and unofficial), assumptions used, classifications, etc. lead to some pertinent discrepancies. These figures must therefore be treated with care. However, the data is not contradictory in supporting the main message of the report, the main findings, obstacles and recommendations for future action.

Box 1: Comparison of Orthodox and CTC Tea

Orthodox Tea CTC (Cut, Tear and Curl) Tea Leaf Mainly leaf from seedling plants, China JAT (type) is preferred.

Leaf from VP plants. Assam JAT is preferred

Seedling leaf has less moisture, more leathery appearance and has more concentration of flavour compounds (amino acids) which can be enhanced with environmental conditions.

More moisture or juicy, less leathery and environment does not assist in enhancing the concentrates.

In the withering process of green leaf, , the moisture content has to be reduced to 40-45% by using hot air for 12-16 hrs

Withering is done to reduce moisture to 65-70% using normal air for a shorter period of time.

Processing Processing broken up to 4 main stages of withering, rolling in 4-5 rolls, fermentation and drying (firing). The leaf is rolled to process whole leaf, semi leaf size and a lesser percentage of small leaf. There are about 10-12 grades based on leaf size.

The process is continuous. The leaf is broken into small particle sizes using a rotovane (similar mincing machine), and sent though the CTC machine to make the small sized leaf shotty. It then goes through the fermenting bed and into the drier. There are no big leaf grades in this method of processing. Only 3 grades.

Liquor properties Leaf black in appearance. Has more flavour, aroma and quality, less bright infusion, not very strong and coloury but brisk and bright in cup.

Leaf brown in appearance. Very strong liquor, with darker colour and bright infusion. Less quality, flavour and aroma.

Suitable for traditional brewing but small leaf grades are used in the quality conscious and high end teabag markets

Suitable for teabags but also used in the traditional manner of brewing in certain countries which prefer a very strong liquors.

Marketed as loose tea in packets, tins as well as the now developing pyramid bags.

Mainly marketed as the single or double chambered 2g teabags servicing the middle segment of the global market

Popular in the Middle East and high end developed markets

Quick brewing convenience item very popular in the developed markets.

2.2 The global tea market 2.2.1 Overview of world production and trade In the year 2005 International Tea Committee bulletin, published the following figures, expressed in thousand metric tons, extracted from available data collected.

Table 2.1 - International trade in tea Year Production in

35 countries Retention at

Origin Imports Global

Consumption 2005 3,420 1,869 1,446 3,315 Source: International Tea Committee Statistics Yearbook It must be noted that above figures, usually obtained from official channels do not present the correct picture as data available from China, Vietnam and a few other countries of origin do not reflect the actual situation. From above data, the origin countries retain nearly 100m kgs additional, from their increased production, for growing domestic consumption annually. Calculated figures based on per capita consumption, indicates an annual increase of around 1.5%, which is about 21,000 MT. However it must be noted that in the Middle East, and Near East, tea consumption is very high and increasing at 3.5% or higher whilst in the highly populated Asia it would similar. The production figures indicate a rate of expansion and growth at 3.29% per annum, which will reflect an official increase of 110,000 MT. The increased quantity retained in all producer countries is calculated at 94,000 MT annually thus indicating a figure of 5,000MT shortfall from the calculated 21,000 MT to supply the world non-producing consumer markets only. It can be safely assumed that there would be an annual shortfall in production to meet the demand much more than the data indicates of 5,000MT. The current world export is 1,563,199 million kgs (incl. re-exports) produced in 12 Asian, 13 East African, 4 South American countries together with some smaller producers (COMTRADE). From a global perspective Nepal is still one of the smallest players representing two tenths of a percent of global production. Also as a producer of orthodox tea Nepal is a small player. Table 2.2 shows world tea producers broken down into CTC and orthodox teas. As can be seen from the table, orthodox production is in smaller volume, especially in Africa, but the opposite in the case of producers like Turkey, Indonesia, Sri Lanka and Vietnam. Table 2.2 - Production of Tea according by CTC/Orthodox in various countries, 2005 CTC Orthodox India 833 88 Bangladesh 57 2 Sri Lanka 16 298 Indonesia 12 113 China - 48 Taiwan - 1 Iran - 25 Malaysia - 3 Myanmar - 18 Nepal 7 1 Turkey - 135 Vietnam 8 62 Africa 475 16 CIS countries - 17 S.America - 83 PNG 7 - Total 1,415 910

*Includes Estimates, excludes other teas Source: International Tea Committee Statistics Yearbook

The production quantities in each major producing country is closely monitored by international buyers, particularly now due to the very advanced communications systems. Decline in quantity or damage to crop, political upheavals, change in import and export regulations that may disrupt normal supplies can cause price fluctuations.. Although it would be difficult to list all big buyers in most consuming countries there are some like Unilever/Lipton who have become worldwide marketers of tea with others like Lyons-Tetley, Nestle, Douwe Egberts and a few other brands which are also marketed worldwide although not as widely. The bigger international buyers usually wish to base their purchases on “just in time” deliveries at their doorstep to reduce financial costs and also buy large consignments. Nepal tea industry does not have the facilities to offer such large consignment as a central warehousing and blending complex is not available. On both counts Nepal is at a distinct disadvantage. Annex V presents a typical flowchart that described the consecutive steps involved in growing, processing and exporting of tea. Table 2.3, 2.4, show the main world importers of black tea in bulk (mostly CTC), black tea in <3kg packs (orthodox and CTC tea) pre-packed and retail packed, and green tea respectively. As orthodox tea is of higher value, it can be assumed that the countries showing highest unit value imports in table 2.4 have a preference for orthodox teas. Norway and Finland especially stand out in this context and to lesser but not insignificant extent, Italy and Canada. Germany is an important buyer of Nepalese orthodox tea, and paid an average CIF value of 19,000 US$/ton in for its imports from Nepal. The German market is also showing steady growth, averaging 12% in value over the last 5 years and paying increasing prices as growth in value exceeds growth in quantity over this period. Pakistan is an important buyer of CTC tea from Nepal and is in fact the world’s second largest buyer of bulk packed black tea. As table 2.5 shows, Pakistan’s imports in 2006 were up from 2003 and mainly in value. Pakistan buys most of its tea from Kenya/other East African producers meeting 61% of it’s import requirements in 2006. In 2005 Pakistan’s imports peaked significantly higher than other years, East African producers, mainly Kenya met this supply requirement with 72% market share in the same year. Pakistan is clearly an attractive market for Nepalese CTC exports and Nepal also enjoys a 10% tariff advantage under SAPTA over Kenya. Strong growth in imports of black tea in bulk is occurring in Middle East, in countries such as Iran, Saudi Arabia, Syria, UAE, Egypt and Jordan (likely to be importing on Iraq’s behalf) and CIS countries like Ukraine and Kazakhstan.

Table 2.3 - Major Importers of black tea in bulk

Importers

Imported Value US$ thousand

Imported Quantity

(MT) Unit value (US$/unit)

Av. Growth

Value p.a. 2001-2005

(%)

Av. Growth

p.a. Quantity

2001-2005 (%)

World estimation 1,809,369 1,022,965 1,769 4 1

UK 243,439 144,551 1,684 -2 -2

Pakistan 227,800 137,600 1,656

Russian Federation 166,151 128,684 1,291 13 8

USA 124,967 75,350 1,658 1 -1

Japan 98,271 31,430 3,127 -4 -4

UAE * 94,920 39,962 2,375 5 2

Iran 87,423 33,914 2,578 92

Germany * 78,467 28,775 2,727 2 -2

Saudi Arabia 57,534 16,916 3,401 31 27

Kenya * 43,002 51,962 828 11 15

Syria * 41,507 19,241 2,157 0 0

Ukraine 37,884 15,896 2,383 40 15

Kazakhstan * 36,161 20,147 1,795 23 19

Sudan 35,145 17,684 1,987 4 -14

Netherlands* 34,852 23,193 1,503 7 5

Poland * 34,556 25,649 1,347 2 -2

South Africa 22,742 19,307 1,178 10 5

Chile 20,521 17,636 1,164 2

India 19,828 15,223 1,303 18 16

Canada 19,485 8,606 2,264 5 1

Jordan 18,262 4,632 3,943 153 114

Ireland 16,796 8,454 1,987 -3 -3

Iraq 16,701 7,916 2,110 -18 -25

Hong Kong 16,640 7,429 2,240 -7 -5

Malaysia 14,648 12,882 1,137 20 10 Source: ITC calculations based on COMTRADE * Re-export figures included

Table 2.4 - Major Importers of black tea in <3kg packages

Importers


Imported Quantity


Av. Growth

Value p.a. 2001-2005

(%)

Av. Growth

p.a. Quantity

2001-2005 (%)

World estimation 1,021,863 243,180 4,202 5 -4 Russian Federation 122349 38,206 3,202 7 -10

Saudi Arabia 70228 8,713 8,060 -7 -8

Canada 68588 6,309 10,871 9 -6

UAE * 63,028 26,670 2,363 4 6

USA 56663 10,565 5,363 19 19

France 56,661 5,719 9,908 8 -5

Australia 56552 10,231 5,528 16 14

Japan 42919 4,744 9,047 0 4

Italy 29,084 2,658 10,942 9 6

Sweden 25,210 2,747 9,177 8 -1

Syria * 23,369 8,526 2,741 12 7

United Kingdom 21,588 6,371 3,388 8 -3

Poland 20,872 3,765 5,544 9 2

Libya 20,614 10,643 1,937 -22 1

Ukraine 17,494 3,694 4,736 -11 -26

Iraq 17,269 11,234 1,537 12 9

Netherlands 16,723 4,088 4,091 7 -6

Kenya 16,225 13,437 1,207 -2 -7

New Zealand 13793 2,767 4,985 11 13

Germany 13,539 3,797 3,566 12 11

Belarus 12927 2,544 5,081 42 26

Belgium 12,729 1,854 6,866 6 8

Norway 11,659 868 13,432 7 2

Denmark 11,269 1,181 9,542 7 6

Finland 11,070 846 13,085 3 -5 Source: ITC calculations based on COMTRADE * Re-export figures included

Table 2.5 – Pakistan’s Imports of black tea- mainly CTC in bulk, 2003-2006

Value 2006 US$

thousand

Quantity 2006 (MT)

Value 2005 US$

thousand

Quantity 2005 (MT)

Value 2004 US$

thousand

Quantity 2004 (MT)

Value 2003 US$

thousand

Quantity 2003 (MT)

World 221,008 115,419 227,800 137,600 200,843 118,634 190,567 114,576

Kenya 138,431 65,458 164,442 91,497 139,565 75,862 134,277 72,646

India 18,211 13,191 9,365 8,487 4,050 3,977 6,687 6,276

Indonesia 14,704 8,941 12,645 9,199 12,322 9,435 10,612 8,578

Sri Lanka 8,136 3,504 7,035 3,261 6,177 2,813 6,182 2,941

Rwanda 7,991 4,050 6,227 3,469 5,042 2,672 831 462

Viet Nam 5,315 4,067 1,727 1,476 3,207 2,710 3,283 3,265

Bangladesh 5,207 3,748 9,118 6,777 11,952 9,337 12,257 9,570

Burundi 5,163 2,484 2,559 1,721 3,568 2,178 822 445

Tanzania 4,071 1,957 2,897 1,910 5,451 3,086 5,485 3,077

Uganda 3,446 1,743 3,302 2,101 1,222 767 40 23

Malawi 2,663 1,467 1,542 1,081 1,441 991 1,492 1,117

Nepal 1,398 806 1,013 685 728 631 969 819Source: COMTRADE Table 2.6 and 2.7 show the world’s major importers of green tea. Traditional markets are in North Africa and France’s North African population, but the importance of United States, Canada, Russian Federation and West Africa cannot be ignored. Growth and upward pressure on prices can be seen in both bulk and non-bulk global imports. Very rapid growth in Ghana cannot go unnoticed. Table 2.6 - Major Importers of green tea in bulk

Importers

Imported Value US$

thousand

Imported Quantity

(MT)

Unit value

(US$/unit)

Av. Growth Value p.a.

2001-05 (%)

Av. Growth

p.a. Quantity 2001-05

(%)

% of World

Imports World estimation 263,241 141,232 1,864 10 3 100 USA 41728 11,325 3,685 27 8 16

Japan 36987 14,136 2,617 -1 -2 14

Germany 26,886 9,460 2,842 20 19 10

Morocco 12,355 9,392 1,315 -5 -7 5

France 10,918 2,134 5,116 20 9 4

Russian Federation 9,518 7,901 1,205 34 28 4

Mauritania 8,316 3,767 2,208 22 4 3

Uzbekistan 7,092 12,283 577 0 -7 3

Senegal 6,372 5,900 1,080 -8 3 2

Algeria 6,287 3,238 1,942 7 0 2 Source: ITC calculations based on COMTRADE

Table 2.7 - Major Importers of green tea in <3kg packages

Importers


Imported Quantity


Av. Growth Value p.a.

2001-05 (%)

Av. Growth

p.a. Quantity 2001-05

(%)

% of World

Imports

World estimation 318,770 120,427 2,647 21 11 100 Morocco 70,821 40,394 1,753 18 8 22

France 29,296 5,402 5,423 15 1 9

Ghana 23,018 11,326 2,032 134 120 7

USA 20,217 2,822 7,164 19 14 6

Canada 19,536 3,196 6,113 41 9 6

Russian Federation 15,057 4,786 3,146 54 23 5

Algeria 14,833 8,163 1,817 19 13 5

Mauritania 9,836 4,848 2,029 70 60 3

Libya 8,245 5,884 1,401 33 3

Belgium 7,345 1,705 4,308 12 38 2 Source: ITC calculations based on COMTRADE 2.2.2 Trends in world consumption The world market has developed 3 distinct preferences in which to enjoy the favourite cup of tea.

a) Teabags mainly in the developed countries and for convenience. b) Orthodox tea sometimes whole and semi leaf tea which gives a light brew c) Green tea which has a completely different taste

There are subtle changes from the above 3 main types where consumers with special preference and fancies look for their requirements1. The tea market fluctuates according to the demand of these three main types, being distinctly seasonal in temperate countries. There is also a shift in the manner in which tea is consumed with these seasonal changes with a move from it being a hot beverage to iced tea or cold beverage. Weather plays an important role in the production as the quality of the made tea is considered to be lower during the rainy seasons and buyers who seek a distinct quality in the blends operate to a lesser degree during these “rush” periods. An interesting development is the increased demand for speciality, bio-organic and herbal teas. Capitalizing on tea being increasingly recognized as a health beverage following recent scientific and medical findings, there is more demand now being created with emphasis more on bio-organically grown varieties. 2.3 Export of tea from Nepal 2.3.1 Growth in national tea exports

1 Annex VII presents a composition of a typical tea beverage

Due to a strategy of expansion, the total area for tea cultivation has increased with some 450 % over the last 10 years. As the following table shows, growth of tea exports from Nepal has even been more impressive, and reached some 650% over the last decade. Table 2.8 - Growth in cultivation and trade of Nepalese tea 1996/7 2005/6 percentage

increase/decrease Area 3,500 ha 15,700 ha 450% Imports 6.2 million kgs 0.5 million kgs (800%) Exports 0.77 million kgs 5.0 million kgs 650% The exporters have grown to 20 whilst the importers have decreased. An increase of 61% is recorded in export volume of unit packs below 3 kgs whilst bulk exports have risen by 35% over the last one year. The total recorded export earnings in 2005/6 amounts to US$ 982,000. 2.3.2 Export of tea to India Nepal tea industry is very vulnerable due to their dependency on one major market – India, for over 90% of their orthodox and nearly 40% for the CTC teas. Therefore any changes outlined above which will affect this one outlet will cause severe price fluctuations. Table 2.9: Export and Import of Tea from/to Nepal to India (Q in Kg., Value in ‘000Rs.)

EXPORT IMPORT Green Tea Black Tea Total Total Year

Quantity Value Quantity Value Quantity Value Quantity Value 2005-06 80,449 7,246 4,279,524 375,579 4,359,973 382,825 195,093 18,196

2004-05 704,196 98,825 3,608,681 347,512 4,312,877 446,337 330,327 31,157

2003-04 2,983,176 264,549 1,024,500 113,749 4,007,676 378,298 323,966 31,297

2002-03 28,714 6,006 2,839,350 219,697 2,868,064 225,703 291,946 28,640

2001-02 482,158 2,455 1,613,994 262,469 2,096,152 264,924 408,946 44,421

2000-01 360,800 25,496 39,518 7,874 400,318 33,370 757,890 82,055

1999-00 410,207 58,195 NA NA 410,207 58,195 736,533 74,854 Source: Department of Customs. As the above table shows, the dependency on India as a trading partner for tea has increased tremendously in the past 5 years, which further illustrates Nepal’s vulnerability. It is therefore imperative that their agricultural produce as well as expansion of their international markets be diversified. Nepal has a very large border trade going on primarily with India although there is also some border trade with Tibet. There appears to be about 10-12% of the green leaf from the CTC areas and over 200% of green leaf from the orthodox areas going across the border to India. They may be sold locally in the mountain areas out of small householders’ domestic production units. This is based on the land area in the orthodox region of 6,700 ha calculated even at a low yield of 750 kgs made tea per ha from available data. The published figure of processed orthodox tea is only 1.6 m kgs. The imposition of strict control at the border and stopping of imports of orthodox made tea as well as green leaf by India caused a complete stoppage to the otherwise

free flow of export and sharp price declines occurred, whilst green leaf became un-saleable and unusable. Similarly, the work stoppages caused due to political unrest in India, which is now taking it’s toll on the Darjeerling tea with both quality and quantity declining will open the possibilities for Nepal orthodox tea for price gains and entry into new markets. Indian authorities are getting more concerned by the decline in the volume produced of their own Darjeerling tea, and potential threat posed to their special tea image and brand built over many years. Many discerning overseas tea buyers/packers and consumers are aware of this situation in the planting areas and there is a danger of the value of the Geographical Indicator (GI) of Darjeeling Tea eroding. Therefore Indian border patrols have been intensified this year to stop the flow of green leaf and made orthodox tea from Nepal, which has caused many hardships to the farmers. This situation has become a problem of concern to the Nepal Government. Unless, urgent action is taken to rectify the shortcomings mainly in the orthodox tea sector, it is likely that Nepal orthodox tea would face the same fate as their rice and jute industries. Herein lie the problems the tea industry confronts as the giant neighbour with unlimited porous borders can/will use the produce of Nepal origin to sell into, both their insatiable domestic market and lucrative export markets either passing them off as Indian tea or unfortunately using the Nepal tea as low priced blend mixes or “fillers” and “price reducers” in their export blends. In this way, Indian traders have created a psychological myth that Nepal tea is lower in quality and does not command as high a price in the open market or through auction system. Another reason for the price to be beaten down is that once Nepal teas enter the Indian territory it becomes a terminal market for it’s disposal and unscrupulous traders capitalize in such situations. This position is further compounded by the indiscriminate use of pesticides and insecticides by the Nepali farmers who have therefore brought upon themselves a dubious reputation of being producers of tea that has higher than accepted pesticide residue levels rejected by most buyers in the EU, North America, Japan, Australia and New Zealand. 2.3.3 Export of tea to countries other than India The following table presents the recorded exports of black and green tea to countries other than India.

Table 2.10 - Export of Nepal Black and Green to other countries except to India Country Black tea

quantity kgs

Black Tea Value (in NRs)

Green Tea Quantity kgs

Green Tea Value (in NRs)

Total Quantity kgs

Total Value (in NRs)

B’Desh 4,800 40,752 4,800 40,752

Japan 6,267 1,707,715 856 930,903 7,123 2,637,826 Korea R 859 16,497 859 16,497 Pakistan 327,086 28,770,246 13,720 119,662 340,806 28,891,959 Taiwan 1,942 1,502,676 1,942 1,502,676 UAE 264,256 24,987,263 264,256 29,987,263 USA 2,832 923,960 8,147 537,229 10,979 1,461,189 France 2,843 2,886,468 38 351,080 2,901 3,237,548 Germany 65,176 28,808,721 3,791 1,922,318 68,967 30,731,039 UK

38 25,508 38 25,508

Latvia 2,367 27,036 236 27,036 Hong Kong

5,000 155,892 525 21,663 5,525 177,555

Canada 115 54,455 156 139,270 271 193,725 Italy 1,200 43,830 Czech Rep

61,665 2,446,551 60,545 2,331,211 122,210 4,777,762

Total 746,446 92,397,570 87,778 4,255,236 834,224 100,739,810 Source: TEPC Over 90% of orthodox tea processed is sold to India through official and unofficial channels. Reportedly, nearly 60% of the CTC tea is sold in the domestic market2 whilst nearly the total balance goes to India. There is some interest now coming from Pakistan with about 10% exported in the last year. 2.4 Tea production in Nepal A large number of small holder farmers are engaged in growing tea in both areas: the CTC in Terai and orthodox in the hill districts. And their contribution in total production is increasing over the years as more small farmers are being attracted towards tea cultivation due to many reasons, including its profitability compared to other substituting crops, particularly in the hill areas. It is estimated that they now account for 26.5% of CTC tea production and 67.6% of orthodox tea. For the sake of this report, the following classification is used: Smallholder farmers: 0-40 ha Medium-sized gardens: > 40 ha Plantations: > 40 ha and including a factory

2 The available data on the national per capita consumption is very low at 350g for a population of 28 m. This indicates the country’s total consumption being nearly 9.0 m kgs per annum. However basing on the data available of domestic market of sales figures the local market is only around 7 m kgs giving a per capita figure of 2.57 kg. These figures belie the drinking habits as it is apparent that there is much more consumption of this preferred hot beverage. The quantities consumed in the northern areas, where free access is difficult and the use of home grown/made tea seem to be unaccounted in the available data.

2.4.1 Growth in tea cultivation and production Both the total area and production of tea in Nepal have increased tremendously over the years and have significantly increasing trend as is clear from Figure 1 below.

Figure 1 Area and Production of Tea: NEPAL

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

1992

/3

1993

/4

1994

/5

1995

/6

1996

/7

1997

/8

1998

/9

1999

/00

2000

/1

2001

/2

2002

/3

2003

/4

2004

/5

2005

/6

Year

Qua

ntity Area Ha.

Production Mt.

As the following table shows, tea production and cultivation of tea by both smallholder farmers and larger gardens/plantations has grown considerably in recent years. The NTDC was privatised and accordingly the area and production under it are reported into the private sector category. Accordingly, a sudden jump in area and production under private category is noticed in the year 2000/01.

Table 2.11: Total Tea Production and Tea Plantation Area

Tea Plantation area in hectares Tea production in Kg's

Financial Year Small holders

Private NTDC3

No. of small-farmers

Plantation area Total Private NTDC

Small holders Total

1992/3 75,400 860,000 1614000

1993/4 1,191 493 687,000 982,000 75000 1744000

1994/5 1,788 644 837,000 1,009,403 10,000 1946403

1995/6 2,243 828 1,500,000 1,112,329 125000 2737329

1996/7 1,685 938 2,390 879 3,501 1,800,000 925,942 18,000 2905942

1997/8 2,192 938 2,591 1,385 4,515 194,655 603,136 468980 3018571

1998/9 6,073 938 4,915 3,239 10,250 3,577,857 496,881 418242 4492980

1999/00 6,073 938 4,915 3,239 10,250 3,577,857 496,881 1010499 5085237

2000/1 8,179 5,310 3,818 11,997 5,089,579 1548503 6638082

2001/2 8,179 5,575 4,186 12,346 5,864,720 1653855 7518575

2002/3 8,321 5,760 4,314 12,643 6,478,000 1720000 8198000

2003/4 8,869 6,252 6,143 15,012 7714669 3956535 11651204

2004/5 8312 6,845 6,989 15,900 7789893 4816188 12606081

2005/6 8,912 7,154 7,100 16,012 8,443,907 5,244,320 13,688,237 Source: National Tea and Coffee Development Board Although the government’s plan was to have 28,000 ha under tea cultivation by year 2010 and further projected to 62,000 ha by 2020, the expansion has been much lower and estimates have been revised to have 18,000 ha under tea cultivation by 2010. Nonetheless, growth has been impressive. 2.4.2 Type of tea produced There are reportedly a total of 12,2004 smallholder plots, 134 medium sized gardens and 38 large plantations. Combined, these produce a total 13.6 million kgs of made tea of which 1.6 million kgs is orthodox type. Table 2.12 - Type of tea produced 2005/06

Particulars

Orthodox

CTC Total

Area in ha Production in kg. Area in ha

Production in kg. Area in ha5

Production in kg.

1 Garden 2,805 542,090 6,107 7,901,817 8,912 8,443,907 2 Small Holder 4,231 1,113,060 2,869 4,131,270 7,100 5,244,330 Total 7,036 1,655,150 8,976 12,033,087 16,012 13,688,237 Source: National Tea and Coffee Development Board 3 The Nepal Tea Development Corporation (NTDC) was established in 1966 by the Nepalese Government. The Government divested their holdings so that the private sector would become the engine of growth for the industry 4 Table 2.1 indicates a total of 7,100 smallholder farmers. However, data collected from associations/chambers/and INGO/NGO's suggests that a total of 12,200 smallholder farmers are active in areas concerned. 5 Please note that other data sources suggest a total of 15,700 ha in 2005/2006

According to this table, smallholder farmers account for 67 and 34 percent of the production of orthodox and CTC tea respectively. These data should be taken with care though, as more than 11 plantations and 45 gardens (mostly non-small farmers) have not yet been registered with NTCDB. Also, other data suggests that smallholder farmers account for 26.5 % of the CTC produce. 2.4.3 Yield and Cost of Production (COP) According to NTCDB field representatives and Farmers in the CTC area, the average yield per plant is 1.55 kg pa and the density of plants is 14,000 per ha. Farmers in the CTC areas are able to get a fair price for their leaf, almost double their cost of production (COP), during better times whereas the orthodox tea farmer suffers very often obtaining a price about 10-15% lower than their COP. In the orthodox areas, however, the yields are significantly low, nearly 25% lower than India and 30% below Sri Lanka. In the CTC areas the yields are lower than in Kenya. As the international tea market is very competitive, relative low yield is a cause of concern. At the factory level, there seem to be no fixed method of calculation to arrive at the green leaf price. Farmers have to accept price levels indicated by the factories. In the CTC areas, the Siliguri auction prices are used as a guideline and is reviewed every week whereas in the orthodox regions they are completely at the mercy of the factory. The farmers sometimes get paid almost after six months from date of direct delivery to the factories. They prefer to sell to middlemen or tea dealers as most often money is paid immediately on delivery. However they are beaten down on the price by about 10-20 %. Those who follow the Code of Conduct are able to get a premium of nearly 20 % for their green leaf. The farmers are unable to get an accurate calculation of their COP and very often the financial costs are not taken into account. Even fertilizer and pest control inputs seem to be inaccurately compiled. This is due to lack of knowledge of simple costing methods. Smallholder farmers Smallholder farms are generally well maintained with plant population being adequate, although in some instance overcrowding was observed.

In Jhapa and Morang the farmers indicated that their yields are in the region of 18,500 kgs going to 22,000 kgs in some instances. These are high indications but seem to be acceptable, as the quality of plucking is not kept at the ideal 2 or 3 leaves and bud. In the hilly areas of Ilam and Fikkel the plant population in the plots observed were less and more scanty. The incidence of pests, insects and fungi was more as this region is damp and is more conducive for them to thrive.

Their COP is around 0.093 to 0.125 US$ per kg. The selling price is around US$ 1.50 to 1.60 from the factories. The COP and corresponding selling prices are lower in the CTC areas. However, this money is delayed sometimes up to 6 months in both areas, causing financial strain. There are Green Leaf Tea Dealers who pay spot cash, about US$ 0.03 kg less. Farmers fall into difficulty and find it hard to obtain loans at the Government’s stated low interest rates and as farmers are also at the

mercy of the middlemen, habitually they are not amenable to accepting technical advice and change their methods

Medium sized gardens and big plantations These are tea gardens in excess of 40 ha and with many having their own processing factories. The larger estates average lower yields/ha than the smallholder farmers. Their yields are lower being around 14,500 to 16,000 per ha. Here again the same scenario of coarse plucking and haphazard use of chemicals were evident. The estate workforce tea plucker earns US$ 1.50 per day for delivering 26 kgs of leaf with an incentive payment of 0.018 US$ per each additional kg. There are instances of pluckers delivering up to 35 and even 50 kgs, consisting of mixed leaf - good and coarse, which affects quality whilst processing. However due to political pressure on labour matters the factories are forced to accept all leaf delivered. 2.4.4 Geographical distribution of production In 1982, the Government declared the five districts i.e. Jhapa, Ilam, Panchthar, Terhathum and Dhankuta of the eastern development region as 'Tea Zone'. In these five districts the main production of tea is concentrated, as also highlighted in map included as annex II. The bulk of the tea, however, is grown in Jhapa (only CTC grown there), which is situated in the far southeastern Terai part of Nepal. According to NTCDB data, presented in table 2.13 below, this district alone accounts for approximately 88 % of the tea production of Nepal. Table 2.13 - Geographical distribution of production

S. No District Gardens Small Farmers Total

Area Production Kg

Area ha

Production Kg

Farmers No.

Area ha

Production Kg

1 Jhapa 6,107 7,901,817 2,869 4,131,270 857 8,976 12,033,0872 Ilam 1,347 406,220 3,469 889,350 4,647 4,816 1,295,5703 Panchather 382 80,220 141 119,114 297 523 199,3344 Dhankuta 219 45,990 425 36,334 789 644 82,3245 Terathum 23 4,830 123 36,344 247 146 41,1646 Other 834 4,830 72 31,928 317 907 36,758 Total 8,912 8,443,907 7,100 5,244,330 7,154 16,012 13,688,237Source: National Tea and Coffee Development Board 2.4.5 Crop diversification Although crop diversification in tea has been looked into, due to maximum land usage and close planting of bushes, there is not much area left for any other crops to be inplanted. However most farmers have short term mixed cash crops such as vegetables, corn to supplement their income making maximum use of the space available. Some have the bigger trees such as Jak, interspersed in the land with some shade trees usable for generation of biogas. This type of mixed integrated farming which causes minimum damage to the ecological system must be encouraged as they form self-sustainable units and bring in additional income. They should not only have mixed crops but also livestock

rearing cattle, buffalo and goats to obtain diary products for consumption and sales but also poultry including ducks. Inland ponds can de constructed to rear fish varieties for protein supplements in their diet. The animal waste is usable in getting biomass 2.5 Tea development At present there are 43 varieties of tea grown in Nepal, nine from seed stock and others being clones. The characteristics of each of these plant types should be studied in detail and manual prepared, which is not being done due to lack of an authority to conduct such research and development. There are two main types from the same botanical plant species, Camelia sinensis, which had been developed at the Indian Tea Research Station and used extensively in Indian tea gardens, which have been introduced to Nepal for planting in the two different growing areas. The clone varieties developed from cuttings from mother bushes are used in the tea gardens in the Terai regions of Jhapa and Morang districts. These are ideally suited for the processing of CTC variety where the leaf is more succulent.

In the hilly areas varieties from seed stock are used to propagate the nursery plants. These too have been experimented and developed in India at their Tea Research Station for the Darjeerling region and introduced into Nepal. Their leaf is more leathery and during the changing climatic cycles, concentration of juices vary thus giving aroma and flavour for limited periods. Nurseries are operated by the National Tea and Coffee Development Board’s (NTCDB) regional offices, estates and private farmers. These shoots are sold at a price around USCts 0.23 each giving on average 3 cuttings. The NTCDB farms have experimental plots of about 5 -7 different varieties, to prevent disease effecting one type, and these are also divided according to usage of types of fertilizer. NTCDB have a scheme to assist in nursery development and maintenance by providing 50% grant on plant material and seedlings, (US$ 0.12 subsidy on the material). They also provide subsidies for purchase of tools and implements as well as training of farmers through their extension offices. Providing loans at low interest of 1.5% is being considered. The extension offices provide technical know-how on the preparation and use of bio-organic fertilizer, control of pests and insects and the proper use of chemicals, pesticides and insecticides. Field visits are made to designated areas on a regular basis to educate farmers. Quarterly surveys are done to assess the field problems. NTCDB extension offices have 4 main activities to perform: a) Training of farmers b) Crop Protection methods through demonstrations and distribution of sample

materials of Pesticides, Insecticides, and Chemical and Organic fertilizer. c) Mobilize farmers to form into working groups or cooperatives d) Constant monitoring of the farmers fields to see incidences of pest/insect/

fungal infestations and advice on control methods.

Box 2: Incidence of pests, insects and other diseases Observations on visits to farmers holdings showed evidence of many insect and pest diseases and it seemed likely that they were spraying the control chemicals, to protect the plants and ensure their high yields for commercial gain ignoring the set down regulations of following the correct cycle for spraying. Indiscriminate and high use of pesticides and insecticides and incorrect application cycles mainly in the orthodox areas, where the insect and pest presence is higher due to the dampness of the atmosphere, have caused the final product to contain more than the maximum level of residues permitted. This has caused environmental damage and an imbalance in the insect population. Fertilizer, insecticide and pesticides are all imported duty free on official and unofficial channels and are readily available. The strengths and efficacy of some of these products available in the open market is questionable and there is no proper monitoring. The Agro Import Association based in Jhapa district is the only one trying to monitor and give the farmers the correct guidelines on their usage. The pests, insects and other diseases seen in Nepal are Blister Blight, Brown Blight, Rust, Trips, Aphids, Looper, Flush Worm, Leaf Roller, Red Spider, Purple Mite, Scarlet Mite, Pink Mite, Helopeltis, Jassid, Bunch Caterpillar and Reds Slug Caterpillar. Due to financial constraints, all above extension and advisory activities are not being performed at optimum levels. Some extension offices, having large plots sell the green leaf produce (current level in Ilam USC 0.25 to 0.28 depending on leaf quality/grade. The COP in the experimental plots is around USC 0,18/kg.green leaf. The nursery system seems to be adequate as they have been able to supply plant material for the increased demand in the past few years. 2.6 Processing of Tea With mainly two diverse types of tea being processed, the factories and machinery used are dissimilar. The basic process, however, is the same being Withering, Rolling, Fermentation and Drying with adjustments on time frames and using different method to obtain the final products. Annex VI presents some guidelines for good leaf standards and processing. 2.6.1 Basic household units These are small cottage level workshops, mainly located in the hilly orthodox regions, where the withering is done on crudely turned out troughs and the withered leaf hand rolled in wooden pans. The product is a green tea of about 5 grades ranging from the full leaf to smaller grade. The output per day is about 8-10 kgs. It is likely that small holders having bigger plots of around 5 or more ha are engaged in this type of processing, doing their own direct marketing at the small townships on a busy day. The population in the mountainous areas may be obtaining this type of hand made tea as regular marketing channels are unable to reach them. This type of small workshops were not seen/visited in the Terai region but it is likely that there are such units processing a type of green tea from their own leaf for marketing in localized areas.

Farmers wish to form into cooperative units and run their own small factories of output of 100 to 150 MT per annum in some instances more as a measure to spite the existing ones who do not service them adequately whilst in certain areas it is a necessity due to availability of large quantities of green leaf. 2.6.2 CTC processing units: According to data available, there are 23 CTC factories. Some of them are recently constructed with large capacities going upwards of 600 -1000 MT per year, built at a cost of around US$ 500,000, with new continuous processing lines of CTC machinery imported from India. Others are smaller ranging from 100 MT to 400 MT with older machinery but processing a good final product. Some of the factories have applied for HACCP certification whilst a few are seeking ISO certification. The CTC factories process the following 6 grades:

- BP - BOP - BPS - BPSM - Fanning - Dust

Some factories separate the green leaf into those supplied by COC certified farmers, having a different production, from those that are not certified. This is one way the factories are trying to overcome the problem of pesticide residue level. To achieve this factories have to keep strict records of the suppliers of green leaf up to the final packed product stage. If this exercise does not bring in a higher price, the effort is not worthwhile. The indiscriminate use of pesticides has been able to prevail due to the lack of market diversification; primarily being restricted to the domestic and Indian market, which are less strict. However, a select few factories are conscious of maximum residue levels and their importance and either use only green leaf produced in their own fields or under their monitoring with farmer associations who follow the correct agricultural practices. Due to the expansion program and increase in leaf production it is envisaged that 2-3 more CTC factories will be needed to meet the supplies. 2.6.3 Orthodox tea factories: These are all located in the hilly areas of Ilam, Panchthar, Terathum and Dhankuta and are styled along the lines of the Indian Darjeerling factories. Their capacities range from 100 MT per annum to 500 MT. They have a green leaf collection area to receive the raw material and large withering troughs as their withering time is longer than for the CTC tea. Each factory has between 4-6 rollers of the Indian type with different tables and battens to the ones used for the conventional orthodox tea processing with 2-3 driers of UK or Indian manufacture and a sufficiently well equipped sorting and packing room. In the orthodox factories too, there is separation of leaf supplied into the 2 categories of COC certified farmers and others. Nearly 90% of the product goes into the Indian

market, with about 7% to EU, 3% consumed locally mainly in the big cities, marketed to expatriates/tourists and about 1% in special gift wrapped units. The grades processed in the orthodox factories are as follows: Leaf Grade Nomenclature STGFOP Special Tippy Golden Flower Orange Pekoe TGFOP Tippy Golden Flower Orange Pekoe GFOP Golden Flower Orange Pekoe FOP Flower Orange pekoe OP Orange pekoe Broken grades BOP1 Broken Orange Pekoe 1 GFBOP Golden Flowery Broken Orange Pekoe BP’S Broken Pekoe Souchone GBOP Golden broken Orange Pekoe FBOP Flowery Broken Orange Pekoe BOP Broken Orange Pekoe Fannings TGOF Tippy Golden Orange Fanning GOF Golden Orange Fanning OF Orange Fanning Green Tea Leaf Grade Y H Young Hyson Broken FYH Fine Young Hyson GP Gun Powder H Hyson Fanning Soumee Dust Dust 2.7 Availability of raw material, price and quality Due to the recent rapid expansion seen in land area under cultivation in both the Terai and hilly regions, harvesting from very young bushes, some just coming into bearing, will give good growth and sufficient green leaf to keep the factories in full operation. With adequate availability of fertilizer and chemicals for controls, farmers seem to make use of them to increase their yields as observed in some fields. Indiscriminate and over use of these will be detrimental in the long term not only to the fields but

also the environment as detected in certain areas but the commercial interest seem to override others. The chemical inputs are available at affordable prices but due to the open policy of entry some of the products are of inferior quality and may also include banned substances. Due to the stringent controls imposed on Indian factories in the Darjeerling areas and closer border checks, the flow of green leaf and made tea into India through the border has come to a virtual standstill this year. Therefore green leaf is available in abundance with farmers having great difficulties in disposing of them. The existing factories in the orthodox areas are unable to absorb all the produce and leaf prices have declined sharply as well as having to be destroyed due to spoilage. Urgent attention is needed to address this problem as it is likely that the Indian Tea Board will be more vigilant on this as the international reputation built over many years of their prestigious geographical indicated brand has been threatened. Farmers working under the COC rules and regulations seem to adhere to them in the use of chemicals and periods of applications, but the quality of the plucking is done in a haphazard manner with unsuitable coarse leaf also included in their deliveries to the factories. Although there is provision for rejection of bad leaf, due to political interference there is undue pressure put on the factories to accept all of what is delivered, in spite of the quality being poor. The growers who are not with the COC are likely to produce a leaf, which will have MRL’s over the required parameters, not only due to excessive use but also spraying the chemicals at the incorrect time to gain maximum advantage commercially. All these shortcomings contribute to the final product being of poor leaf appearance, cup quality and on closer analyses and tests for residue levels, an overall unsuitable and almost un-saleable product into sophisticated markets. Other production inputs Chemical fertilizer, pesticides, insecticides and bio fertilizer, insect control repellents According to official data only, the import of insecticides and pesticides has increased by 118% in the past five years. Fertilizer and chemicals required are mostly imported from India or brought across the border illegally. These are available to the farmers at market prices and since there is no duty, are reasonably priced. Whilst there is adequate availability in the Terai regions, due to the close vigilance at the border of the hill areas, shortages occur for these farmers. According to observations some of the items that are smuggled seem to be adulterated and lack the expected efficacy. Banned pesticides and insecticides may find their way into the market through these unofficial channels. The Extension offices of the NTCDB instruct farmers on the proper use but have no hand in the sales. There are private dealers, some of whom are able to provide technical expertise along with the sales. The methods of preparing bio-fertilizer is also taught to the farmers by the extension offices and the NGO’s working in certain areas who produce it themselves whilst

some marketing outlets also have these on sale. In addition the farmers are educated on the use of natural insect repellents such as Neem-based products. However, due to the purchasing power of farmers being low, the usage of fertilizer is restricted, the average being a low 32 kgs per ha. The reluctance to use organic fertilizer, apart from the yields becoming lower is that since Indian farmers are not “organic” the thinking is that there is no need for the Nepal farmers to change sacrificing quantity. Energy Sources Electricity is costly and there are very frequent power failures, which cause disruptions to the factory operations. This affects product quality. Power is required to run the withering fans and some of the machinery. Furnace oil, and coal are the other energy sources used in the factories and these too are imported from India. Firewood is used in 4 factories and mainly in the household units. Although the usage is small, it is discouraged due to environmental damage. Tea bushes do not require high irrigation and the seasonal monsoon rains provide the required amounts sufficient for the season unless in very adverse periods. The yields increase during the rain periods and decline when drought conditions affect the bushes. There are also subtle changes in the concentration of the chemicals in the leaf, with the dry periods bringing these more onto the leaf surface thereby giving a better raw material for producing a made tea with more flavour and aroma. Packing materials The commonly used packing materials are the polyethylene/polypropylene (PE/PP) bags, which are used to pack mainly the lower grades in both regions. The better quality and leaf grades in the CTC tea are packed into multi wall inner aluminium foil lined, 4 or 5 ply kraft paper sacks mainly of the valve mouthed variety, imported from India and of Sri Lanka origin through Indian suppliers. The paper sacks are subject to an import duty of 15%, development tax of 1.5% and VAT 13%. In addition, transport cost is about 5% of the sack cost. For the orthodox teas, the packing material is the old traditional tea chests, all of Indian origin, mainly to pack the leaf grades such as SFTGFOP and TGFOP. The medium and smaller leaf grades are packed in paper sacks of the valve mouthed variety. Not many open-mouthed paper sacks are in use The tea chest is an obsolete form of packing and has been discarded in the western countries, Japan, Australia and New Zealand due to the difficulty encountered in storage space, disposal and potential damage to environment. Since 90% of orthodox exports end up in India, this form of packaging is acceptable as there is a two-way trade beneficial more to the Indian side. The packaging requested/required by the western buyers are paper sacks even for the leaf teas. The Rigid Paper Sack developed in Sri Lanka especially for big leaf grades is now increasingly used in consignments to these destinations, and as observed some factories in Nepal use them. This sack is now used in larger volumes from Sri Lanka, as even some Middle East buyers are beginning to request this form of packaging.

The retail sales market uses printed boxes, printed aluminium foil packages, cloth pouches, woven material, wooden boxes and a wide variety of gift packages which are all made in Nepal of good quality at cottage level. The tea-bagging industry is still in its nascent stage with hardly any packers having modern machinery. 2.8 Rules, regulations and standardization in the sector There are no Codex standards set for Nepal tea as yet although some preliminary work has been conducted. It is the intention of the Department of Food Technology and Quality Control to give this aspect priority in the preparation of manuals based on Codex/ISO in making original listings. Nepal tea standard has been set with some variations in its components, i.e. having a lesser percentage of fibre content, and including caffeine parameter. The overall limiting factors are stricter than the Indian standard. The Nepal Government tea standard complies with ISO 3720 internationally accepted parameters for made tea. If one wants to compete in the international market, growers and exporters are expected to meet internationally accepted standards that have been set, or are being introduced, related to radiation levels, pesticide maximum residue levels, heavy metal content. Buyers increasingly ask for a pesticide MRL certificate, a regulation imposed by many importing countries. This exercise takes about 3 weeks and if the test proves positive, there is no end user available anymore for the producer. Therefore like all goods, what is unsold has no value. There is no laboratory equipped to carry out all these required tests nor is there any accredited international survey company available in the country. Due to this, samples have to be sent to Indian or other foreign laboratories, which are costly and time consuming. Within this context, adherence to good agricultural practices (GAP) and good manufacturing practices (GMP) are very essential and the Code of Conduct drawn up by the Tea Alliance is a step in the right direction to achieve this goal. Furthermore with Nepal striving to become a major supplier of bio-organic tea, which is a fast growing segment, adherence to all aspects to obtain the necessary certifications are imperative. 2.9 Quality and international competitiveness Because of the almost monopolistic Indian market, with little attention paid to quality levels, MRL etc, the Nepal farmers and factories seem to overlook the importance of controls. Only those factories venturing to seek other markets and better/higher prices are being very selective about quality controls. Some are seeking ISO and HACCP certifications whilst HOTPA/HIMCOOP -the associations with whom all the bigger factories have membership strive to achieve the standards set down by the COC in working with farmers who have opted to become a part of the program. These farmer groups have Internal Control Officers to monitor the progress and each farmer’s details of inputs and outputs will be recorded. The NASAA based in Kathmandu records the reports. The current Terai region products of Nepal are very similar to the Indian CTC tea. However there is a difference as the prices realized are 10 – 15% lower. This is due

to the cup quality being a little “thinner” and less strong. Furthermore buyers look for a very strong quick brewing tea for CTC grades as they are used primarily in teabags. The Kenyans and better Sri Lanka CTC teas are distinctly better in this respect. The orthodox Nepal tea is also discounted compared to the Indian Darjeerlings. The quality of the orthodox teas are not consistent, as there seem to be difference in the same classified grade in leaf and liquor properties making it difficult for orthodox teas to be sold in big parcels unless there are blending facilities available. The reputation that has Nepal earned of excessive, indiscriminate and incorrect use of chemicals, fertilizer, insecticides and pesticides has caused doubts in the minds of buyers in certain countries as the news travel when samples are rejected on analytical reports. The factory is unable to determine with certainty that their product will be clean unless close monitoring in field practices of the large numbers of smallholder farmers is conducted, which seems to be difficult. The secondary grades of orthodox teas are difficult to sell because their liquor properties do not qualify for any speciality market although their two main grades will have some demand from niche markets. The strong position of well-established brands such as Darjeerlings and some specific Ceylons for the orthodox teas, make it difficult to gain entry into competitive international markets. CTC teas will always face strong competition from Kenya, Malawi, Rwanda, Burundi, Uganda and some Sri Lankan teas in the world tea bags market segment, which are the price leaders. In addition, Indian, Bangladesh and Indonesian CTC’s are active on the international market along with emerging producers of this category of tea such as Vietnam. Over 90% of the exported Nepalese CTC quantity finds its way to the Indian market, very likely the domestic arena whilst there is growing interest from Pakistan but the prices are low and even not remunerative. This is due to the product being discounted in comparison to the East Africans and other good origins although the discounts do not seem to be justifiable. New CTC markets should be looked at to overcome this situation. Annex III provides an overview of the major tea consuming countries and their preference in tea grades. Pakistan and Germany show potential for growth in the 2 types of tea. The list attached as annex IV gives names and addresses of companies of two main potential markets that the export trade in Nepal could approach to develop contacts and foster business. In addition to the usual orthodox grades, some factories are also processing in small quantities types such as Oolong tea, White Tea, Sencha and Green Tea. However these are types that have very limited interest. Green tea and Oolong tea produced are too small in quantity to make an impact in the markets that look for these types. Buyers in North America who may look at these speciality teas are also unlikely to pay good prices as such teas are available at cheaper prices from China and Vietnam who are big producers. 2.10 Existing studies, strategies and policy papers in the sector There have been a number of studies undertaken for the industry in the recent past for its development. With the establishment of the Nepal Tea and Coffee Development Board in 1993, to give direction and policy guidelines, the sector

studies were conducted mainly under their purview. Although some of the studies are not directly related to tea, they have been conducted for the benefit of commercial and cash crops of Nepal.

1) The Tea Policy Paper in November 2000: - This outlines the future program for tea. This is still to be presented as a policy paper to the Parliament for approval. The main items are:

- Increase land area coverage to 40,875 ha in 5 years - Increase annual production to 46.1M kgs of which 30m to be orthodox - Additional employment opportunities for 79310 people - Priority lending at 1.5% concessionary rate of interest and schedule

facilitation - Rebate on land registration tax - Up to 50 years lease prospects of Government land - Introduction of Cess levy to manufacturers/importers/exporters - Establishment of research development center with private sector

participation - Incentives to ancillary industries - NTCDB to be revamped to have more private sector involvement - Establishment of a Tea Development Fund.

2) Global Development Alliance for Tea Crops with the participation of

GTZ/USAID/Winrock/FNCCI/AEC/NTCDB/SNV /HOTPA and HIMCOOP. The Code of Conduct for tea growers and processors was conceptualized by this alliance for the overall improvement of the product, originated in the USA based on standards outlined by IFOAM/CODEX ALIMENTARIUS/The International Social and Environmental Accreditation and Labeling(ISEAL) and Alliance and Social Accountability International. Once implemented, the next step would be the creation of an agency to assess and issue certificates independently on the product conforming to GAP and GMP practices. This will give vital assistance to the processing units to enable them to obtain the ISO 22000 and HACCP certifications, now an essential requirement in many importing countries. Some factories in the hill areas have already been successful or are in the process of obtaining these certifications. Financial assistance of up to 20% is being considered as a package by some donor agencies.

3) UNIDO assistance with technical guidance from FAO through a study conducted is to be made available to strengthen the Department of Food Technology. A laboratory building is already completed and funding is now being sought for maintenance and equipping with testing machinery such as GC, GCMS, GCSMS, HPLC, AAP, Graphite Furnace and requirements for microbiological analyses. This will enable the department to be competent in testing for almost all the requirements as laid down internationally. A training program for qualified personnel is also an essential part of this program. This is still to commence. On completion, accreditation with internationally accepted laboratories is imperative to gain recognition. A drawback to this program is the financial viability as the demand for commercial usage may be limited.

4) NTCDB conducted a study that identified new tea areas of virgin land for growing of bio-organic tea using products such as Neem, Neemgel and biogas. This will provide the opportunity to develop a Geographical Indicator Tea for identified areas as a good marketing tool.

5) A three year World Bank Project Study on Food Research and Agriculture Commercialization and Trade is being undertaken with the Ministry of Agriculture to study the improvement of existing cash and commercial crops and implement a research and development program.

6) Export Potential Assessment study done by ITC in early 2007 and follow up studies on five identified export items including tea.

7) Nepal’s Export of Green Leaf Tea to Indian Market done by M N Sharma with NTCDB

8) NARC 2001- Identification of Tea Problems /Constraints and it’s future Rsearch Strategy - August 2001.

9) Poverty Reduction through Development of the Tea sector in Nepal - Deva 2001- Development Associates for Regional and Rural Development - Report prepared for GTZ in cooperation with ICON-Germany

10) AEC-2002- Tea Event Proceedings of Agro Business Interface 2001- April 2001

11) Economic Survey –Government of Nepal –Ministry of Finance 2005/6

12) GTZ-Nepal 2002- Challenges and Prospects of Himalayan Orthodox Tea Industry in the 21st century

13) 2005 – The Souvenir of Nepal Tea Association

14) Orthodox Tea Profile – HOTPA –2000

15) AEC-Agro Business Interface -2001 - Compilation of papers by resource persons

16) Extension and Research Needs of the Nepal Tea Industry A M Whittle 2003

17) Concept Paper on the Study of Nepalese Tea Industry – Vision 2020 –Nepal Tea Crop Global Development Alliance - A N S Thapa for Winrock International

18) Study on the Prospects of Orthodox Tea Business in Nepal – A Field Work Report by Campion Collage – B Shakya 2000

19) Report on Orthodox Tea ‘Market Study in Spain and Germany – HOTPA 2000

Other than for the study conducted for the EPA, which was not sector-specific, there has been no recent studies done for tea. The tea scene is changing continuously with demand and marketing strategies varying with time. Therefore constant updates are necessary to keep abreast with new developments. 2.11 Socio Economic Impact of the Sector Nepal has a predominantly rural population similar to other Asian neighbours. About 30,000 family units are involved within the sector and more than 40,000 labour force, with a majority of the workforce being women. From a gender perspective this is important although the work is in the lower categories, mainly as pluckers with lesser incomes. Nonetheless, it provides important additional income to families as well as empowering rural females. The tea farmer earns more income from their land than those involved growing other crops except for cabbage and ginger. A recent study done indicates the tea farmer

earns an average income of US$ 175 per month. The earnings are reportedly around US$ 20 per ha per month in the Hills and US$ 32 in Jhapa. The land use is better for tea as the undulating terrain and barren areas can be used due to the hardy and deep roots of the bushes, able to bind the soil and stop erosion. Government assistance by way of land allocation without restriction on size as well as lease agreements facilitated by the government are available through the Agricultural Development Bank. Loans at concessionary rates at 1.5% are possible for cultivation of land. Indiscriminate and high use of pesticides and insecticides and incorrect application cycles mainly in the orthodox areas, where the insect and pest presence is higher due to the dampness of the atmosphere, have caused the final product to contain more than the minimum level of residues permitted. This has caused environmental damage and an imbalance in the insect population. The Code of Conduct introduced has focused attention on the social responsibilities too for the community. They are: a) Ending of child labour b) Ending of caste and social discrimination c) Salary and wages payable based on labour laws of the country d) Women empowerment, child education and human development e) Clean and secured workplace f) Cultural and development and information g) Recognition of corporate social responsibility by the factories.

2.12 SWOT Analysis Based on the above, the relative advantages/disadvantages of the sector in the global marketplaces are being discussed in the table below. Strengths Weaknesses

• Good climate and geographical conditions • Large area under tea and availability of land for

expansion • Environmentally friendly crop • Short crop cash cycle • Young bushes • Low labour costs • Farmer cooperatives willing to work together • Methods of cultivation and standards required

clearly laid down • Rural and women employment/empowerment • Contribution to poverty alleviation • Steady growth in export volume and earnings • Institutions are in place to guide the industry • Communication system adequately developed in

village areas • Private sector driven • Availability of international expertise • Government grants and subsidies on land lease,

plant material, tools and machinery. Loans at attractive interest rates

• Code of Conduct drawn up to achieve GAP/GMP and Fair Trade practices

• Shortage of processing capacity • Poor quality chemicals/insecticides and pesticides

and their overuse and incorrect applications • Poor on farm infrastructure • Irregular supply of electricity • Financing difficulty. VAT refunds delayed • Dependant on Indian port and territory for

transportation • Implementations of good government policy

ineffective and often overruled • Inadequate government supports • Poor reputation for product due high MRL and

quality. • Lack of well equipped and accredited laboratories • No research facilities • No central marketing facility • Lack of human resources • Packing materials expensive • Market information inadequate • Quality of product inconsistent and need be

standardized to meet buyers demands • Facilities and standardised quantity not available to

prepare large consignment for export • Low yield

Opportunities Threats

• Good brand image including GI could be established specially under deteriorating image of Darjeeling tea

• Additional factories could be established given the existing green leaf production

• Large blending, warehousing and packaging facility for supply of bigger consignment could be established

• Sufficient availability of land in identified areas for expansion and new plantations

• Developing new export markets • Strengthen NTCDB dedicated for the development

of tea sector with private sector participation and making itself functional and more effective

• Developing a research and training centre that can produce new clones and seed stock suitable for the Nepal environment. .

• Banks are interested to facilitate easier agriculture and export financing and develop export insurance cover and factoring facilities.

• Improving facilities of food laboratory and obtain accreditation

• Improving/expanding bilateral and regional trade and transport agreements to improve exports and cargo facilities with India and Bangladesh

• Existence of new organically certified growing areas in virgin land for bio-organic tea now having increasing global demand.

• Unique environment and natural weather patterns to develop better quality and speciality product

• Emerging private sector to be speciality advisory agents/suppliers of inputs for the industry

• Supports available for obtaining internationally accepted certifications for new and existing factories.

• Losing markets due to poor quality • Political instability • Interference from outside elements in the internal

management of companies/factories • Lack of human resources, especially in quality

control and export marketing contributing to loss of credibility.

• Relying heavily on Indian processing and marketing expertise thereby losing country image

• Inadequately policed border trade having a detrimental effect on inputs, product quality and exportable quantities.

• Ad hoc changes in Indian policy effecting smooth operation and causing sudden hardships to all in the industry

• Competition from other producer countries, which are rapidly developing to meet global requirements.

• Migration of young labour force to urban areas for better employment

• Global warming and other natural disasters having adverse effects on agricultural areas mainly low lands..

• Middle men interfering with the supply chain mainly at rural farmer level due non-availability of finances

• Increasing global availability of tea with many countries expanding tea areas resulting in an oversupply situation

• Due to poor performance by exporters and differing of offer/delivery samples, loss of credibility and important buyers

• Unless quality is improved to higher standards, the declining prices of poor teas globally which are the first to suffer in market price movements can affect produce

3. Bilateral, Regional and Multilateral Trade Agreements 3.1 Bilateral agreements Nepal has entered into many trade agreements with other countries towards improving trade and exchange of cultures.

- Peoples Republic of Bangladesh - Peoples Republic of Bulgaria - Peoples Republic of China - Czech Republic - Arab Republic of Egypt - India - Democratic Peoples Republic of Korea - Republic of Korea - Mongolia - Islamic Republic of Pakistan - Republic of Poland - Republic of Romania - Democratic Socialist Republic of Sri Lanka - United Kingdom of Great Britain and Northern Ireland - United States of America - Russian Federation - Socialist Federal Republic of Yugoslavia

All above agreements allow tea from Nepal to be exported under favourable duty concessions except Bangladesh, which does not allow tea imports from Nepal, but allows in it’s schedule of items the export of Bangladesh tea which are CTC grade into Nepal.

3.2 Transit Agreements

The sea port of Kolkata is allowed to be used for transit cargo of Nepal with two covered sheds totalling 6,835 sq meters provided at Kidderpore docks and also shed no 8 at Kolkata jetty. Open land area space is provided in Circular Garden Reach Road of 4972 sq m and Haldia dock interior zone of 6985 sq m. Residential and office space of 2000 sq m is provided at Haldia. Entry to Kolkata port through Indian territory is allowed through 15 entry points but the most commonly used is Birgunj in central Nepal and Kakarbhitta in eastern border. The transport/transit agreement with Bangladesh allows entry of Nepal goods to the ports of Chittagong and Khulna-Chalna through Biral, Banglabandh, Chilhati and Benapole. To facilitate trade overland from Nepal to China the trading points of Kodari/Nyalam, Rasuwa/Kyerong and Yari (Humla)/Purang at their frontiers are allowed to be used. 3.3 Regional Trade Agreements The SAFTA6 is considered as one-step forward in the process of regional economic integration in South Asia. With the increase in importance of global economic

6 Agreement on South Asian Free Trade Area (SAFTA) contains 25 Articles. It was concluded during the 12th SAARC Summit held in Islamabad in January 2004 to promote and enhance

integration, SAARC members were motivated to set up SAFTA to harness the benefits of "free flow of goods" for the optimum utilization of resources and thereby support to develop their respective national economies. The SAFTA entered into force from the beginning of 2006. Apart from the agreement to follow tariff reduction to products covered by Trade Liberalization Programme (TLP)7 the members have also agreed to eliminate all quantitative restrictions in respect of such products except otherwise permitted under the GATT 1994. SAFTA does not preclude Nepal from receiving and giving tariff preferences under the existing bilateral agreements (Article 13). Trade Liberalization Programme (TLP) - It has been agreed to bring down the tariffs to 0 to 5 % (a) within a period of 7 years by non-least developed contracting states (to 20% within the first two years) and (b) within a period of 10 years by least developed contracting states (to 30% within the first two years). The countries were classified as LDC’s (least developed countries: Maldives, Bangladesh, Bhutan, Nepal) and non-LDC’s - Sri Lanka, Pakistan and India. Two lists of products were drawn up – Sensitive list with no tariff reductions and non sensitive list where gradual reduction in tariffs at the initial stages leading to zero tariff was agreed on. 3.4 Pertinent provisions under the WTO agreements Nepal is a recent member of WTO and acceded on 23 April 2004. It has thereby taken an important step to be integrated with the global economy through the multilateral trading system. It is expected that WTO membership will enhance Nepal’s capacity and capability to be more competitive in trade through policy and legislative reforms to attain an overall increase in trade efficiency and effectiveness. As an LDC, Nepal was allowed a transitional period until 1 January 2007, in order to bring its foreign trade regime into full consistency with the WTO Agreements on Customs Valuation, TBT, SPS and TRIPS. WTO membership gives a country the legal right not to be discriminated against in its trade with the other members of the organization. The principle of non-discrimination, which is especially important for a country’s exports, is laid down in the most favoured nation (MFN) clause and the national treatment clause. In addition, every WTO member is entitled to seek redress against any impairment of its rights by another country through the dispute settlement mechanism, such as Germany’s unilateral ban on the woollen carpets on the basis of perceived use of child labour or of azo dyes. Practically all products and markets are affected by one or several of the WTO Agreements, at least for WTO member countries. Progressive liberalization of trade through successive negotiations has led to lower (or zero) import duties, and thus increased export opportunities, especially in developed country markets. It has also created greater predictability of market access by “binding” reduced (or zero) tariff rates. Most governments impose technical regulations or standards on (domestic and

mutual trade and economic cooperation among the contracting parties by eliminating trade barriers in and facilitating cross border movement of goods between the contracting parties. 7 The Trade Liberalization Programme (TLP) is not applicable to products included in sensitive lists to be negotiated by member states and which subject to review and also examination of the compatibility of such arrangement with relevant WTO provisions by the Committee of Experts (COE) every four years.

imported) products to protect human, animal or plant life or health, as well as the environment. The Agreements on Technical Barriers to Trade and on Sanitary and Phytosanitary Measures ensure that such requirements do not create unnecessary obstacles to international trade and provide certain rights to exporters. It is up to each exporter to find out about such requirements in the relevant foreign markets. Meeting WTO obligations represents a major challenge to Nepal. Its ability to participate fully in the multilateral trade negotiations and make adjustments to their trade policies and rules remains weak. As part of its commitments, Nepal would introduce a WTO-consistent regime with respect to rules of origin and anti-dumping and countervailing measures. With reference to the standards regime, Nepal committed to bring the Nepal Standards (Certification Mark) Act (1980) into full compliance with the WTO Agreement on Technical Barriers to Trade. The 1980 Act stipulates that national certification trademarks can be issued by the Nepal Bureau of Standards and Metrology (NBSM), upon request to any company producing goods for which technical regulations and standards exist in Nepal. These companies are consequently allowed to use a distinctive sign in their products, which means that the product complies with the required regulations or standards. Nepal furthermore committed to enact a new Industrial Property (Protection) Law consistent with the TRIPS Agreement. This new law would also include a provision for geographical indications. 3.5 Implications of these agreements for the sector in Nepal: Nepal’s tea products benefit from preferential market access under several regional and bilateral agreements. However, in many important export destinations, such as the EU, the MFN rate offered to third countries is already zero. The preferential market access to the EU that Nepal enjoys through its ‘Everything but Arms’ incentive, offers thus no additional benefits for exporters of Nepalese tea. This is called preference erosion. In case of regional treaties, protective mind-sets of many member countries backed by lobbies of national private sector are still strong. Each country is trying to include the most potential export items of the other member countries within the list of their import sensitive items. Benefits of regional integration, and preferential market access schemes, tend to diminish due to stringent systems of Rules of Origin (ROO), subsidies and non-tariff barriers including Sanitary and Phytosanitary and Technical Barriers to Trade. Tea has not significantly benefited as yet from these agreements except with Pakistan who have agreed to allow 6.0m kgs of tea to be imported with zero duty. This increase has been observed in the increased export figures mainly of CTC type but the prices realized are low. It has been observed that Bi-lateral Trade Agreements are not always beneficial for small countries with limited exports. Whatever agreements and tariff benefit are available within these treaties, the market forces come into play as in the case of the Pakistan market, where easier access to the East African markets which offer same type with much better quality being preferred. Furthermore shipping delays and longer transit times are also a deterrent. The bilateral treaty with neighbouring countries, India is usually considered a temporary and short-term phenomenon, highly dependent on political ties. Although CTC teas and orthodox teas were allowed across the border, changes in Indian

policy and protectionist course of action, safeguarding the indigenous Darjeerling tea, it’s brand and reputation has had severe repercussions on Nepal tea. The positive factor for the future is that the SAARC region is highly populated and is naturally avid tea consumers. With India’s annual increased production unable to keep abreast with their increasing consumption and the other countries too growing in their tea drinking habits, lead by Pakistan, it is likely that more quantities will be absorbed in the region.

4. Obstacles and shortcomings for exports 4.1 At the Farmers and Company Level

a) The past efforts of all stakeholders have helped increase the production of green leaf at small farmers, cooperatives and tea estates. But the processing capacity has not developed to cope with the increased production of green leaf. As a result, Nepal’s tea sector is selling raw materials to Indian factory instead of value adding in the country and exporting the finished tea. Additional processing facilities will thus help increase Nepal’s tea export. On the other hand, the recent restriction imposed by India in the imports of green leaf from Nepal has raised a serious fear among the farmers, specially the small farmers, which may be detrimental to this sector.

b) There seem to be a shortage of factories in some growing areas, although

most factories are operated at below capacity. The existing factories in the orthodox areas are unable to absorb all the produce and leaf prices have declined sharply as well as having to be destroyed due to spoilage. It is estimated that 3 additional factories are required in the CTC area whilst 11 more are needed to use the orthodox leaf.

c) Insufficient product diversification to interest buyers of speciality range of

teas into niche markets.

d) No brand image still built to make global buyers aware of Nepal tea and their quality.

e) Exporters unable to deliver as per standard accepted by buyers resulting in

loss of credibility of Nepal trade

f) Only small parcels of lots are available to be offered out. No blending or mixing facilities available to cater to the demands of buyers who require bigger consignments. Inconsistent quality and non-uniformity of products with no supportive certificates causing difficulties to make good blend mixes.

g) Overseas buyers are not able to get supplies with consistent quality, face

delays in deliveries and apprehensive of getting tea with high residue levels.

h) Lack of professionally qualified and experienced marketing personnel to promote sales.

i) No research facilities including for promotional and marketing linked with

research, which will help in developing new products suitable for changing market demand.

4.2 The enabling environment, both public and private

a) Cost of inputs and mainly electricity with interruptions to supply, affect quality, increase the cost of processing and the exportable item becomes too pricey. The State’s supply of electricity to essential business houses such as tea factories to be made available on an uninterrupted and continues basis. The machine downtime and effect to quality of product can be at high cost.

b) Bank loans are difficult to obtain and interest rates are high. Export prices can be higher by 1-2 USCts per kg, which is sometimes the difference between a contract or refusal mainly to the bottom level of tea.

c) Packing material such as plywood chests/paper sacks, all imported, and

used for packing tea for export to India and other destinations are not eligible to a duty rebate. This duty of 10—15%, if waived, will make the product more competitive.

d) Export trade inadequately supported by the Government. Exporters are

levied a VAT payment of 13% which although refundable is very difficult to get back. Thus, finances are scarce and export cost pricing calculations has to include such costs

e) Accredited and equipped laboratory not available to test and analyse

samples for exports. Many buyers and countries require test reports on residue level, heavy metal, radiation clearances with each consignment. Orders are held up for long periods till the results are released from laboratories overseas.

f) Organic certifications and test reports on the products from accredited

laboratories/authorities are not available. g) Insufficient Government support for active participation in international

trade fairs to showcase Nepal tea h) No central marketing facility, such as an auction to attract sellers and

buyers to one location.

i) No market information system available to give guidance to exporters on current trends, price movements in other auction centers, changes in consumption habits etc

j) Facilities to add value to the basic product are not available. This has been

due to the overdependence on Indian exporters and marketers performing this function using blend mixes of both origins with Nepal tea “lost” in their identity.

k) Although bilateral and multilateral trade agreements have been entered

into with various Governments, no real benefits has still accrued to Nepal except with Pakistan

l) The bigger international buyers usually wish to base their purchases on “just

in time” deliveries at their doorstep to reduce financial costs and also buy large consignments. Nepal tea industry does not have the facilities to offer such large consignment as a central warehousing and blending complex is not available. On both counts Nepal is at a distinct disadvantage.

m) Being land-locked, Nepal is dependant on their immediate neighbours for the

use of their seaports for export cargo. A bilateral transport agreement exists between India and Nepal but there are delays and obstructions faced by the exporters sometimes adding on to costs.

n) Political decisions in India affecting consignments to some buyer countries.

5. Export Services in Nepal There are Government backed authorities, private associations, NGO’s and INGO’s who are available to assist the export trade. However in many instances, although the program is in place, no effective support and participation has occurred and results not achieved. 5.1 The Government Institutional Supports

Ministry of Agriculture The Ministry is aware of the problems faced by the industry with the current unrest in the farmer community due lack of processing facilities and Indian blockade. However their focus on the trading side is limited as this function may be under the Ministry of Commerce, Trade and Supplies. Assistance will be provided to set up a research and development unit, improve existing laboratory facilities to enable testing facilities for export cargo. They are willing to listen to problems and seek solutions and provide the impetus to the trade. The Ministry through their authorized bodies must be more proactive in working together with the industry

National Tea and Coffee Development Board

The NTCDB assists in promotional work and is willing to provide some funding in the participation at exhibitions overseas in meeting part financing of the infrastructure with the participation of the Embassies. It also provides market information by gathering news in the tea scene globally. In the near future, it hopes to develop a website incorporating all the information useful to the trade which can be accessed by all within and outside Nepal. Furthermore, the NTCDB arranges seminars overseas and workshops to advice and train on tasting and marketing. Although above programs are set out on paper as programs, no assistance in any of the areas, as far as the exporters are concerned, has been forthcoming. There is a perceived lack of commitment and with the absence of sector specific representatives in key positions, subjects of relevance are not taken up/solved. The need to put Nepal’s tea image in the global map is very important, at this juncture, with policy changes in the Indian Darjeerling scenario and rapidly evolving variations in the consumption habits, with health aspects being a primary reason for this shift. Unless substantial assistance in the form of finances and committed participation of the Nepal trade people based overseas is made available by the Government through the Ministries of Trade, Foreign Affairs, Planning, Tourism and Agriculture in a coordinated manner with NTCDB playing a pivotal role, this goal will be difficult to achieve. Financial constraints have been cited as the drawback for the overseas trade officials to gather relevant information and report back to reach the trade export sector. There are over 20 important food fairs overseas held at important consumer countries some of which are sector specific. At this initial stage there should be aggressive participation in selected areas with Government’s official backing to give the necessary credibility. There is a dearth of trained and experienced people to promote marketing globally. A promotion division of the NTCDB must be set as a priority and selected young persons with a marketing academic background should be recruited and given a

training in Nepal and overseas, some of whom can be chosen to function as Tea Promoters/Marketers who can be placed in selected overseas embassies whilst others can be absorbed by the private exporters.

Almost 100% of tea exported is in bulk form and the value addition is done in consumer markets by packers or in India where the tea is mixed and packed into retail form for exports. Nepal boasts of a unique tea, although its identity is “lost” up to now due to lack of a brand image and always being mixed as cheap filler with Indian special area tea. When marketing such unique tea, it is recommended that the value addition is done at origin to preserve quality better, obtain a higher price and help in building the brand/s image/s of Nepal tea. Therefore good packaging concepts must be developed, hiring renowned international advertising and promotion companies competent in food and beverage designing to assist the export companies to work together with NTCDB to develop good brand/s.

Government assistance by way of subsidized finances to defray part capital outlay, duty waivers on machinery and vehicles, must be provided to the exporters so that they are encouraged to invest in sophisticated packaging machinery and suitable factory premises, conforming to the high standards of ISO 22000, HACCP and all other parameters that are essential requirements in the food industry. Trade and Export Promotion Centre This Government body is tasked with the function of providing support to the overseas export trade of all Nepal goods. There is no sector specific specialist in their team who is able to assist in the promotion of tea. In order to contribute more to this commodity, which now has been identified as a primary export potential item, a member should be recruited to the staff, with the knowledge, and expertise following a training program as outlined below, from the same group. The selected person can be the one who should be given overseas exposure to service the department. 5.2 The Private Agencies and NGOs Federation of Nepalese Chambers of Commerce and Industries Trade chambers such as FNCCI are very important as they have the necessary clout to lobby with the Government and also with Chambers of other countries at a high level. There should be representation of a sector specific representative in the main body who can apprise the board of the needs, shortcomings, problems facing the industry to enable discussions with government. They should also support overseas participation on tea related matters as well as be actively involved in seeking and promoting tea as a primary export at all times during their sojourns overseas for trade promotion. Any leaflets or brochures should try to include articles and latest work done by them on tea related information.

The Agro Enterprise Center (AEC) AEC, which falls under the aegis of the FNCCI, has been the most significant private sector agency providing institutional supports for the commercialization of agro-based product since past couple of decades. The AEC initiated its efforts in the tea sector by assisting entrepreneurs in providing information and undertaking necessary research for the overall development. Currently the AEC is continually supporting in launching various programs such as organization of trade fairs, trainings, workshops, trial productions, policy advocacy and lobbying, business plan formulation, etc.

National Tea Development Alliance This is an alliance that has been formed with SNV, GTZ, USAID, WINROCK, FNCCI, AAC, NTCDB, HOTPA and HIMCOOP. The composition indicates the focus of development to be the orthodox tea sector, although as mentioned earlier, the CTC tea sector too, which is larger can/should be encompassed onto the alliance, as there is good potential for improvement to contribute more to the Nepal economy.

This alliance, at present, is more focused on the improvement at field and factory levels with the introduction and implementation of the Code of Conduct, and eventually to obtain certification with GAP, GMP, Fair Trade through an accredited agency in Nepal.

This agency can be created by strengthening the Department of Food Technology and Quality Control and assisting them in staff recruitment and training program so that they are able to meet the necessary competency to gain the accreditation. The alliance can help in seeking donor funding to this department to equip their laboratory. This would have a much wider impact, as such an improved laboratory would be able to service the entire agricultural export sector and is likely to be a more commercially viable operation.

With four strong INGO’s in partnership, and their international network, the possibility to seek buyers and groups/associations of special teas, identifying those international bodies conscious to help rural farmers in developing and poor countries is much easier. This is one positive manner in which the INGO’s within the alliance can help Nepal tea exports.

The ethical tea partnership alliance created by a group of big packers in EU – 26 in all, is one of them and the Nepal tea industry should work in close cooperation with them as the alliance appoints a representative to look into all the aspects they require to being a supplier to them.

There are other smaller groups in many developed countries, operating in a way that they are suppliers to shops and outlets having consumers that seek and buy items produced from poor countries to uplift their living standards. Nepal Tea Planters Association This association, started in 1987/8 is concerned with the welfare of producers and processors, mainly of CTC tea. Their contribution would be to ensure a quality leaf is supplied to the processors to enable processing a good tea free of pollutants to assist the exporters to find markets without the difficulties of their contracts being rejected, thereby building credibility so that long term relationships can be built beneficial to all stakeholders. They have created a marketing section referred to as Planters Himalayan Tea Plantations Limited (PLANTEA) and are credited with introducing the Nepal CTC tea to international markets. Nepal Tea Association This body of people involved in production and processing should assist in the same manner as outlined above for the NTPA.

Himalayan Organic Tea Planters Association This was established in 1993 to look after the producers and processors of Nepal orthodox tea. Currently they have a membership of 22, 11 having gardens only and 4 with gardens and factory. The rest have only a processing facility. In 2003 the marketing arm under the name of HIMCOOP was created to find export markets. A code of conduct was drawn up with international assistance with the aim of achieving the production of a quality tea. This was made official and implementation process commenced in 2006. A good measure of success has been achieved so far with the participation and cooperation of NGO’s and INGO’s with donor funding arranged by USAID and JICA. In 2004 an international event under the style of “ Nepal Tea & the World” was conducted to make known the commodity to international buyers. The marketing arm assists the producers in finding buyers overseas and effects shipments on their behalf for an agreed fee. A drawback they seem to be confronted with is the inability to offer larger parcels of selected types, as the invoices processed are small. There are two aspects that have to be sorted out to meet the requirements demanded by the buyers: a) Ensuring that the components of a blend mix as required based on a

standard sample that has been approved by the buyer/s are all of a similar nature and has no pollutants. The factories have to make certain of adherence to residue levels, heavy metal, chemical and fungal presence and ensure either absence or within the accepted parameters specified by the importing countries;

b) The facilities are available for the blend mix to be done to ensure proper mixing under hygienically accepted conditions in premises that have the ISO/HACCP systems in place.

Point number (1) can be solved with close monitoring of field practices if the garden is controlled by factory or dealing only with farmers who are willing to strictly adhere to the parameters set down by the code of conduct. Appointed field officers by the factory can visit the farmers for regular checking and monitoring of their activities and usage pattern of inputs.

Point (2) of establishing a facility will require financial assistance and subsidies or duty waivers from Government. Financial aid from donor agencies is also a possibility in order to defray some of the expenses. Besides, there are Mechi Hill Tea Producers Association, Illam and Himalayan Tea Producers Cooperative Ltd, both addressing the issues of orthodox tea only.

6. Recommendations and Action Plan 6.1 Recommendations for farmers, producers and exporters

a) Infrastructure: Green leaf farmers are located in areas, which have poor infrastructure. Although they are able to produce the leaf in quantities, transport is affected by using methods, which are unsatisfactory such as on animal back, bicycles, causing damage to the leaf in transit. The bags used for plucking are also not the current recommended types which have now been designed to keep the leaf intact as well as allowing it to “breathe’ without causing fermentation before it arrives at the factory premises. Access to the farmer’s premises quickly and in vehicles that are suitable should be made available to the providers of ancillary services. Recommend the import of commercial vehicles suitable to the industry on duty free basis.

b) In opening of new land, good agricultural practices must be strictly followed

to ensure minimum damage to soil and environment. Thus soil erosion and leaching can be minimized whilst organic population can be preserved. The physical properties of soil such as density, porosity, and moisture retention must be well addressed to minimize adverse effects of weather.

c) In order to tap into new markets, it is important to look into product

diversification, taking into account the trends in volume of imports by target countries and their preferences in taste and tea grades. Annex III provides an overview of tea consumption in countries concerned and grade preferences.

d) Tools and Implements: As the NTCDB has in their program a scheme to

supply tools and implements at subsidized costs the new type of plucking bag and other relevant implements for the use by the farmers at the garden level should be imported free of duty and made available at reduced cost so that the leaf quality can be preserved.

e) Quality Controls: Whilst the farmers should ensure that their pluckers follow

the practice of selective plucking, the factories should be very strict in their controls of leaf intake to reject all unsuitable and damaged leaf at factory door.

f) Political Interference: Government should support the factories to run their

business in the best practical manner to achieve quality products without allowing labour or outside influences to dictate terms to factory staff on good management practices.

g) Agricultural Inputs: Tea extension staff and the individual farmers must be

more vigilant regarding the indiscriminate use of chemicals and pesticides. Although it is a difficult task, the state machinery should be used effectively to patrol the borders so that import of inferior quality inputs not only to the tea industry but agricultural crops in totality is protected by not allowing substandard and banned cheap products.

h) Health Hazards: Some factories and packaging plants are unsuitable for tea

processing and are a health hazard. A scheme must be evolved by the NTCDB to register all tea farmers, packers/blenders and processors, however small their operation. Regular inspections of their premises should be

undertaken so that inferior, substandard and polluted products are not put out into either export or domestic market.

i) Certifications: As far as possible most medium and large export oriented

factories should be encouraged and assisted to obtain the ISO/HACCP certifications as a strategy for future marketing.

j) Packaging Material: All packaging material is imported either from India or

Sri Lanka through Indian traders. The industry is at present too small for any commercially viable enterprises to produce the needs of the industry only. Hence there will have to be continuation of imports for export packaging for the time being. With bilateral trade agreements, such as with Sri Lanka and multilateral agreement with SAFTA under SAARC countries already in force, opportunities should be created to import packaging items directly on a duty free basis .eg multi-wall and rigid type aluminium foil lined kraft paper sacks from Sri Lanka.

k) The traditional plywood chests, which were discarded from use some time

ago, are still being used for exports into India. These items are imported and re-exported. Duty concessions should be available for such transactions. As it is not an environmentally friendly form of packaging material, its use should be discouraged and the use of rigid paper sack should be promoted.

l) The made tea is packed into PE/PP bags and are stored till they are ready for

use. This form of packaging, particularly in the Terai areas where temperatures and humidity can be very high will speed up the deterioration of the product. In such instances dispatch of the made, packed and ready product to more suitable storage facilities should be done without delays.

m) The same applies to the export cargo, which is held up in covered trucks for

many days in transit to Kolkata port in open storage areas. Whilst some instances can be beyond the control of Nepal, it is always prudent to develop an efficient system for clearance of cargo with minimum delays being incurred. Improvement and minimizing documentation requirements is one method of reducing down time.

n) Quality of Product: Above recommendations, if carried out, should ensure a

product of better quality than what is presently available which would be the ultimate goal of the producer and processor and the tea industry as a whole. Further enhancement to quality can be achieved if the manufacturing practices are adjusted to different times of the season to make optimum use of the leaf quality and their inherent characters to bring out the maximum natural flavour, aroma and strength.

o) Test Reports: There are no laboratories or survey companies capable of

conducting tests and analyses on residue levels, heavy metal presence, fungal infestation and issuing reports that are required by the larger section of international trade today. This is a big disadvantage, as samples of teas awaiting export have to be sent to laboratories in India and Germany for such tests to be performed. There have been many instances where such samples have been found to be contaminated and thus orders having to be cancelled. Once the consignment is rejected, there is no “home” for it. Therefore the need to have a well equipped laboratory in Nepal. However there are limitations in setting up a laboratory by a private enterprise as well as any international survey company due to the volume of business being

commercially unattractive. The alternative would be to strengthen the existing Government Food Testing Laboratory with a mandate to do commercial testing of export samples of all agricultural products to become a profit center whilst at the same time to devote a part of the time to conducting research and development.

p) Information System: There seem to be a total lack of information gathering

in the industry with little or no active attempt to collect, analyse and distribute the information to the stakeholders. The Agro Enterprise Center of FNCCI puts out some information but this is insufficient when market information and current developments are the essential information that an exporter requires. A website is to be developed by the NTCDB which is an excellent concept and all stakeholders should be involved in it’s design as the information required by each different sector is different and it takes time to get an information system designed with a professional planner. This must include as much as possible, information on world markets, speciality market segments, demand patterns, new concepts in tea consumption and a whole array of inter-related subjects from which the interested visitor can drawn on. The trade attachés in all the embassies overseas must be used as a constant source of information gathering and updating. A full list of buyers of all types of tea in every consuming country must be incorporated into the database so that they can be accessed. Furthermore the information of the individual export companies in Nepal with the types of tea they can offer showing the leaf appearance and cup quality in the form of photographs can be included in the website, for an annual fee, so that the exercise becomes a viable proposition for the NTCDB.

q) Export Marketing: The tea industry in Nepal is small. The volume exported

currently is around 0.23% and production is 0.32%, out of the total global output. (ITC statistics). With this small quantity entering the world market, it is difficult to build up a brand image unless with personal contacts and constant interaction. Furthermore any promotional and advertising would be at a prohibitive cost. Therefore it is more prudent to work with marketing and distributing companies who are experienced in handling food items and specifically beverages and tea. As the orthodox tea is considered a special product, it would also be more beneficial to work with the Speciality Tea Associations and such bodies established in a number of countries. HOTPA/HIMCOP are already working closely with the American Speciality Tea Association and are developing the product within the parameters set down by them to facilitate entry to their market segments. In every country, there are tea buyers who supply the cafes that serve special blends and varieties of beverages including tea and these buyers must be contacted by participating in trade fairs where special teas are exhibited and their business solicited. Negotiate with international brand owners and get into JV partnerships with them to supply and ensure Nepal teas are included in these branded products.

r) Two marketing entities have been formed in the orthodox and CTC sectors to

do the marketing function under the names of PLANTEA and HIMCOOP. Merging to form one marketing company or association with a broad representative of stakeholders in both sectors for the improvement of market share in the global market for Nepal tea in totality should be seriously considered.. This company to undertake the promotional and market intelligence work, market planning forecasts, future trends, market information and international statistics. It should be the driving force to establish the

Nepal Tea logo and brand in the global market. The company must monitor the quality available for export through the respective associations. This private company composed of senior and experienced persons should direct the affairs but also ensure that the interests of all parties are met fairly.

s) It is also necessary that the seedling and clones developed in Nepal be

protected. Nepal must strive and develop Geographical Indicators, mainly for the orthodox tea areas, similar to Darjeerling in India and Dimbula/Nuwara Eliya in Sri Lanka so that branding and marketing such produce can be done. The production and processing and the quality of the final product in such clearly defined and identified areas has to be closely studied and special features associated with them classified to use them as a marketing tool.

t) Research and Training: Like all other areas of the industry this too lags

behind. Research has been generally neglected. Due to the vicinity of India and easy access, progress at field level and development of new plant varieties, usage of inputs, and technology have all been directly or indirectly brought into Nepal. All the machinery is of Indian origin except those in the older factories some of which are from UK. Therefore the tea produced/processed bear a very close similarity to the Indian Darjeerlings and CTC’s.

Any potential research instincts have been suppressed to the extent that innovation in the industry or changes in the style of manufacture, or applying subtle changes to the methods of manufacture, have not been introduced. It is very necessary to establish a Research station, which is specific to tea with all the relevant divisions of a agricultural based commodity in place to look into agronomy, physiology, pathology, bio-chemistry, manufacture, extension, training, information and now the important aspect of marketing to look into new product developments with global consumers in mind. There is a need to establish a tea training centre or tea school to develop human resources required for the tea sector.

6.2 Recommendations for the business environment

a) Business Environment and Export Services: With the privatization of the tea industry, the Government controls were gradually removed in the operations of the large tea gardens and factories, which they controlled. However, contributions in certain areas, which are essential in giving directions to the industry, have also lost their significance, which is detrimental. The NTCDB, which still remains under Government control and is responsible for giving direction and guidance is lacking in performing their duties. On paper the program is well thought out looking into all aspects to solve the shortcomings. However the main positions on the Board of Directors must be with the now important private sector, who’s task is to drive the industry forward. The composition of the present Board is not fully representative of all stakeholders. Hence there is lack of purpose and direction and almost all the programs, which are outlined on paper for the betterment of the industry, still remain largely unattended. Financial constraints seem to affect even the extension and training programs which have been severely hampered and farmers are left to seek advise from their Indian counterparts for almost all their inputs both advisory, technologically and guidance on application of agri-inputs. Immediate revamping of the direction in which the NTCDB should focus and methods to obtain financial

assistance from the Government must be treated as priority. The industry must be willing to contribute their share to the common cause, as it has been handed over to them to develop the industry. Therefore it is essential that their attitude towards the Government authorities and statutory bodies change and work in a combined manner in a cohesive way so that all stakeholders become willing partners to get moving forward. It is also essential that a scheme should be drawn to bring in finances by way of a Cess payment, membership payment, contribution towards advertising and promotion etc from the now private industry to swell the coffers of the NTCDB for their use in extension, expansion, research, training, information and marketing which can be developed to benefit all.

b) The environment is also not conducive to conduct business in a smooth way

due to political interference and disruptions to normal work at field, factory and city levels, interruptions to supply of essentials, high costs, tax levies, import duty on necessary inputs which need to addressed by the Government and some changes introduced if the industry is to move forward.

c) Export services at present are lacking and this aspect too has to be drastically

improved not only on the state side but also with the private sector’s participation.

d) Export Financing: There is only one international bank, the State Bank of

India, operating in Nepal. There are a few Banks with foreign collaboration established such as Standard Chartered Bank, Himalayan Bank, Nepal Bangladesh Bank, Nabil Bank, Nepal Investment Bank. Many local banks are operating, some specific to one sector like the Agriculture Development Bank, whilst others such as Nepal Bank Limited, Rastriya Banjiya bank, Machhapuchera Bank, Kumari Bank, Lakshmi Bank, Everest Bank, NIC Bank, Bank of Kathmandu, Nepal Commercial and Credit Bank. Although these banks are able to handle export financing and documentation, they do not have the network of correspondents overseas to facilitate transaction, which hinders the smooth transactions in banking matters. There are no financial facilities available to exporters at favourable rates. There are no incentive schemes for the development of exports, such as pre-shipment finance. There is also no Export Credit Insurance scheme available to safeguard exporters in the event of default from overseas buyers which is now a grim reality. Factoring opportunities are not available. The Government has to look at opening up opportunities for more foreign participation not only in the fields of finance and banking but also joint venture partnerships and land ownership by foreigners.

e) Route via India to the Bangladesh seaport of Chittagong should be

developed to overcome delays, and facilitate shipments to Pakistan and Poland.

6.3 Micro-level action plan There are various companies involved in the industry but for this study the focus will be the export-oriented company. Let us assume that this company has a small staff of 8 persons including the CEO, a person knowledgeable in tea commodity and it’s export potential who is the driving force. The staff consists of his assistant who is also a “tea” person, a shipping, documentation, accounts clerks, a secretary cum office assistant, wharf assistant and driver cum office boy.

The company is able to get export orders for black made tea of both CTC and orthodox varieties and orders have to be executed under their supervision and guarantee on quality. They will have to first visit their bank, show the contract and ascertain as to what export finance facilities they would be given. If they are able to raise the finances, what interest they will be charged and whether they can cover themselves with an insurance policy against any risks that may arise due to non-payment by buyer. The company has to select two or three reliable factories in both tea-growing areas, which they have to visit to see to the cleanliness and facilities. They have to ascertain by interviews that the farmers who provide the green leaf are reliable and have the know-how to see that their use of agri-inputs are of the correct type, and applications are done at the post harvest period time. Once they are satisfied, final product and the quantity that they have contracted will have to be purchased from the factory. They could negotiate with the factory for a credit period satisfactory to both parties and take charge of the goods. A representative sample of the goods has to be tasted by them to see if there are any undesirable characteristics in the leaf and cup quality. If this is found to be ok, the sample, if required by the buyer, may have to be sent to the laboratory in another country by courier for testing and obtain a report for residue levels etc. Cargo vessel will then have to be arranged and the goods will have to transported by truck with the assistance of a freight forwarder via the border at Kakabhitta in Birtamore for carriage of cargo from the port of Kolkata to final destination. Due to the prevailing conditions in the industry, precautions as to the quality of goods at all levels have to be monitored by the exporter to be certain of the satisfactory execution of the export order. Execution of the export order will be difficult due to obtaining finances at high costs from the existing banking system and inability to cover the export risks. As only one foreign bank and few under collaborations are operating in Nepal, the banking charges that either the buyer or exporter has to incur will be high which all add up making the buyer to beat down the contract price in including all the ancillary costs. The costs cannot be quantified but the difficulties and risks are evident in the execution of export orders. 6.4 Meso-level action plan There are many statutory bodies, associations and cooperative groups all working within the industry. One important aspect is for all of them to come together in a common forum and decide on a common goal for the betterment of the Nepal Tea Industry instead of working at tandem to only solve or achieve their own stated objectives. First would be to present a common front to the highest persons in government and prove that a strong private sector driven NTCDB, with the correctly structured directorate with participation from all sectors, will be able to look after the affairs of the Industry with Government support in specific areas of regulations and guidance. Once the apex body is re-organized, the program of action that is already in place should commence to implement them with adjustments/amendments to suit the present time and needs of all stakeholders. The national tea policy of 2000, with appropriate amendments to suit the current scenario, should be pushed through so that proposals, which are beneficial to the industry, should be addressed and implemented. Set up a monitoring unit with experienced professional staff to regularly check on quality of tea available for export and domestic markets. This can be a unit within an existing monitoring body.

Food Fairs are held in many countries. The Fairs of interest to market Nepal tea should be carefully selected and private sector export companies must be encouraged and assisted to participate. It is furthermore essential to select target countries, which have the potential to absorb Nepal tea, and try to penetrate them. Countries concerned must be visited by a selected group from Nepal, comprising of small number of delegates mainly of private sector including a strong but small Government contingent to participate with support. These visits are to be arranged by the Embassies overseas so that matters pertaining to tariffs, transport, etc., also can be discussed at Government level. It is also advised to open outlets with assistance of, and in agreements with, overseas resident Nepalese, to market tea amongst a variety of indigenous products, in the ambience of a Nepal Tea Shops. This could be done together with the Ministry of Tourism and Nepal Airlines. 6.5 Macro-level action plan At the macro level the Government and the Ministries that overlook the various aspects of the tea industry should provide the necessary impetus and correct any shortcomings that would be brought up at the different meetings with different sector representatives and looked at in a manner that will address the grievances of the entire industry. At present the CTC and orthodox sectors look at themselves as being totally different entities. This does not help a national image-building program. Guidance must be provided by the state towards the formation of a truly representative private sector driven NTCDB by reconstituting the board with minimal but important government position to convey the thinking and decisions to be followed by the industry. Assistance should be provided and funding sought, with the active participation of the newly constituted NTCDB and relevant Ministries, to set up a new sector specific research facility. This facility will need to look at all aspects of the industry from plant material breeding to market intelligence and new product development. As a priority, it is essential to improve the laboratory facilities of the Department of Food Technology and Quality Control to meet the needs of the agriculture sector and organize it to function as a commercially viable entity. Trade should be facilitated by establishing two blending, packing and warehousing facilities in the orthodox and CTC tea areas so that this new private commercial company can provide the necessary facilities for exporters to use, based on an agreed fee, in the preparation of their export orders. It is furthermore recommended that the Government provide duty free entry for packing material used for export cargo and for inputs necessary for the industry to expand and develop such as machinery, tools and implements, commercial trucks, etc. It is recommended to establish, through the Ministry of Finance, schemes to facilitate exports with the provision of loans at favourable interest rates, insurance cover for risks in trade. Look into making amendments to the customs procedures to minimize delays at the borders and in Indian territory by negotiating changes to benefit Nepal.

Through the Ministry of Trade, speed up the implementation of the trade protocols of the treaties entered on bilateral and multilateral basis with the various countries to make optimum use of the agreements to promote sales of tea and transit/transport facilities. Through the Ministry Foreign Affairs, either appoint special trade people with some training in the sales and marketing of tea and place them in key consumer countries or provide a short term training to the existing trade counsellors in commodity marketing with emphasis on tea to enable them to give a feed back of market, buyers contacts and other information to filter down to the exporters. Make full use of the tourist potential of the country through the Ministry of Tourism to promote the Nepal Tea logo, brand and image. 6.6 Prioritization of action plan – If we have a million … 1) Strengthening of the Nepal Tea and Coffee Development Board There is a regional station in Bhadrapur and 2 main stations in Jhapa and Fikkel. There are further smaller extension offices in these areas. Their work programme in terms of training and extension work cannot be carried out satisfactorily due to lack of infrastructure and facilities.

Necessary inputs Estimate of costs8

- Suitable equipment used for conducting of presentations such as Portable magi boards and ancillary items US$ 300

- Basic laboratory equipment to test soil composition and a microscope US$ 1,000

- Training program for 4 technical officers in a University or Food Technology Laboratory for one month on basic tests suitable for plants and specifically to tea

US$ 1,500

- Conducting of monthly workshops in the specific area in both CTC and Orthodox areas on field techniques and plucking standards. US$ 1,000

- Providing motorcycles, one each to the regional office and 2 main stations US$ 2,300

- Equipping the regional office with a printing machine (Roneo duplicating type) for printing of the monthly leaflet with relevant updated information to the farmers

US$ 1,000

- Arranging a 15 minute slot in the Radio station specifically designed to the tea sector covering a wide range from field to market information to be aired monthly to reach farmers and all interested parties.

US$ 13,000

Total costs initial involvement US$ 19,100

Total annual costs US$ 26,600

Initial + 3 years operational Grand Total US$ 45,700 Above needs to be addressed immediately as a priority. 2) Equipping the Food Technology and Quality Control Laboratory

8 The estimation of costs is tentative and based on indications received locally. These, however, need to be verified.

Enable testing according to the requirements in the importing countries common to all agricultural commodities. Most countries do not have such equipped laboratories, forcing the exporters of agricultural commodities to utilize the services of private laboratories in countries where such facilities have been installed. However, it is very unlikely that the established and recognized international agencies will invest in setting up laboratories, if the ventures are not commercially viable. A laboratory building is already constructed and completion of this program by adequately equipping it should be prioritized. Assistance from UNIDO and FAO for technical and training guidance has been pledged. Funding is sought to obtain the necessary equipment and train the required staff.

Estimate of costs

- Approximate estimated cost of equipping laboratory with 2 nos GC, 1 no each GCMS, Graphite Furnace, Atomic Absorption Photometer, and items for Microbiological testing

US$ 500,000

- Laboratory chemicals for 2 years US$ 100.000- Local training program fore 25 science recruits US$ 150,000- Training program for 2 overseas for 3 months US$ 40,000- Staff salaries for 1 year US$ 70,000- Maintenance & services for 2 years US$ 15,000Initial investment & 2 years operational cost US$ 875,000 Assistance in setting up of such a laboratory will benefit the entire agricultural export sector including the five identified commodities for development in Nepal. Such a well-equipped laboratory should be assisted by the international agencies to gain accreditation by world bodies. Financial assistance should be made available by donor/s to meet the operational costs of the facility for one year till they can get fully independent and commercially viable. Such a facility should be able to offer their services to the entire agri-export sector, on a commercially viable basis by conducting tests and issuance of reports to an estimated 100 requests per month at an average of US$ 100 per certificate and be able to generate an income of about US$ 120,000 per annum. In addition, such a facility will be beneficial for research work by Universities, Agriculture Institutions, etc. It is likely that the potential users in close proximity such as India, Bangladesh and other neighbours may also make use of the laboratory. Although the cost is high for one party to bear, a suitable section of above can be selected to assist or work in combination with one or more other donors to have a completed facility. This is a requirement for the country and should be done on a two-year program commencing soon. 3) Setting up a bulk blending plant for orthodox tea In order to meet the requirements of overseas buyers who are in need of quantities in excess of the normal invoices, a facility has to be provided where several invoices of varying small quantities of a similar appearance and cup quality can be mixed or blended together to give a composite bulk conforming to a standard sample that has been accepted by an overseas buyer/s as being suitable for their needs. Many buyers request for such bigger volumes to feed their packing machines and the shipment has to comply with the density, leaf size as well as a standard cup quality to ensure that all batches thus prepared are similar every time deliveries are made.

One of the setbacks observed is that no two batches of the same grade seem to be similar in leaf or cup quality. Whilst the processing at the factories will have to improve to ensure invoices of the same grade are very close to each other, the blending plant is to be constructed and machinery installed so that the premises and systems introduced will conform to the internationally accepted ISO 22000 and HACCP standards. This plant is to be set up and operated with the marketing arm of the cooperative of the tea associations. Capital outlay for plant: Estimate of costs- Floor area for blending and office area for administration - = 400 + 100 Sq M US$ 50,000

- Conveyor Belts Roller and Belt type US$ 2,500- Blending Drum of Capacity 6 MT US$ 40,000- Vibrator and Packing Equipment US$ 3,750Total US$ 96,250 Operational expenses for one year: - Staff (Manager, Supervisor + 2 assistant Supervisors) salaries per

annum US$ 4,800

- Labour on contract basis – 10 workers X 20 days X 8 months US$ 4,000- Electricity/water and services US$ 5,000

Total US$ 13,800

It is estimated that the annual revenues of the plant will exceed the operational expenses by far, allowing a shift financial recovery of the initial investment. Based on processing 500,000 kgs at an average charge of 0.10 US Cts/kg blending/packing charges, annual income of the plant would come down to US$ 50,000. The exporter who uses this facility will have to ensure:

a) Blend components are of good quality and uniform b) All packing material to be supplied c) Transport to and from to be undertaken by them d) Nominate a person of theirs or a survey company, if required to be present

during operations. Training for staff: The staff that is put in charge of blending will have to be trained in their respective fields, including grading and tasting to familiarize them with the commodity. A two weeks training in a similar facility in India will be satisfactory. This would cost approximately US$ 750. This project too should be undertaken soon and completed within a period of 6-8 months. 4) Packing plant for value addition of CTC tea This facility must be made available to both the CTC and Orthodox sectors as they both represent the Nepal Tea Industry. This facility is to be managed by the marketing division of Nepal Tea Planters Association PLANTEA. This would enable the value addition at origin as well as afford the opportunities to exporters to develop their own brand for international markets using the Nepal Tea logo as a quality standard. The value addition will be in excess of 200% for a kilogram of tea.

CTC packing plant Capital outlay for plant: Estimate of costs- Building including office 400 sq m US$ 40,000- Conveyor roller and belt systems US$ 2,500- High Speed double chambered string & tag bagging machine with

envelope making attachment 400 bags/minute US$ 75,000

- Equipment for packing section US$ 4,500- Training of technician at manufacturer’s factory US$ 6,000Total US$ 128,000 Operational expenses Basis for calculation:

- 480 kgs per 8 hrs shift working to process 3,000 kgs of tea packed into 2g size of teabags packed into inner boxes and outer master cartons.

- 6 working days to prepare 1 x 20 ft fcl - 4 X 20 ft fcl’s per month and 48 fcl’s per year. - Usually such packing plants work two shifts and sometimes all 3 shifts in rush

times. For our basic calculation purposes one 8 hr shift day is taken.

Estimate of costs- Cost of filter paper and string US$ 53,000- Cost of cellophane + adhesive tape US$ 100- Cost of electricity and other services US$ 18,000- Staff (1 no ea manager + technician + supervisor + 5 nos packing

staff) US$ 7,325

Total US$ 78,425

Income Basis for calculation: - Cost of preparation of string & tag only bags @ USC 0.0030 per bag X 500:

US$ 1.50 per kg - Cost of preparation of string & tag with envelope at USCts 0.0040 per bag X

500: US$ 2.00 per kg Based on 70% with string & tag only and 30% with string & tag with envelope over-wrap, the income would amount to: - 70% of per annum quantity of 144,000 kgs working single shift for 12 months

=100,800 kgs X US$ 1.50 per kg: US$ 151,200 - 30% quantity = 43200 kgs packed into 2g bags with string & tag with envelop

over-wrap @ 0.004 per bag X 500 = US$ 2.00 per kg: US$ 86,400/- Total yearly income generated: US$ 237,600

The exporter must supply:

a) required standard of tea b) tag to be used in the sizes of rolls specified by Factory c) printed inner cartons d) master cartons e) undertake transport to and from factory

Financial support for the capital outlay and one years operation should be provided to set the facility and their operation going. Again, this project needs early attention if export earnings are to be increased.

5) Packing plant for value addition for orthodox tea

Similar to the packing plant outlined in (4) above for the CTC teas, a facility for value addition must be set up as an incentive for the orthodox export companies to seek orders from overseas buyer who will require value addition into teabags of a special kind, preserving the big leaf size to be processed in Nepal under conditions acceptable to them in premises that comply to ISO 22000 and HACCP standards. The added value will be in excess of 300%. Capital outlay Estimate of costs- Building premises with office – 300 sq m US$ 30,000- Conveyor system roller and belt types US$ 2,500- Pyramid bagging machine with attachments US$ 180,000- Equipment for packing section US$ 4,500 - Training of technician US$ 6,000

Total US$ 223,000

Operational expenses Basis for calculation:

- 1 x 20 fcl will have 864 kgs of tea. - Preparation of 1 x 20 FCL will take 05 days working one X 8 hr shift. - In a working period of 8 months of the year 40X 20- ft fcl’s will be processed.

Estimate of costs- Cost of filter paper and string US$ 40,000- Cost of cellophane and adhesive tape US$ 150- Cost of electricity and other services US$ 14,000- Staff of 1 ea manager + technician + supervisor + 5 nos packing

staff US$ 5,000

Total US$ 59,150 Income; based on preparation of 34,560 kgs per 8 month season of pyramid tea bags preserving the flavor, packed using see-through material to display leaf, @ .0.0050 usc per bag X 2.0 g per bag = US$ 2.50 /kg Total yearly income generated: 34,560 kgs per annum: US$ 86,400. The exporter must supply:

a) required standard of tea b) tag to be used c) inner printed boxes and master cartons d) Transportation of tea to and from factory

Cost of the financial outlay and operational expenses for one season must be made available to get the facility operational on a commercial basis. This project, although not required as early as others is a concept that should be borne in mind to service those markets which request for pre-packed valued added consignments.

6) Setting up of a full-fledged sector specific research station and training school Although the targets have still not been achieved according to the tea policy of 2000, the program was to increase land area to 40,875 ha and employment in the sector to 79,310 persons. The Government has ambitious plans for the tea industry and the need for a fully-fledged Tea Research Station and a Tea Training Centre or Tea School will be a necessity for the future. This would be a new venture, which would incur a very high cost. An area in a tea-growing district such as Dhankuta would be very appropriate for this purpose. The Pakribas Agriculture Centre (PAC) under NARC (Nepal Agriculture Research Council) is already undertaking some very basic research works on tea. It already has most of the infrastructures required like one or more large buildings to house the various divisions associated with such research, residential quarters for the various grades of staff, different laboratories and staff for Agronomy, Physiology, Pathology, Chemistry, Extension Services, Nursery development and Botany and other physical facilities. This Centre could be strengthened with additional staff and devoting full time on tea research and extension activities in collaboration with NTCDB.

A Tea Training Centre or Tea School could be established at Dhankuta by utilising the premises and resources of existing infrastructures or institutions like Pakribas Agriculture Centre, Uttarpani Vocational Training Centre, Paripatle Horticulture Farm, Tea Development Centre of NTCDB and the private sector tea estates with processing facilities. Whilst the establishment of an independent Tea school will cost in excess of US$ 3 million, strengthening the PAC to do full research in the area of tea only will cost about US$ 0.30 million.

This is a project that will take some time to raise funding and implement as it will be prohibitive for the Governmnet alone and donor funding will be required. However, it is a very important aspect that has to be addressed if Nepal is to be independent” in their future developments in the industry. 7) Establishing an information system for the tea industry.

The NTCDB is already having the basic idea of getting it’s own website developed. As the board is also looking at coffee, it will not be completely sector specific, unless the website is done for tea only. This would be advisable and ideal. It would be opportune to design one with inputs from stakeholders. The information available should include: a) Field information of plant types, areas under cultivation, yields and such

detailed statistical information. b) All types of information required to the farmers such as clones, seed stock

varieties, their usefulness, which areas are best suited etc. A scientific information base.

c) Information regarding uses of agricultural inputs, approved lists, banned items, and results of work done in this aspect.

d) Details of correct processing, new developments in machinery and methods. Packing requirements in different countries, new types of packaging.

e) Financial news for all concerned with focus on exporters on insurance risk covers in the event of defaults, facilities available globally for export assistance.

f) Full details of overseas buyers in various countries with addresses and contact details to enable exporters to access and get into direct contact.

g) Incorporate the details of Nepali exporters for an annual fee on the site.

Above are some of the subjects that should be presented on the website and designing of such a detailed one would incur a cost of around US$ 15,000/-

Data collection is essential to feed into the site and a project should be undertaken to spread out teams to look into above areas and collect information and data, locally and internationally. Assistance can be sought from organizations such as FAO, WTO, USAID etc for data and statistics as well as scientific and market information. The total cost are estimated at US$ 35,000 for different teams to work for a period of six months.

The radio presentation can also be incorporated into the information development program as they are interlinked, both coming under aegis of the NTCDB. Given below is a total system suitable for a complete information system for the industry at an estimated cost of US$ 135,500/00.

This project is a priority, as it will be one of the main contributors to developing and improving all aspects of the industry. Commencement of this early will benefit the industry.

Programme for Information System

Event/Medium Contents Units p/a Frequency Est Cost Promotional/educational seminars at national level

Policies, logo, marketing, currenet position

02 bi-annual US$ 3,500

Educational workshops at district level

Policies/technical information, production, processing

03 every 4 months

US$ 3,500

Education workshops at commune level

Policies, technical and practical information, production and processing

05 once every 2 months

US$ 2,000

Training programs at field and workshops

Technical and practical information on production and processing

12 monthly US$ 3,500

District competitions GAP, GMP, CoC, selection of best nurseries, fields, factories and extension services

02 bi-annually US$ 1,000

National competition and award ceremony

Recognize winners of production, processing, marketing, exports, value addition, and special contributions to the industry

01 annually US$ 4,000

Technical manual approximate 200 pages

Scientific and practical information, on production, processing, nursery management,

30,000 sold at subsidized rate

US$ 33,000

Handbooks Illustrated information on production, processing, nursery practices

50,000 sold at subsidized rates

US$ 22,000

Leaflets Simplified, illustrated information on a few

50,000 distributed free by

US$ 4,000

aspects of tea industry at a time

hand/post

Posters/Calendars Illustrated with tea news 30,000 free distribution

US$ 3,000

Newsletters Information on current trends, developments, market information

30,000 monthly distributed by hand/post

US$ 3,000

Bulletins Global market trends, current affairs, new developments

1,000 free distribution

US$ 1,000

Radio Farmer outreach programs, with monthly competitions of practical value


Television Farmer/factory outreach program, Exporters


Website through internet A complete set of relevant data on industry, statistics, current market information, prices etc

accessible nationally and at districts

daily updates

US$ 15,000

6.7 Conclusion Nepal tea industry is now at a crucial juncture poised to take off to be an important industry for employment generation for the rural masses as well as a key export income earner. There has been unplanned expansion resulting in lower quality products not able to find suitable markets and at remunerative prices. With the demand globally increasing, better quality and well presented commodity items, it is imperative that Nepal focus their attention on a program covering all aspects of the industry to meet the setbacks, shortages and problems facing it. The observations and recommendations outlined in this document will assist in evolving a strategy for the overall improvement and development of the industry.

Annex I: Timetable of Meetings and Activities: The following activities were carried out between 16/06/2007 to 31/07/2007 Date and Time Activity Justification June 16th -1600 hrs Arrive Kathmandu – Meeting with Chief Officer –

Bimal Nepal and Officiating Executive Director – Narayan Prasad Shrestha

Introduction and background information on Nepal Tea Industry and work schedule

June 17th - 1030 hrs Meeting with Executive Director – Binoy Kumar Mishra of the Nepal Tea and Coffee Development Board together with Ishu Shrestha –acting Regional Chief /Tea Expert. Activities, future programs and funding

Gather preliminary information and discuss the program of activity and the tea policy 2000

June 17 -1500 hrs Meeting with HOTPA/HIMCOOP Representative body of the orthodox tea producers and their marketing cooperative Present: U K Chapgain- Chairman K M Mainali –Board B P Neupane S K Rai Nirota –Farmers rep Gyendra Gurung _ M M

Ascertain information on the orthodox tea production, processing and exports, Bottlenecks, MRL problems, Blending plant, value addition, brand image

June 18th - 1400 hrs Dept of Food Technology and Quality Control U K Bhattari – Executive Director J P Lama – Deputy Director

Current work, State of Laboratory, need for improvement, limitations in conducting tests and research. Need for donor funding.

June 18th -1630 hrs Tea and Coffee Department of the Ministry of Agriculture D K Saraf –CEO Surendra Rijal

Work related to Tea, Nursery development, and training of farmers under the Tea Commercial Development Program,

June 19 - 1100 hrs Dr Ramesh Munankami –National Expert of ITC Discussions on data obtained. Rescheduling of the activity program due to unexpected unrest in planting areas

June 20th -1130 hrs Meeting with Jhapa Chamber of Commerce and Industries R Gimre – President and about 15 representatives from the small, medium and large farmer and factory associations.

Activities and problems relating to CTC tea farmers, factories and exporters.

June 20th -1300 hrs Nepal Tea Planters Association B Shrestha O Sarawagi D Towdel H Patel S Rijal –Chamber of Industries Morang

Problems of farmers, pesticide levels, Need for research work, shipping difficulties at border, availability of finances

June 20th -1500 hrs Visit to 2 new and one old CTC factories and a blending and packing plant. Tasting of samples. G P Pokharel- Director – Danfey Tea Processing Company A Parajuli – Director –Parajuli Tea Industries

Observation of premises, cleanliness, machinery, work in progress, product quality and ethics.

June 21st -0830 hrs Visiting 03 farmers and observing their field practices including plucking.

Inspect bushes to gather information of their population, insect, pest, fungal, and other root diseases and controls. Usage pattern of inputs. Financial difficulties, transport of green leaf

June 21st -1030 hrs Buttabari Tea Processing Factory – K Giri – Managing Director Observe the work in progress at factory which is HACCP certified.

Adherence to HACCP standards and ensuring the product is within the accepted parameters of MRL. How green leaf inyake is controlled. Export orders and pricing. Tasted samples.

June 21st -1200 hrs Food Quarantine Office – Kakarbhitta K Dhittal – Food Research Officer

Discuss shipment routes, delays, the laboratory was inspected and work conducted at this border area discussed.

June 21st -1300 hrs Plant Quarantine Office – Kakkabhitta – S D Mainali – Plant Quarantine Officer Inspected laboratory and observed work done

Discussed the shortcomings in their division, work being done on various agricultural export products.

June 21st -1430 hrs Tokla Tea Estate and Factory of the National Tea Development Corporation in Jhapa. Manager and Senior Factory Staff

Working of the privately managed entity which was earlier under state ownership. Technical expertise from

India .Work in progress. Labor problems, marketing

June 21st -1600 hrs Small Tea Growers Association -Jhapa M Kharel C Jhapa M P Regmi

Setbacks and problems faced by small tea growers. Difficulty in access to finances. Green leaf prices low and not related to market of a formula. Factories taking 06 months to pay.

June 22nd 930 hrs NTCDB –Tea Extension Program Office in Fikkel. 05 demonstration plots maintained. Different varieties of clones and seed stocks. Mother bushes. Execute field programs. Diseases encountered in the area and controls

Observed the workings and studied the extensions work being done within very limited facilities and finances. Leaflets distributed. Seminars and field advice conducted.

June 22nd -1000 hrs Nepal Small Tea Producers Factory D Rai – Chairman P Rai – Manager In the process of obtaining HACCP certification. Manufacture tea product by separating the leaf from COC and non COC farmers to control MRL levels. Have had problems on this earlier. Markets to Germany

To observe the activities and controls in a cooperative establishment. Very strict controls on cleanliness and leaf intake. Tasted their full range of teas.

June 22nd -1200 hrs Himalayan Shangrila Tea Producers (P) Ltd Factory Member HOTPA and HIMCOOP K R Mainali- Director 150MT capacity but under utilized

Observed processing procedure, tasted their full range of products,

June 22nd -1300 hrs Winrock/SNV project for Training of Technical people to advise Farmer groups under the Tea Services Development Sector by “Agritec” – A Dutch INGO. A T Tamang –Advisor Bio Development and F Sharma

Work on the farmer trainer program and continuation of this work once the above project is completed in December. Inspected their laboratory to conduct basic soil tests.

June 22nd - 1400 hrs

Visit to a Private Trader for agricultural inputs .Provides technical advice and distributes leaflets on usage instructions. Also on Bio- Fertilizer

To observe how the private trade and farmer community develop a relationship in getting good quality inputs

June 22nd -1600 hrs Visit to a tea field of 07 ha tended to by an experienced farmer in the area. He also operated a small factory turning out hand made tea of about 10 kgs per days sold in the local market. M N Lapcha of Ilam.

Discuss the commencement of his farm, the assistance he has obtained from the extension services, marketing and interaction with the private traders .His premises also is a green leaf collection center for a factory and observed the transaction and leaf selection.

June 23rd -0930 hrs Ilam Chamber of Commerce and Industry T P Baidya –1st VP P Siwakoti –President District Tea Producers Association P Gyamar –Head of Tea Extension Project –Mangal Bare R Shah-Ilam Municipal Council B Shrestha- Ilam Chamber D Sigu- Head of Tea Extension Office - Jasbire

Collect information regarding the problems of the farmer community. The difficulties faced with factories . The Indian stoppage of leaf movement across border compelling them to sell very low or destroy leaf. The lack of processing capacity and need for new factories.

June 23rd -1500 hrs Kanyam Tea Factory PP Dhakal – Manager N Chhetri –Dep Manager Processor of orthodox tea tasted full range of grades and invoices prepared that day and before. Leaf control methods adopted

This company operates 3 out of 4 factories (1 non functional) 2 CTC and 1 orthodox. Not running at capacity. Adopt strict control methods to ensure MRL within accepted parameters. Work with COC farmers and supervise their activities.

June 23rd -1700 hrs Regional Office of NTCDB in Bhadrapur Ishu Shrestra – Chief Regional Officer Overlook work in the regional office and substations in Ilam (3), Panchthar (2), and 1 each in Terathum, Dhankuta and Jhapa.

Discussed the overall activities covered by them. Collection of data to feed head office. Distribution of instructions and information on field practices to farmers. Encourage the work of the “Agro Import Association’ –the only one in Nepal based in Jhapa to help farmers in obtaining good quality inputs

June 25th -1000 hrs Nepal Tea House K J Mainali – Director- Sales and Marketing

Observed the full range of retail sales products available at this exclusive tea shop.

June 25th -1100 hrs Visited a large supermarket and interviewed the manager regarding their tea displayed on the shelf,

Observed the pricing structure, sales in progress. Imported and high priced

pricing and movement of goods. special Nepal orthodox tea not selling fast now due to dearth of foreigners who are the main buyers.

June 26th -0930 hrs Meeting with private exporter A Agrawal- President-Nepal Tea Association CEO –Shakun Tea Industries

Discussed the problems in the industry, lack of government support, participation in trade fairs and promotional work, Financial support, cost of finance, shipping difficulties

June 26th -1100 hrs Agro Enterprise center Dr D Shakya – Executive Director K R Pandey – Director- Agri-business Policy

Discussed the current situation, future programs for Research and Development. The need for a sector specific research Station

June 26th -1200 hrs Ministry of Agriculture and cooperatives S K Verma – Joint Secretary M Karki- Senior Agriculture Economist – Chief of Foreign Aid Coordination Section- Planning Division S K Adhikary – Agriculture economist -

Discussed macro level policies of the government . Work being done with international agencies Apprised them of the drawbacks facing the industry as observed during the filed visits and interviews. Discussed World Bank project on Agricultural Commercialization and Trade now in the pipeline.

June 26th -1400 hrs National Cooperative Federation of Nepal Member of the International Cooperation Alliance in Geneva D P Baskota – Executive Chairman and former State Minister for Home Affiars. Owner of Khanchanjanga Tea Estate which is certified for organic tea under USDP/JAS/Fair Trade

Discussed the historical development of the industry and current problems. Reasons for the formation of HIMCOOP under HOTPA. The tea policy of 2000 and future development program.

June 26th -1600 hrs Interview with WINROCK International –an INGO C B Subba – Team leader- Global Development Alliance (TCDGA-SMIG) Working actively in the industry pushing the concept of CoC and it’s implementation to gain global recognition of a good brand image for Nepal tea.

Discussed current work. The need for all tea growing countries to reach a consensus on how to approach and develop a common program to achieve the improvement ion quality as expected in the international markets in the future.

June 26th -1800 hrs Leave Kathmandu to Sri Lanka June 29th -1000 hrs Visit SGS Office and Laboratory in Colombo to

obtain information on the equipment available and the ability to provide the necessary reports on tests conducted for agricultural export products from Sri Lanka with particular emphasis on tea which is their main user. Inspected the laboratory with their full range of equipment and their plans to expand to meet the anticipated future requirements. Staff of 32 qualified and trained scientists and technicians who are highly skilled

To ascertain information on the types of equipment needed to operate a laboratory to meet the requirements as set down by international food quality standards.

July 2nd -0900 to 1200 hrs

Meet with Sri Lanka Tea Board, Tea Association of Sri Lanka and the Ceylon Chamber of Commerce

To be updated on the Sri Lanka tea industry and current developments

July 5th to 30th July Analysis of data collected. Report Writing

Annex II: geographical distribution of tea cultivation

Annex III: Potential grade-wise export markets for Nepal Tea Grade preferences

Country Total Consump

Kg Per Capita

SFTG FOP

TGF OP

GF OP

F OP

GF BOP

G BOP

F BOP

G OF

CTC Dust

CTC BOP

CTC BP 1

CTC PF1

Uzbekistan 2000 MT 1.25 X X X Azerbaijan 10000 1.4 X X Kazakhstan 22000 1.46 X X Krygistan 4200 0.86 Turkey 180000 2.86 Russia 180000 1.06 X X X X Ukraine 20000 0.4 Belarus 8000 0.8 Moldova 1500 0.4 X X X X X Latvia 1400 0.5 X X X Estonia 600 0.4 X X X Lithuania 1600 0.4 X X X Syria 29000 1 Iran 100000 1.8 X X Jordan 14800 2.5 UAE 50000 11.4 X X Saudi 15000 0.6 Gt Britain 128000 2.1 X X X X X X X X Kuwait 5000 1.8 Libya 18000 2.9 Iraq 50000 1.7 Yemen 10400 0.5 X X Egypt 77000 1.0 X X Pakistan 140000 0.9 X X X Tunisia 9300 0.9 India 757000 0.6 X X X X X X X X X X X X Afghanistan 35000 1.3 X X X X Holland 7500 0.5 X X X X X Europe 82000 X X X X X X Germany 21000 0.3 X X X X X X X X Australia 13500 0.6 X N Zealand 4000 1.0 X Chile 20100 1.2 X Israel 3000 0.4 X X X Kenya 10600 0.3 X X USA 100000 0.3 X X X X X X X X France 14055 0.2 X X X Finland 1322 0.2 X X X Lebanon 1800 0.4 Sri Lanka 28000 1.5 X X X X X Malaysia 14940 0.5 Czech Rep 2450 0.2 X X X X X Singapore 860 0.2 X X X China 651000 0.0 Poland 31000 0.8 X X X Hong Kong 9740 1.4 Austria 1360 0.2 X X X X Portugal 650 0.1 X X X

Belgium 2150 0.2 X X X Canada 18000 0.5 X X X X X X Japan 150000 1.2 X X X X X X Note 1:¨ Quantities shown against UAE, Netherlands and Hong Kong include re-exports Note 2: Refer to page19 under leaf grade nomenclature for descriptive details of grades.

Annex IV: List of contacts in main two potential markets

Address Tel/Fax Nos

Pakistan Bantuwalla (P) Ltd-. Mr Haji Abdul Razak

MR 5/136,Thani Lane, Virji Street, Jodia Bazaar Karachi 74000

Tel:244223,244262, Fax: 2426656,4945644 EM: [email protected]

International Tea Traders Mr H Saeed Khawaja

Flat ½, MR 1/34, Ist Floor, Haribhai Paragjee Bldg Jodia Bazaar, Karachi

Tel: 2432411/2 Fax: 2419501 EM: [email protected]

Mr Rafiq Kudia Abdul Sattar Shakoor Kudia

Thanai lane, Virje Street, Jodia Bazaar, Karachi

Tel: 2442025/2442077 Fax: 2410971 EM: [email protected]

Mr faiz Mohomed Khan, Faiz Mohd Khan & Co

Tel: 2412453

Mr Saleem Pervaiz, Abdul Rehman Peracha & Co

7/12, Aisha Noor Mohd Bldg, Jodia Bazaar, Karachi

Tel 2417996

Mr Idrees Janoo Idrees Corporation

1st Floor, Saya Bldg Mohd ferz Str Jodia bazaar, Karachi

Tel: 2442655, 2430874 Fax: 2415747

Mr Abdul Basit Razak, A B Corporation

MR 5/136, Thanai Lane, Jodia Bazaar, Karachi

Tel: 2442235,2442262 2426656

Mr Ghaffar Usman, A G Usman & Co

2411010,2436552

Mr Abdul Jabbar, A Jabbar Traders

MR 6/19, Selani Chambers M Feroze Street, Jodia Bazaar, Karachi

Tel: 2413952

Mr Quayyum Peracha A Quayyum & Sons

3rd Floor, Noorani Center, Adamjee Road, Karachi

Tel: 2411083,2413442 EM: [email protected]

Mr Iqbal Kakhu, Abbas Tea Traders

Shop no 09, Dada Mansion, Virjee Street, Jodia Bazaar, Karachi

Tel: 2441979,2414939

Mr A Mannan Peracha, Abdul Mannan Peracha & Co

MR 6/26, M Feroze Street, Jodia Bazaar, Karachi.

Tel: 2417230,2414876

Mr A Rehman Peracha, Abdul Rehman Peracha & Co,

7/12, Aisha Noor Mohd Bldg, Jodia Bazaar, Karachi

Tel: 2417996,2417319

Mr Zahid Samad Peracha Abdul Samad & Sons

MR 6/40, Mohd Feroze Street, Jodia Bazaar, Karachi

Tel: 2418653,2417546 EM: [email protected]

Mr Ali Akber 22, F 11, 5th Gizri Street, Gizri Avenue, D H A, Karachi

Tel; 5820909,5874757

Mr Ali Mohomed Peracha Sharif Manzil, AA Rahman Street, Jodia Bazaar, Karachi

Tel: 21411956,2436301

Germany Mr Kolthoff J Bunting Teehandelhaus GmBH & Co

Brunnenstr, 37, 26789. Leer

Tel/fax: 0491-80-80 808-109

Mr H O Grelk Castle Tea Co GmBH

Brandstocken 16 22549, Hamburg

Tel/Fax: 040-8078790,80787915

Mr R Krapf *** Alois Dallmeyer KG

AschauerStr 18, 80331, Munchen

Tel: 089-21350, Fax: 2135167

Mr D Reinecke Douwe Egberts Agio

Zurn Schurmannsgraben 24 47411, Moers

Tel/Fax: 02841-18030 180359

M Schmidt *** J Eilles & Co

Rudolf Diesel-Ring 21 82054, Sauerlach b, Munchen

Tel/Fax: 081 048050, 80540

Mr A Gschwendner, *** Der Tee Laarden Gebr Geschwendner

Heidstr 26, 53340, Meckheim Tel/Fax: 0225-921422,921420

Mr D Scheffler Haelson & Lyon GmBH

Pickhuben 9, 20457,Hamburg

Tel/Fax: 040-361430,36143245

Mr R Roth, *** Haus des Ostens Fr Niebuhr

Neuer Wall 10, 20354, Hamburg

Tel/Fax: 040-343680,346833

Mr Michelssen WB Michelssen & Co

Langstrasse 68, 28195, Bremen

Tel/Fax: 0421-171500,171270

Mr F J Grenzebach, **** Nur Nature Stillen-Mooseeuracher

82549,Konigsdorf Tel/Fax: 08179-5368,8211

Mr H Michelssen Ostifriesische Teegesselshaft Laurens Spethmann

Arn Bauhof, 13-15, 21218, Seevetal

Tel/Fax: 04105-5040,504499

Mr C Moll Quieta-Werke GmBH

Holtzbachstr 2 86012, Ausburg

Tel/Fax: 0821-501030,5010320

Mr H Scheibler J Fr Scheibler & Co

Trotskbrucke 4 20457, Hamburg

Tel/Fax: 040-365447,362886

*** = speciality tea dealers **** =speciality and organic tea dealers

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Annex VI: Guidelines for good leaf standards and processing Leaf Quality Result Poor Leaf Uneven wither Coarse leaf Low dhool outturn Bad leaf Dull infusion, low liquor, poor leaf appearance Stage Contaminant Prevention Withering Smoke Load leaf without switching

on fan Full height chimney

discharging smoke above roof eaves

Sand Withered leaf sifter Microbial Prevent birds/insects from

entering chamber Rollers Iron filings Stainless steel breaker

chutes Microbial Daily cleaning of rollers Prevent dhools from falling to

ground Chemical/oil contaminants Steam cleaning machinery Wash & dry floor Gearbox maintenance Avoid processing soon after

repairs Fermentation Microbial Prevent dhools from falling to

floor Sand Clean & dry surface

thoroughly Use tables/racks Avoid spreading on floor Chemical taints If chemicals used, wash

thoroughly with clean water Drying Smoke Regular checks for leaks on

furnace Avoid stacking of coal &

firewood close to furnace Controls Ensure temp gauges are in

good order Grading Sand Use clean unbroken tiled

floor Iron filings Packing machines are in

good order Use headgear to cover head Packing Contaminants Use clean, unbroken tiled

floor and headgear Workers to be trained to pick

out any extraneous matter from the made tea

Source: Extracted from benchmark study conducted by Sri Lanka tea Board.

Annex VII: Composition of a typical tea beverage Black Tea Green Tea Chemicals Percentage Percentage

Total Polyphenols 40% Catechins 9.8 30.5 Theaflavins 4.8 4.8 Simple polyphenols 3.9 2.6 Flavanoids 1.6 2.1 Other polyphenols incl thearubigins 26.4 6.1 Amino Acids Theanine 3.7 3.8 Other amino acids 3.7 3.8 Proteins/Peptides 7.8 7.8 Organic Acid 2.1 2.1 Carbohydrates Sugars 7.6 7.5 Other carbohydrates 4.8 4.8 Lipids 3.9 3.9 Methyl Xanthins Caffeine 3.8 3.8 Other methyl xanthins 0.9 0.9 Minerals Potassium 5.8 5.8 Sodium .01 .01 Other minerals 5.9 5.9 Volotile aroma compounds trace Trace Source: Sri Lanka Tea Research Institute Leaf and liquor properties of tea used as basis for valuation by tea tasters / buyers Black Orthodox Leaf Tea CTC Tea Leaf properties Percentage Percentage Dry leaf appearance 33% 9% Dry leaf grade 19% 13% Dry leaf colour 24% 8% Total leaf 76% 30% Infusion particle size 1% 3% Infusion colour 9% 5% Liquor colour 9% 12% Liquor strength 5% 24% Liquor brightness 8% Liquor briskness 10% Liquor flavour 8% Total liquor 24% 70% Source: Extracts form tea evaluation manuals and brokers/buyers

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