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“Analysis on Indian Tea Industry” (With Special Focus on Export & Consumption) Management Research Project – 1 Submitted In the partial

fulfillment of the Degree of Master Business Administration Semester – III Submitted By: Mehul Bhatt (03) Ankit Patel (18) Shwetang Trivedi (37) Jaydeepsinh Vaghela (39) Under the Guidelines of: Prof. (Dr) Mahendra Sharma Prof. & Head, V.M.Patel Institute of Management. & Dr. Rohit H. Trivedi Assistant Professor, V.M.Patel Institute of Management. Submitted To: V.M.Patel Institute of Management. Ganpat University, Kherva.

December 3, 2009

CERTIFICATE

This is to certify that the contents of this report entitled “Analysis on Indian Tea Industry (With Special Focus on Export & Consumption)” by Mehul Bhatt (03), Ankit Patel (18), Shwetang Trivedi (37) and Jaydeepsinh Vaghela (39) submitted to V.M.Patel Institute of Management for the Award of Master of Business Administration (MBA Sem-III) is original research work carried out by them under my supervision.

This report has not been submitted either partly or fully to any other University or Institute for award of any degree or diploma.

Prof. (Dr.) Mahendra Sharma, Professor & Head, V. M. Patel Institute of Management, Ganpat University, Kherva

Date: Place:
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CANDIDATE’S STATEMENT

We hereby declare that the work incorporated in this report entitled “Analysis on Indian Tea Industry (With special focus on Export & Consumption)” in partial fulfillment of the requirements for the award of Master of Business Administration (Sem-III) is the outcome of original study undertaken by us and it has not been submitted earlier to any other University or Institution for the award of any Degree or Diploma.

___________________ Mehul Bhatt (03)

___________________ Ankit Patel (18)

___________________ Shwetang Trivedi (37)

___________________ Jaydeepsinh Vaghela (39)

Date: Place:

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Preface

This report owns its origin in the requirement of our subject Management Research Project – I in the semester III of the Masters of Business Management course. In this report we have to make analysis of the particular Indian industry. For our report we have chosen “Indian Tea Industry (With Special focus on Export & Consumption)”. This report will help us to know about the different aspects of the Indian tea industry. This report includes the introduction of Indian tea industry, the scenario of the Indian tea industry, the role of tea industry in national economy, the rivalry among tea industry etc. With the help of this report we will also be able to know about the different points of the tea industry like History of the industry, Market of the industry, Government policies and regulations etc. All this research work and study will be done on the bases of secondary data. So we are not going for field work and data collection. Thus this report will help us to know lots of things about the Indian tea industry and this will be a great experience of our life.

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Acknowledgement
Many people have guided and influenced us in preparing this project. First of all, we are grateful to Prof. (Dr.) Mahendra Sharma, Professor and Head, and Dr. Rohit Trivedi, assistant professor for the MBA program at V. M. Patel Institute of Management for giving us an opportunity to experience the analytical way of working and in the process help us in learning. We are also thankful to all our faculty members who guided us throughout the project. Last but not the least, we would like to cite our beloved parents and all our friends for their and encouragement, support and blessings. These pages could scarcely have been written without their help.

Mehul Bhatt (03) Ankit Patel (18) Shwetang TrivedI (37) Jaydeepsinh Vaghela (39)

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Executive Summary
Our project title is “Analysis on Indian Tea Industry (With Special Focus on Export & Consumption)”. The project includes collecting information about Indian tea industry. In this report we have also tried to know about the global scenario of the tea industry. The idea for this project arises in my mind during the discussion with our guide Prof. (Dr.) Mahendra Sharma, Professor and Head, and Dr. Rohit Trivedi, assistant professor for the MBA program at V. M. Patel Institute of Management. Our Project includes analysis of export and consumption of Indian Tea. It also considered Five Forces analysis, SWOT analysis, and PESTEL analysis to understand the Indian Tea Industry deeply. Also Industry financial analysis is done for identifying the financial strength. The forecasting is done by the trend analysis method it shows the future trend of the Tea Industry. India plays a significant role in world tea trade, being the world's largest producer, consumer and exporter. Hence fluctuations in India's tea production, consumption and exports are enough to disturb the international tea trade. The India is decreasing in export side at everywhere also in the percentage shares in total world export. It is now only around 11.90% which was 18.85% in the 1991. India is the largest tea producing and consuming country in the world and Productivity and quality of tea, Labor intensity, Long gestation, Commodity nature of tea, Inconvenient but healthy drink, Tea organized industry etc are characteristics for industry. In India out of the 757 M.Kgs of tea consumed, around 41% is sold in the form of branded products The total net foreign exchange Rs. 1,847 crore, highest foreign exchange earning agriculture product of India and the global demand growth at around 2 per cent per annum will be easily met by rising production from Kenya, Sri Lanka, Malawi, Indonesia and other countries. The impact of WTO on Indian domestic industry will be negligible because of the re-export clause. Tariff reduction is likely to cause higher imports by Pakistan, Iran, Iraq, and Egypt. WTO, Tea board of India and the effect of other factors like health, price variability, FAO tea mark, Labor problems and also the domestic market consumption is on India Tea Industry.

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Agricultural industry plays a key role in the economies of many developing countries. The prices of exports have in the last two decades experienced considerable declines that have negatively affected the incomes and well being of producers. The expansion of consumption of tea in all of its many forms, black, green, soluble, tea bags, specialty etc, will lend underlying strength to the market and eventually benefit producers. Quality assurance is of the utmost importance, and ever more so among the health conscious consumers of the future and provides a great employment opportunity mainly for the backward classes and tribal. To improve the Indian economic position, Government should take appropriate steps.

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Content

Chapter Preface Acknowledgement Executive Summary
1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2 2.1 2.2 2.3 2.4 3

Particular

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3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.1 0 Role of Tea Board of India in Indian Tea Industry 4 Research Methodology 5 Analysis Of Tea Industry (Export & Consumption) 5.1 Performance of India’s Tea Exports 5.2 Analysis of India’s Tea Export 5.3 Movement in Quantity and Value of Export 5.4 Competitiveness of Indian Tea Exports 5.5 India’s Tea Export in World Scenario 5.6 Tea Export from the view point of Growth Rate 5.7 Factors Affecting Global Tea Export

Introduction Global Scenario of Tea Indian scenario Industry scenario Industry growth Regional differences Consumption in Producing Countries of Tea Medium Term Export Strategy by Tea Board Story of Tea Background of Indian tea industry Indian Tea Industry Overview of Tea Industry Types of Tea The Competitors The Markets Factor Affecting To Tea Industry Health Benefits Price Variability Non Tariff Trade Barriers FAO Tea Mark Competition and Competitiveness Diminishing Market Leadership WTO and Tea Commodity prices and Outlook Domestic Market as a price taker

5.8 Prospects for Indian Tea Exports in World Market 6 6.1 6.2 6.3 6.4 7 7.1 7.2 7.3 7.4 7.5 7.6 8 8.1 8.2 Analysis of Indian Tea Industry 6.1 Michal Porter’s Five force Model Analysis 6.2 SWOT Analysis 6.3 PESTEL Analysis 6.4 Financial Analysis Trend Forecasting Trend Forecasting Production Export Consumption World Demand and Supply of Tea Future Outlook Findings & Conclusion Findings Conclusion Bibliography Annexure

45 47 47 51 57 69 80 80 80 81 82 83 84 88 88 89 91

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CHAPTER 1 - INTRODUCTION
The decade of Nineties has been quite depressing for the tea industry in India. First, it was the disintegration of the erstwhile USSR which was solidly a loyal market for the Indian teas. The USSR lifted huge volumes. In the mid 90s, when the market revived, the Russians were looking for cheaper teas. There was a scramble in the tea industry, particularly in the South, to meet the Russian demand at their prices. The South Indian teas deeply destroyed their image while matching the prices offered by the Russians and in the process totally disregarding the quality, In the North, and later in South too; the industry was continuously facing labour problems. Some gardens had even closed and were bought by traders who had money on their hand since their plywood business had been closed down under orders from the Supreme Court of India. The traders had expected large profits from the tea gardens and did enjoy that for some time. Later when the fortunes of the tea industry declined in consequence of the Kenyan bouncing back in the global markets, the traders simply abandoned the plantations and disappeared to avoid payments on account of social obligations. They were too new to the industry to understand its complexities and did not know the plantation business. When the industry saw some light in the aftermath of a drought in Kenya, the traders wanted to go back to their gardens but were prevented. In many cases, the laborers had taken over production and were marketing green leaf harvest to the bought leaf tea factories (BLTF). This gave cause for enormous social tensions. The labour was only one of the many problems the industry faced. There were difficulties on trade front, auctions, transportation, sales, taxation etc. On the whole, the situation in the Indian tea industry was pathetic. Yet, most individual firms were doing fairly well, an issue that requires a proper understanding of the way the industry is organized and operates.

1.1 Global Scenario of Tea
India is the largest producer of tea in the world with annual production of over 900 million kgs, representing over 28% of the world production of 3.2 billion kgs. The Indian Tea Industry was in recession for the last few years due to high level of taxes, very high social cost, low labour productivity, no commensurate change in wages to changes in productivity or realizations and unavailability of adequate funds for replanting and rejuvenation of old tea bushes. During the last few years, exports from India have been languishing owing to the low international prices particularly for tea imported from Africa and Vietnam. This also resulted in cheap imports into India for re-exports thus impacting domestic prices.

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However, after seven years of recession, the Indian Tea Association (ITA) hopes to regain the growth momentum, which it enjoyed in the mid-nineties. The situation in the world markets for tea can be characterized by over supplies, a slow growth in demand, and a fierce competition. It is necessary to reduce global supplies by increasing domestic consumption, curtailing production or at least limiting further extension of area, and developing new markets.

1.2 Indian scenario
India is the largest producer and consumer of tea in the world. India also leads in global R&D in tea industry. India is the largest manufacturer and exporter of tea machinery. Other major tea producers (also developing nations) source equipment and technology from India. The tea plantations were started in the middle of the 19th century under the British management. The farm ownership, however, is fragmented. The listed companies account for about 40% of total tea production. Also, there are a large number of small players. Some 80% of the farms are of the size less than 8 hectares and contribute only 10% of the production. The annual per capita consumption in India is low at 650gm compared to other countries like Pakistan (950gm), Sri Lanka (1.2kg), UK (2.5kg) and Ireland (3.16kg).

1.3 Industry scenario
Industry majors like Tata Tea and Hindustan Lever are not only slugging it out between themselves through increased branding to gain market shares, but are increasingly aware of threats emerging from other beverage segments like coffee and aerated drinks like Coke and Pepsi. However, the picture for the tea market as of now looks better than last year. After record low prices in the previous year, the prices have started picking up in the current year. The prices are expected to remain firm in the long run. In the exports scenario, with the collapse of the USSR, India lost an evergreen market. But the recent trend shows that the Russian markets are slowly reviving. On the other hand, Sri Lanka and Kenya (the two low-cost producers) are trying to edge out the Indian tea industry. The tea industry is labour-intensive where labour accounts for 60 per cent of the cost of production. Kenya and Sri Lanka have a distinct advantage, as their labour costs are low.

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Demand from US market is also expected to rise as the acceptance of tea as a health-friendly drink catches up. Besides, there has been a trend towards consolidation of the existing tea plantations. Smaller players are being bought over by larger estates or global consumer goods majors, as in the case of Unilever Plc buying over Russell Industries. Apart from buying tea estates, these companies are also moving up the value-chain through increased branding of products across all segments in the industry and introduction of new blends. During these trying times, the industry also saw history being created when Tata Tea bought over UK-based Tetley’s tea businesses for a consideration of over US $420 million. This deal may lead to another round of consolidation among the global tea majors. All this is aimed at not only improving realizations but also to attract new consumers, especially the younger generation. In effect, the industry is gradually maturing from commodity-based businesses to market savvy branded fast-moving consumer goods companies.

1.4 Industry growth
The annual tea production has been around 800mn kg for the last 2 years. The tea production grew at an average annual rate of 2.3% during last four decades and at 1.4% pa in the last decade. For the first 10 months of 2006 the production has increased by 6% on yoy basis. The consumption is currently around 600mn kg. But over last one year the consumption growth has slowed down, this coupled with falling exports has led to surplus supply and falling prices in the market. Tea plantations in India are concentrated in the North-East (Upper Assam, West Bengal) and the South (Kerala, Tamil Nadu). The North-Eastern region with 82% of area accounts for 76% of total tea production. In the North East, the yield is lower but quality of tea is superior.

1.5 Regional differences
Consumers in different parts of the country have heterogeneous taste. Dust tea is very popular in the south. In the western states, good quality loose tea is preferred in Gujarat, whereas in Maharashtra, consumers provide a large market to packet as well as unbranded tea. The eastern states of West Bengal and Orissa consume CTC broken. Among the northern states, CTC fannings is liked in Rajasthan and CTC broken in others states of the North. The Central India is predominantly a dust market.

1.6 Consumption in Producing Countries of Tea
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How much of total global production is consumed in producing countries? Except for India and China, most other producers consume only a small proportion of their production. To address market balance problems, domestic consumption in producing countries should be

stimulated. Kenya produced 324,000 MT TEA and reported to have surprisingly exported 333,000 MT Tea. The home consumption in Kenya is small and the Tea Board there is currently working on a strategy to boost domestic consumption. The GDP growth in Kenya is around 3% per annum. It is not clear why per capita consumption of tea in Kenya fluctuates from year to year. May be the world prices affect per capita consumption in Kenya. Or, could it be smuggling through borders of Pakistan and Iran? Some surmise that every time illegal tea imports enter Kenya, per capita consumption goes down. Kenya is also embarking on value addition. It is also exploring new markets such as USSR and Poland. If Indians could drink half a cup more per day, the problem of surpluses will disappear and that could make buffers history. Such is the power of even a small increase in consumption for a large population base. In view of surpluses, growth in production should be checked. Producing countries have to control production on a voluntary basis in the long term interest of the tea industry. The increase in production through productivity increases, as recently witnessed in Turkey, does strengthen their competitive positions and serve their national interest. Would Turkey add to the world supplies significantly and compound the woes of the other supplier countries? Among the global suppliers, China is another concern. Like India, China is a producer, consumer and exporter country. Although presently China has a small share in black tea, this appears to be increasing. It has the capability to produce more black tea and could exploit that adding to world supplies? It has already removed export quota on tea from January 1, 2006. Black tea is becoming popular in China and they are served in tea houses in Beijing and Shanghai.

1.7 Medium Term Export Strategy by Tea Board
Tea Board which has the responsibility for overseeing and regulating production and trading including exports, was already withdrawing from the controls and regulations. The Board undertook an exercise to develop mid-term strategies for increasing exports during the Tenth Plan period. The objectives of this exercise were:
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Focused efforts at developing and promoting an “Indian Tea” Logo and assistance in brandbuilding approaches of major players. Geographical diversification of markets and consolidation of existing primary markets. A comprehensive exporter rating and reliability management programme. Targeting value-addition and niche segment opportunities in specific markets. Re-alignment of the product-mix in line with demand in key high-value markets. Comprehensive product quality up gradation programme. Robust industry-wide information technology backbone for greater transparency and dissemination of price and other market related information.

• • • • • •

In line with the medium term export strategy for Indian tea (2002-2007), the Tea Board in 2002 has also developed strategies on 22 markets. The plan was to increase Indian exports of tea to these markets to a total of 280 million kg which was almost 72 million kg incremental. On the contrary, the exports actually declined during this period and there were significant losses in important markets like Arab Republic of Egypt, CIS, UK, and Poland. Some small size but well paying markets like Saudi Arabia, Germany, Japan, France, Ireland and Sudan also saw Indian export declining. There were some increases in quantities exported to USA, Iran, Syria, Canada, Australia, and Netherlands but together these markets lifted small volumes. On the whole the industry did not do well and then began the blame game. The tea industry blamed Tea Board and the Tea Board lamented lack of support from the industry particularly in markets where concentrated efforts were planned. While concern on exports declining sharply was expressed in all quarters, not much concrete was done to reverse the situation. Presumably such inactivity was in honest recognition of changed global situations which were steadily turning adverse to India. In the year 2004, India lost its eminent position of the largest producer of tea to China. Kenya had already taken over Sri Lanka in exports pushing India to third position. Of course India had doubted China’s emergence as a top ranking tea producer, citing limitations in collection of field level statistics and under reporting of production. Tea Board was then engaged in revising the production data. Present global strategy at the Board level includes among other things capturing China’s domestic market for black tea. The industry doyens both at home and abroad have made many caustic comments about functioning of the Tea Board repeatedly pointing out that it neither has the experience nor the expertise to handle issues in global marketing. A study by IIM Calcutta had made many critical comments on the concerned Division. In fairness, it must be noted that the Tea Board formed in 1952 was mainly to control and regulate the Indian Tea industry.
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Under the changed circumstances presently, in which the clientele system has different and many more expectations, it would be appropriate to redefine the charter of the Tea Board, refocus its activities, and down size it. In doing so, the highly dynamic and well focused functioning of the Tea Boards of Sri Lanka and Kenya could be useful inputs. One of the strategies to beat the competition is to know how it operates. Tea industry in India is at crossroad not knowing how to reverse the adverse trends in global markets that have directly affected its fortunes. There is fierce competition abroad, India’s uncompetitiveness on account of high cost and poor quality, and changing consumer demand. The home markets are slowly but steadily opening to imports which can well competes on both cost and quality parameters. The latest position is such that the Tea Board is now perhaps hopelessly resigned to the fact that India can not compete in the global markets at least in the immediate future. The strategy is to protect the industry in the home markets since the tea industry particularly the plantations employs a huge labour force. Unfortunately, not much is known for sure about the actual consumption in the domestic market. Some say it is growing, others feel it is stagnant, and in some informed quarters there is a feeling that India’s average domestic consumption is growing more than the increase in the global consumption. The fact remains that whatever the domestic market consumes, there is still sizeable surplus between 180 to 200 million kg that needs to be sold in the world markets. Trade estimates are that roughly half of this is poor quality and at best would fetch a price of around Rs.40-45 per kg. Assam teas are a quality product, still much valued in the international markets but suffer the disadvantage of seasonality and high prices. Assam produces nearly 56% of India’s tea. A careful analysis of the performance of Indian tea industry in global markets reveals some interesting insights. First, India had leadership position in countries where it had bilateral trade agreements. As these agreements expired, India’s leadership also weakened. Such is the case with the markets like Russian Federation and Poland. India probably has a weak case in markets that are free and have high purchasing power. Two, India continues to export tea in commodity form whereas the demand is shifting in favour of tea bags. Indian teas although quite gutty, are light weight and do not infuse easily in tea bags. Trade knows it well that Indian teas are not all that suitable for tea bags. Since the world markets are steadily and increasingly moving towards tea bags, India is in a disadvantageous position for not having the right kind of teas. India can continue to export tea in markets which consume it in commodity form but that pattern of consumption is fast changing. Indian tea industry has some good local brands in individual markets abroad, but they are feeling the heat in competing with the globally established brands. That is where serious
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concerns for future arise. Can Indian industry survive in markets that are changing and face the competition of the global giants? The answer to this question lies in knowing the markets and competition in them, emerging trends, and clear role definition for different segments of the industry. Business has to be segregated from the bureaucracy.

1.8 Story of Tea
Began in ancient China over 5,000 years ago, According to legend, the Shen Nong, an early emperor was a skilled ruler, creative scientist, and patron of the arts. His far-sighted edicts required, among other things, that all drinking water be boiled as a hygienic precaution. One summer day while visiting a distant region of his realm, he and the court stopped to rest. In accordance with his ruling, the servants began to boil water for the court to drink. Dried leaves from the near by bush fell into the boiling water, and a brown liquid was infused into the water. As a scientist, the Emperor was interested in the new liquid, drank some, and found it very refreshing. Therefore, according to legend, tea was created. (This myth maintains such a practical narrative, that many mythologists believe it may relate closely to the actual events now lost in ancient history.)

1.9 Background of Indian tea industry
The tea industry in India is about 170 years old. It occupies an important place and plays a very useful part in the national economy. Robert Bruce in 1823 discovered tea plants growing wild in upper Brahmaputra Valley. In 1838 the first Indian tea from Assam was sent to United Kingdom for public sale. Thereafter, it was extended to other parts of the country between 50's and 60's of the last century. However, owing to certain specific soil and climatic requirements its cultivation was confined to only certain parts of the country. Tea plantations in India are mainly located in rural hills and backward areas of North-eastern and Southern States. Major tea growing areas of the country are concentrated in Assam, West Bengal, Tamil Nadu and Kerala. The other areas where tea is grown to a small extent are Karnataka, Tripura, Himachal Pradesh, Uttaranchal, Arunachal Pradesh, Manipur, Sikkim, Nagaland, Meghalaya, Mizoram, Bihar and Orissa.

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Unlike most other tea producing and exporting countries, India has dual manufacturing base. India produces both CTC and Orthodox teas in addition to green tea. The weight age lies with the former due to domestic consumers’ preference. Orthodox tea production is balanced basically with the export demand. Production of green tea in India is small. The competitors to India in tea export are Sri Lanka, Kenya, China, Indonesia and Vietnam. Tea is an agro-based commodity and is subjected to vagaries of nature. Despite adverse agro climatic condition experienced in tea growing areas in many years, Indian Tea Plantation Industry is able to maintain substantial growth in relation to volume of Indian tea production during the last one decade. Tea is an essential item of domestic consumption and is the major beverage in India. Tea is also considered as the cheapest beverage amongst the beverages available in India. Tea Industry provides gainful direct employment to more than a million workers mainly drawn from the backward and socially weaker section of the society.

CHAPTER 2 - INDIAN TEA INDUSTRY 2.1 Overview of Tea Industry
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The tea industry in India is about 170 years old. It occupies an important place and plays a very useful part in the national economy. Robert Bruce in 1823 discovered tea plants growing wild in upper Brahmaputra Valley. In 1838 the first Indian tea from Assam was sent to United Kingdom for public sale. Thereafter, it was extended to other parts of the country between 50's and 60's of the last century. However, owing to certain specific soil and climatic requirements its cultivation was confined to only certain parts of the country. Tea plantations in India are mainly located in rural hills and backward areas of North-eastern and Southern States. Major tea growing areas of the country are concentrated in Assam, West Bengal, Tamil Nadu and Kerala. The other areas where tea is grown to a small extent are Karnataka, Tripura, Himachal Pradesh, Uttaranchal, Arunachal Pradesh, Manipur, Sikkim, Nagaland, Meghalaya, Mizoram, Bihar and Orissa. Unlike most other tea producing and exporting countries, India has dual manufacturing base. India produces both CTC and Orthodox teas in addition to green tea. The weight-age lies with the former due to domestic consumers’ preference. Orthodox tea production is balanced basically with the export demand. Production of green tea in India is small. The competitors to India in tea export are Sri Lanka, Kenya, China, Indonesia and Vietnam. Tea is an agro-based commodity. Despite adverse agro climatic condition experienced in tea growing areas in many years, Indian Tea Plantation Industry is able to maintain substantial growth in relation to volume of Indian tea production during the last one decade. There has been a dramatic tilt in tea disposal in favor of domestic market since fifties. While at the time of Independence only 79 MKgs or about 31% of total production of 255 MKgs of tea was retained for internal consumption, but now, Tea is an essential item of domestic consumption and is the major beverage in India. Tea is also considered as the cheapest beverage amongst the beverages available in India. Tea Industry provides gainful direct employment to more than a million workers mainly drawn from the backward and socially weaker section of the society. It is also a substantial foreign exchange earner and provides sizeable amount of revenue to the State and Central Government. The total turnover of the Indian tea industry is in the vicinity of Rs.8000 Crs. Presently, Indian tea industry is having (as on 31.12.2006) • 1655 registered Tea Manufacturers, • 2008 registered Tea Exporters, • 5148 number of registered tea buyers, • Nine tea Auction centers.
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One cannot forget that the major driving force behind the country's tea sector growth is the prospect of eastern India's tea industry, particularly of Assam which not only produces around 53 percent of the country's total production, but also employs more than 10 percent of the stats work force or around 13 lakh people. That the fate of India's tea industry is largely dependent on what happens to its eastern sector of Assam and West Bengal is well known. What is seriously worrying the tea industry is that even though India still produces 27 percent of global tea output, the quality of product is sadly doubted in the global market. It is a fact that the planters of major tea growing states, themselves were not careful enough about the decline of quality during that days and their negligence gradually turned more than 30 per cent of tea crops into infracts plants. India's tea market is facing yet another inconsistency which could be explained in obvious terms that price received by producer and the price charged by dealers and retailers. The common consumer in the market is confused of the fact that while the producers are facing the crisis created by a market excess and decline of prices, often voiced by the corporate, the benefit of low price does not come to the common consumers.

2.2 Types of Tea
White Tea White tea is similar to green tea, in that it's undergone very little processing and no fermentation. But there is a noticeable difference in taste. Most green teas have a distinctive 'grassy' taste to them, but white tea does not. The flavor is described as light, and sweet. You should steep white tea in water that is below the boiling point. There is also considerably less caffeine in white tea than the other varieties (15mg per serving, compared to 40mg for black tea, and 20mg for green). Some studies have also shown that white tea contains more active cancer-fighting antioxidants than green tea. As with all teas, there are many varieties of white tea, with poetic names such as: white peony, golden moon, silver needle and white cloud. White teas are produced mostly in China and Japan, but the Darjeeling region of India also produces some fine white teas. Green Tea Green tea is nothing more than the leaves of the camellia sinuses that have been processed a certain way. Green teas, like white teas, are closer to tasting like fresh leaves or grass than the black or oolong. They are also lower in caffeine and have higher antioxidant properties.
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Preparation First, the green leaves are seen how much oxidation should take place before drying them out. Tea leaves have enzymes in their veins. When the leaf is broken, bruised, or crushed, the enzymes are exposed to oxygen resulting in oxidation. The amount of oxidation depends upon how much of the enzymes are exposed. Processing of Green Tea The processing of green tea is similar to that of white tea in that it does not oxidize. After the leaves are plucked, they are (sometimes) laid out to wither for about 8 to 24 hours. This lets most of the water evaporate. Then, in order to neutralize the enzymes thus preventing oxidation, the leaves are steamed or pan fried. Next the leaves are rolled up in various ways and tightness. After that, a final drying takes place. Since no oxidation took place, the tea has more of a green appearance. From there, it goes off to be sorted, graded, and packaged. Oolong Tea Oolong teas are the most difficult of the four types of teas to process. The best way to describe oolong tea is that they are somewhere in between green and black tea. This is because they are only partially oxidized during the processing. Oolong tea is gently rolled after picking allowing the essential oils to react with the air and slowly oxidize. This process turns the leaf darker with time and produces distinctive fragrances. When the leaf has reached the desired oxidation the leaf is heated, in a process called 'panning', to stop the process. It's then rolled to form the tea into its final shape. The resulting tea can be anywhere between a green and a black, depending on the processing method. This tea is handcrafted, undergoing a labor intensive process. The tea maker must carefully balance many elements in the critical few hours after the leaf is picked including weather conditions, quality of the leaf, and the time the leaf oxidizes. The finest Oolongs are often prepared and enjoyed Gung Fu style to savor their complex tastes and fragrances. Processing The processing of oolong tea requires only a partial oxidation of the leaves. After the leaves are plucked, they are laid out to wither for about 8 to 24 hours. This lets most of the water evaporate. Then the leaves are tossed in baskets in order to bruise the edges of the leaves. This bruising only causes the leaves to partially oxidize because only a portion of the enzymes are
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exposed to air. Next, the leaves steamed in order to neutralize the enzymes and stop any oxidation. Oolong tea can have varying degrees of oxidation. Some are closer to black teas, and some are closer to green. Black Tea Black teas are the most consumed of the four types of teas. They are the highest in caffeine. Black tea is the most popular tea in the world. It is the tea most widely used in making iced tea and English tea. Since the process of making black tea consists of three main stages, ‘cut’, ‘torn’ and ‘curled’, it is also known as C.T.C tea. After cutting, the leaves are first spread on shelves called withering racks. Air is blown over the leaves to remove excess moisture, leaving them soft and flexible. These withered leaves are then crushed between the rollers of a machine to release their flavored juices. In the tearing process the cells of the leaves are exposed and the oxidation process begins. They are then taken to the fermenting room where under controlled temperature and humidity, they change into copper color. Finally they are dried in ovens, where they are curled by heat and become brownish black. It is made by steaming the leaves in large vats. The steaming prevents the leaves from changing its green color, hence the name. The leaves are then crushed in a machine and dried in ovens. It is produced by using many of the same techniques that were practiced centuries ago. Pu-erh Tea Pu-erh teas come from the Yunnan province in China and have a strong earthy flavor. Pu-erh has been praised for generations for it's flavor and health benefits. It's processed according to an ancient technique (which used to be a state secret) that involves aging the leaves. It is often formed into bricks and is one of the few teas that ages well. Pu-erh tea is moderate in taste, not as strong as black tea. It can cut grease, help digestion, warm stomach, help produce saliva and slake thirst, dispel the effects of alcohol and refresh one’s mind. Pu-erh tea has functions of lowering the triglyceride, cholesterol, hyperuricemia in the body. Puer tea (also called pu-er or pu-erh) is an ancient and rare tea, much loved in China and the only tea for some 'hardened' tea drinkers. The processes that go into making the classic puers are closely guarded secrets. It is fermented, sometimes twice, and is often pressed into cakes or bricks. This makes puer especially easy to store and keep for long periods. Generally they are
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robust, earthy teas with a dark red or brown color and distinctive, mysterious aroma. Puer is widely known in China to have major health benefits, especially in reducing cholesterol and as an aid to digestion, which makes it the ideal after dinner tea. Scented Tea Scented or Flower tea is either green or white tea that has been infused with certain flowers, which impart a delicate and interesting taste, and of course a wonderful aroma. As with black tea and milk or sugar, flowers were added to green tea originally to disguise a less than favorable taste in the poorer varieties. This is still the case with many commercially produced flower teas, which hide the taste of very cheap tea behind a strong flowery presence. Flower teas, in particular the delicious jasmine, have gained such a following both in Asia and the Western world, that many people only drink this variety. The Seven Cups jasmine teas combine really fine quality green and white teas with a subtle but distinct jasmine flavor, and are a real treat, especially for dedicated jasmine fans. They are the best jasmine teas we've ever tasted.

2.3 The Competitors
India is a producer, consumer and exporter of tea. The Indian exports declined by 13% during 2003 but increased by 4% in 2004 over the previous year volume after that in declined by 12% during 2009. During this period the Indian rupee had appreciated by 7% thereby making Indian exports more uncompetitive. Even otherwise, India is a high cost producer of tea because of high cost of labour and capital. Kenya produced 324,000 MT tea and reported to have exported 333,000 MT tea. The production in Kenya continues to increase although the exports are not so buoyant. In direct competition with India’s CTC tea, Kenya has done exceedingly well. Kenya had offset rising labour cost by depreciation of their currency. The currency devaluation is a short term measure and often has other effects particularly when a country like Kenya runs a large import bill. Besides, the currencies that are devalued could soon appreciate. Such is the dilemma of the Kenyan exporters. Continuing appreciation of Kenyan Shilling, from KSH 71 to 66 for a USD in few weeks, has robbed the significant currency advantage. With the Government of Kenya refusing to intervene, the exporters are left to fend for themselves. A much talked about option is to hedge but that too can help only in a limited way.

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Sri Lanka produces 325,000 MT of tea. Sri Lanka encourages producers to pack good quality tea thereby effectively checking over supplies. Sri Lanka exports around 305,000 MT teas. By exporting only the quality teas, Sri Lanka has bounced back in the global markets for their orthodox teas. Their product portfolio consists of three types of teas grown at different elevation and that insulates Sri Lankan tea industry from fluctuations in global prices. Sri Lanka has a very strong presence in the tea bags segment. It has very successfully established two global brands that are well entrenched in the markets for tea. During the last decade, large investments were made in producing quality teas and machinery for tea bags. A great deal of this machinery came from India. Although presently China has a small share (around 8%) in black tea, it could make much more black tea. Besides, the market for green tea is expanding and that could affect to some extent the market for black tea.

2.4 The Markets
UK and Ireland are the traditional markets for tea but their imports have been declining. Even then the UK blenders continue to be the global market makers. UK is where the blending industry first started decades ago. Pakistan has a population of 154 million people, 66% of them live in rural areas. Pakistan consumed 109,000 MT in 2003. After the break up with the East Bengal, Pakistan had tried the Sri Lankan teas but shifted to CTC tea from Kenya. Kenya took a 66% share in Pakistan imports during 2003. India is now keenly looking forward to wresting a sizeable market share from Kenya. The Pakistan market is dominated by CTC leaves. Pakistan levies income tax on imported tea. By all accounts, Pakistan would soon be a fierce battle ground for global tea suppliers. Sri Lanka signed a FTA with Pakistan and is a fellow member of SAARC, a regional agreement. India is gradually but surely improving relations with its immediate neighbor. If India can get a strong foothold in the Pakistani market, that would offset its loss of the Egyptian market to Kenya. Both Egypt and Kenya are members of COMESA, another regional agreement. Both Sri Lanka and India have a big location advantage vis-à-vis Pakistan. Pakistan’s relations with Bangladesh are also improving. Indonesia, although relatively a small producer of tea, has big exportable surplus and would seek access to Pakistani market. With the per capita consumption nearly stagnant and a small increase in overall market size, Kenya’s leadership would be threatened. To retain its share in the Pakistan market, Kenya will have to spend large monies on media promotion. The cost so incurred will have to be compared with the gains from retaining the dominant share. Kenya of course has
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much more tea to sell globally given that its home consumption is quite low. Tea Board of Kenya is engaged in promoting and increasing consumption of tea at home and the neighboring African nations. The Russian Federation has witnessed an 18% growth during the last 10 years, which is quite high and makes Russia as the biggest importer of tea in the world. No wonder, most major tea packers are setting up shops in Russian Federation. India has lost considerable share in CIS markets. The Indian exporters were content supplying poor quality teas in response to low prices offered by the CIS countries under the special Rupee-Rubles rate trade. In the process a basic lesson in consumer behavior was blatantly ignored. When an economy expands, more money comes to people; they seek more choices, and the market shifts in favor of better quality and convenience. A careful watch over developments in CIS markets would have prevented this downslide. Clearly that is a legitimate function for the Tea Board but it had failed even though a Director Market Promotion is located in Moscow. With the Russian market and for that matter even Poland, having turned around both Sri Lanka and Kenya are making strong efforts for selling their tea. The recent establishment of a Tea Trading Center in Dubai has generated considerable concern among the global tea suppliers. Will this become an action Center? If yes, how would it affect auction centers in India and at Mombassa and Colombo? Dubai of course offers access to the whole of Gulf market and other countries in West Asia. More importantly a land route is available for transporting tea from Dubai to Russia at much less cost than any other mode. Using IT, Dubai has more efficient systems for business and logistics. Coffee dominates the US market. For tea, it is mainly an iced tea market where cheaper teas are used. Nearly 70% of Argentina’s tea production is absorbed in the US. India can not compete in this segment because it offers only the high priced teas. Some small scale entrepreneurs of the Indian origin are sincerely trying to popularize specialty teas in the US market using the ethnic route. Tea bags were invented in the US in 1904 and they have become increasingly more and more popular because of speed and ease in preparation. A scientific symposium in US tea and Health was held in 1991. Since then tea is being repositioned in the US market as a health drink. The health benefits of tea are a global message and that sells hot in USA. Bottled water in US is growing at 20% per annum. Some of that growth can be taken by bottled tea.

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Egypt consumes 77,400 MT. Almost the entire quantity is imported and in that Kenya has a 66% share. Both Kenya and Egypt are members of COMESA. Egyptian imports have declined by 11% causing a big gap in balancing global tea trade. Japan market for tea imports has not increased, rather it is stagnant. But internal readjustment is taking place; from predominantly a gift market, it is now a liquid tea market.

CHAPTER 3 - FACTOR AFFECTING TO TEA INDUSTRY 3.1 Health Benefits
Physiological functions of tea Catechins have been deeply studied and by now their beneficial effects on the human body are well recognized. The suggested consumption pattern is to drink tea right after meals. If consumed even 30 minutes later, it would do no good. Likewise, if consumed
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with other food the ability of body to absorb Catechins reduces. For Catechins, the quality of tea does not matter; harvesting two leaves and a bud potentially a very large application waiting to be exploited commercially. Tea is health. But it has to compete with other beverages. Relentless growth of cold drinks over hot drinks has put tea on back foot. The industry leaders opine with optimism that a shift towards tea is taking place on the plank of health benefits. Lipton in UK and USA has turned around those markets for black tea by using the health plank. Consumed in commodity form, it does have some health benefits but this claim is considerably weakened for value added liquid teas. The material tea used in making liquid teas is of comparatively poor quality and much less in quantity. In the liquid RTD cola, barely 3% of tea is present. What health benefit that 3 to 4% tea would give is a question mark. The claim of health benefits in that context is not being wholly truthful. Attempts are also being made to turn around the black tea market in Japan on the plank of health benefits. It is hoped that such efforts would cause a shift in consumption away from coffee or coke to tea. The research on health benefits of tea in Japan is oriented towards that goal. Coffee is also trying to project similar health benefits.

3.2 Price Variability
Tea has much lower variability in consumer prices compared to coffee. For tea it is 2%, coffee has 30% and coke 39% price variability. A stable price means higher consumer loyalty and that has to be exploited. 3.2.1 Unit Values Compared to 1998, the global values in tea have declined by something like 38%. There has been a sharp decline in prices globally. The question in this context is: Are the global values for tea going down? In the final analysis, unit values realized are more important than the volume of production and exports. 3.2.2 Auctions Auctions in producing countries such as Sri Lanka and Kenya have been quite efficient in price discovery and these countries are constantly working to strengthen their auction systems. Colombo auction distributes about 1 million samples (small quantity) every week. A main concern in Colombo and Mombassa is to reduce the time cycle from an average of 26 days to 20 days or even less. Presently it takes 13 days for cataloguing and sampling prior to auction and another 13 days after auction for stocks to be lifted and payments made.
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During this period considerable capital is tied up. In contrast, India has been on and off fiddling with their auction system presumably under the weight of the trade power of some of the giant corporations. Having recently made auctions not necessary, nearly half of the produce is now sold directly and the remaining half, mostly the substandard product that can not be sold directly, is brought to the auction. The poor price fetched in auction becomes bench mark for wage payment to the plantation labour. While this formula follows the practice in Sri Lanka, the striking difference is that in Sri Lanka everything is sold through auctions that are quite transparent. The same can not be said of the Indian auctions. The tea auctions are organized by the traders under the regulatory control of the Tea Board. Auctions need to be modernized. The recently introduced electronic auctions in Coimbatore and Coonor are struggling through teething problems. In the final analysis, the auctions can be successful only if a fair relationship exists between the auction prices and the direct sales. Scope for value addition and availability of the facilities needed for value addition improves auction prices. Such is the experience from Sri Lanka. Tea has many varieties and varies from garden to garden and even bush to bush. National parameters on quality of tea are not aligned across producer countries. Nevertheless some standards could be developed and futures contracts considered. If a futures market for tea can be organized, that could render auctions unnecessary. 3.2.3 Labor Problems Many tea gardens particularly in the Northwest India are facing closure as a result of low productivity, high cost of production and declining prices. Economically, these gardens are simply not sustainable. Labor have not been paid wages and other dues under the Plantation Labor Act for several months. In the foothills of the Himalayas, in Dooars in West Bengal, a major tea producing area, 14 tea gardens are already closed. At least 17,000 workers are jobless and the state government has admitted 571 deaths in the past 15 months. The Government has announced a Rs.1,190 crore package which will be given over a 15 year period and used to enhance productivity, including the replantation of tea bushes in the plains and rejuvenation of gardens in the hills. This will be out of an Rs.500 crore budget earmarked in the fiscal year 2007-8 for rehabilitation and replanting of the tea plantation sector. The Government has also provided financial help in the earlier years but not much has improved.

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In some cases the government is also considering the option of taking over the closed tea gardens and handing them over to new owners, under a provision in the Tea Act that has never been used till now. 3.2.4 Low Profitability in Production The corporate like Tata Tea have mostly got out of plantations. They realized that there is more money to be made in marketing and the risk in that is much lower although the cost of market development is quite high. The production entails risk on account of weather conditions and falling prices. Labor cost is quite high since hand picking of tea is quite labor intensive. To reduce the cost, some plantations are resorting to longer picking cycles; say 15 to 18 days against the ideal 10 days. On top of this, they are also harvesting three or even four leave and a bud disregarding that the tea manufactured would be of poor quality and fetch low prices. The ideal is two leaves and a bud. The high cost of fulfilling social obligations towards the plantation labor is another reason for the Corporate to get out of the plantations. Williamson Magor, do make money and have survived through even the most difficult periods. They have the experience, efficient plantation management systems in place, and principals sitting in the key markets. 3.2.5 Cost Leadership and Pricing Quality leadership does not mean turning a blind eye to cost. Price is the crux of the problem and that has two known solutions: reduce availability or enlarge the markets. Producer countries have been traditionally production oriented. They need to be now more market oriented. 3.2.6 Building Demand in a market Building demand in a particular country is a much customized thing. There is a cost of market penetration and there are barriers to entry. In the short run, market intervention, distortion and manipulations cause a weak relationship between international prices and domestic prices. Markets are not perfect. The world prices are mainly related to CTC teas since orthodox tea is a small segment in the global tea trade.

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3.3 Non Tariff Trade Barriers
Stringent rules of labeling in the developed country markets have adversely affected growth in export trade. Quality standards have been set by non-importing consuming countries. Some of these standards are not even scientific but they inhibit world trade and increase in consumption. Maximum residual limits (MRL) are a hot topic among the producers. MRL operates on every single agricultural product and not specifically for tea. The Indian tea industry is by and large quite sensitive to these limits. The cost of conforming to ever increasing regulations in the guise of food safety, consumer right to know and ethical practices is quite high. Unethical pricing does not allow adhering to ethical practices at different levels during production and trade. Fair and ethical trade requires additional cost and presently that is a load on the producer. The entire issue needs to be examined in socioeconomic context.

3.4 FAO Tea Mark
FAO stands for FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS. The Tea Mark project approved by the Intergovernmental Group on tea may have been a sound idea in conceptualization but it has failed to evoke much response at the producer as well as the consumer level. Some 4.6 million dollars were spent on popularizing tea marks which now seems to be surreptitiously adopted by coffee companies emphasizing “goodness of it”. Even coffee cups are looking more and more like tea cups. The producer countries don’t seem to be too keen on pursuing tea mark. The question being asked is what can a generic promotion do for boosting tea consumption? International organization on olive oil received some 5 million Euros from EU to make generic promotion and that had reportedly made significant impact.

3.5 Competition and Competitiveness
The Indian exports of tea have been sharply declining in most of the key markets. While many individual firms seem to be doing well having created niche markets for their products, their number is definitely not increasing and could even be declining. Even in the face of major crisis during the last five years, some corporate involved in plantations have done well because of a strong relationship with their principals sitting in London and unflinching respect for quality. The Indian firms are also doing well in Kyrgyzstan, perhaps the last bastion of the Indian Tea Leaf.
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The firm level competitiveness reduces as the market changes and consumers armed with increased purchasing power demand better and different options. Increasing shift towards tea bags is an example of that. The Indian firms, having made only small investments for value addition, can do well only in commodity markets. Whatever new investments in value additions, such as machineries for tea bags now coming through, are not comparable with Sri Lanka that had already invested heavily during the last decade thereby cornering a large share in the world market. Sri Lanka is of course an orthodox tea supplier and does not directly compete with India so much. Paradoxically, India is not globally competitive in production of tea, which is labor intensive. Competing countries like Kenya and Sri Lanka are also under-developed/developing and have comparatively lower labor cost. The labor laws are less stringent in these countries giving the producers the flexibility during bad times. In India, large capital investment, long gestation, stringent labor laws and restrictive land ownership laws prevented Indian entrepreneurs from expanding. The high average age of tea bushes effects productivity and cost adversely. Indian producers became complacent with the lucrative USSR market. Although, Indian producers have made significant progress in developing non-USSR markets during the last 4-5 years, countries like Kenya will still have a competitive advantage in increasing production and exports. Tea is grown in 13 Indian states and Assam, West Bengal, Tamil Nadu and Kerala are the largest producers. Though the major part of the tea production comes from big estate gardens, the contribution of the small grower segment has shown an increase in recent years with many small farmers in Assam, North Bengal and Bihar switching over to its production. Competitive intensity in the Indian tea industry is on the increase as the sheer number of players has increased. Many erstwhile tea exporters, because of difficult conditions in the export market and also because packet tea offers higher realization, have entered the domestic market. Further, the period after1999 has seen the emergence of a large number of local packet tea brands. Such brands, which are typically packaged and marketed by loose tea dealers who operate strictly on geographical lines, have fundamentally altered the structure of the packet tea market in the country since 1999. Indian teas, which were mostly sold in bulk form earlier, are now sold in branded forms as packet teas and in tea bags. Out of the 0.76 mt of tea consumed in India, around 35-40% is sold in the form of branded products. The branded tea segment, which earlier had a very insignificant part in the tea industry’s total value, is now estimated to account for 60% of the tea industry. The ability to cater to local preferences coupled with the availability of low-cost packaging technology has enabled these players to offer the right products at competitive prices.
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The branded tea sector in India has two major players. Hindustan Lever Ltd. (HLL) leads this segment with a market share of 31% followed by Tata Tea, with a market share of 21.1%. For the Tata Tea Group, the consolidated worldwide branded tea business contributes to around 86% of its consolidated turnover with the remaining 14% coming from bulk tea, coffee, and investment income. Duncan’s Tea is the number three player in the branded tea market with a share of 7% and Goodricke follows this with a market share of 4%. There are also some well-known regional players like the Jivaraj and Wagh Bakri. In addition, after 1999, reduced exports that resulted in lower price realizations for Indian tea caused the introduction of many new regional brands, which targeted the domestic market. Some of the small regional brands, which posed a major threat to the majors, were Lasa, Isaphani, Manmouji, Sugnadh, Marvel, Mohani, Tulsi, Mansook etc. Their market share in the branded tea segment is around 35%. The branded tea segment has taken up a product diversification strategy and is bringing in value added products into its basket. Tata Tea and Godrej Tea have followed this strategy and Godrej Tea is also planning to sell its brand to foreign countries. Some of the companies like HLL are introducing new products that target the health conscious consumers. The branded tea sector, which saw a major growth in its initial phases, has witnessed a sluggish growth only in the past two decades. In the past 20 years, the increase in packet tea consumption has been only about 20%. Despite its performance being below expectations at present, the condition is expected to improve in future. This may be because of the current focus on domestic consumers as Indian consumers are treading along a changing phase of lifestyle. With the entry of new players and brands in the market combined with the stepping in of foreign brands like Dilmah into the sector, the sector is expected to moderate growth at 8-10% per annum and healthy competition in the near future.
(Source: Indian Tea Association, World Bank, Note: International prices have been converted at an exchange rate of Rs40.1)

3.6 Diminishing Market Leadership
India is in CTC teas and in that the competition is with Kenya. Kenyan teas coming from relatively younger bushes have quality that is better suited for tea bags. Their labour costs are comparatively lower. Therefore, the tea industry in Kenya is more competitive than the Indian tea industry as is reflected by India’s diminishing leadership in key markets. Kenya has taken over India’s leadership position in almost all the key markets. As a matter of fact India is no more a key competitor in the
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global tea markets. The Indian tea industry is becoming less and less competitive and Indian firms are surviving mainly in the niche markets that are characterized by imports in commodity form. With exports falling steeply, the Indian tea industry is in a dilemma.

3.7 WTO and Tea
WTO has made it requires for member nations to reduce import duty by 24% from the existing rates, by the year 2005. Among the importing nations Pakistan has a high import duty 25%. The developed nations (U.K, USA) already have nil duty and will not be affected. In India tea import is allowed but only for re exports and not for consumption. The import duty on tea is at 35% but for imports under Indo-Lanka bilateral agreement import from Sir Lanka area allowed at a confessional rate of 7.5% only. The impact on Indian domestic industry will be negligible because of the reexport clause. Tariff reduction is likely to cause higher imports by Pakistan, Iran, Iraq, and Egypt. India and other exporting countries will benefit from freer trade and lower tariff barriers.

3.8 Commodity prices and Outlook
Although land is the limiting factor for increasing production, no tea shortage is likely in the foreseeable future. The global demand growth at 2 % will met by rising production from Kenya, Sir Lanka ,Malawi, Indonesia and Other countries. These countries are foreign exchange starved and tea is a vital part of the economy. Their tea industry is entirely export oriented. These countries lead a price cut if there is a surplus. On the other hand rising domestic demand in India and China will restrict their exportable surplus. Pakistan is likely to emerge as one of the largest importers. Weather changes from month to month. There have been occasions when shortfall of ten months has been more than met in the Months. Bed weather in some of the major producing countries can lead to a significant price rise. However, that will be temporary unlike coffee, (Where Brazil is the dominant producer) tea production and exports are more wide spread, reducing the possibility of wide swings in the prices as have been experienced in the coffee trade.

3.9 Domestic Market as a price taker
India produced 805mn kgs of tea and consumed 615mn kg in 1999.For domestic consumption, imports are not allowed. Domestic demand is relatively insensitive to price. The domestic price is determined by the price realized from the surplus sold in the international market. Although prices vary for different varieties, they move in tandem. Impact of carry over stock is not significant. Therefore, demand and supply situation in the international market plays a critical role in
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determining the local prices. The tea consumption market in India has been slowing down due to shift in the consumption pattern of youth towards carbonated drinks this has led to oversupply situation in the country as a result the price are falling.
(Source: Tea Statistics, Indian Tea Association, 2006; Tea Board of India, 2007,)

3.10 Role of Tea Board of India in Indian Tea Industry
Tea Board is conducting and promoting tea research activities as per provisions of the Tea Act 1953 like granting of financial assistance (grant-in-aid) to the tea research institutes in India i.e. Tea Research Association (TRA) in N.E. India and United Planters’ Association of Southern India – Tea Research Foundation (UPASI –TRF) in South India. Darjeeling Tea Research and Development Centre (DTR&DC) at Kurseong is fully supported by the Board for all of its research and developmental activities. Board was also granting financial support to other universities/institutes in the tea growing regions for conducting research and for providing extension services in tea. Besides its own conferences/seminars, Tea Board also granted financial support to other organizations for organizing technical conferences/seminars/workshops for the benefit of the tea industry. TRA and UPASI – TRF are privately managed tea research institutes. The affairs of both the organizations are managed by the Council of Management and Trustee Board respectively. Tea Board is granting financial support to both the institutes for certain identified areas, mainly for conducting research in the field and laboratory and for transferring of technology to the field. In the Council of Management of TRA, six Govt. nominees are representing the Board and Ministry of Commerce and Industry. Similarly, four (4) Govt. nominees are deputed in the Trustee Board of UPASI-TRF. In the Council/Trustee Board, members are drawn mainly from the tea garden managements. TRA sub stations, advisory branches and field laboratories are located at Nagrakata, Darjeeling, Siliguri in West Bengal; Silchar, Tezpur, Dikom in Assam and Agartala in Tripura, while those of UPASI-TRF are at Coonoor, Gudalur in Tamil Nadu, Meppadi, Munnar, Vandiperiyar in Kerala and Koppa, in Karnataka. Sub stations are manned by Senior Advisory Officers who advise tea gardens on tea field management practices with laboratory support for soil analysis, pest and disease identification and new relevant technologies. Darjeeling Tea Research and Development Centre (DTR&DC) at Kurseong is conducting research to provide services to base on scientific information generated from the research projects.
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Such core areas of research are soil, agronomy, biochemistry and plant protection. In addition to grant-in-aid, the Board sponsored research schemes hosted by different institutes under the 10th Plan. Need based or problem specific schemes are also sponsored by the Board to different institutes and universities, especially if such areas are not covered by major tea research institutes. Tea Board supported a research scheme at Himachal Pradesh Krishi Vishwa Vidyalaya, Palampur, for generating R&D information for the benefits of small tea growers of Himachal Pradesh. Similarly, a research scheme is in operation at Uttaranchal to provide R & D inputs for the development of the tea industry in the state. G.B. Pant University of Agriculture, Pantnagar, is providing technical support to this scheme. Tea Board and Sate Govt. of Uttaranchal are providing financial support on 50:50 bases. A joint funding by Tea Board and Dept. of Biotechnology, Govt. of India was given for a multiinstitutional coordinated project on tea biotechnology, which was successfully completed in the recent past. Similarly Board supported another scheme of Ministry of Information & Technology on automation and integration of tea manufacture using electronic sensors hosted by TRA, which was also completed recently. Board supported a scheme at the Assam Agricultural University, Jorhat, for development of technical manpower at graduate level. The manpower developed so far has helped in capacity building for the tea industry. For the export of Indian tea in the international market quality related parameters are becoming very stringent these days. To cope up with the changing scenario in the international tea trade, adoption of Sanitary and Phytosanitary (SPS) measures are important particularly in the EU, US, Japan and other countries. Scientific information generated and scrutinized through tea research institutes and standards were circulated to the trade. Efforts were made to provide feedback information to various regulatory authorities about the Indian Standards and harmonizing such information to overcome technical barriers in tea trade. The technical support from the Board is always given to the tea industry by way of feedback on standards/regulations.

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Executive Committee and the Technical Committee are important ones to decide on the day-to-day activities, sanctioning of fund to run the institutions. Board’s nominees are participating in such committees where Director (Research) and FA&CAO are common members in the committees of both the organizations. For implementation of the project –Integration and Automation in tea manufacture, hosted by TRA, Tea Board was monitoring the progress through the Steering Committee constituted by the Ministry of Commerce. Chairman, Tea Board and Director (Research) were involved in this Steering Committee. For routine work, a Working Group was also functioning involving scientists attached to the project. Director (Research) was common member in both the committees to look after the activities performed such as installation of the equipments, constructions, designing and commissioning of the pilot plant at Tocklai. The entire amount of Board’s share Rs.207.69 lakhs was released.
(Source: 53rd Annual Report 2006-2007)

CHAPTER 4 - RESEARCH METHODOLOGY 1. Research Objectives
1. To briefly understand the Indian Tea Industry. • To know the current global as well as Indian scenario of Tea Industry.
• To get knowledge about types of tea, benefits of tea, market profile and Future outlook of

Indian Tea Industry. 2. To understand the current scenario of the “Indian Tea Industry with special focus on Consumption & Export” 3. To measure the forecast and future scenario of the Tea Industry in specific area of Export & Consumption for the upcoming year.

2. Types of Research: Exploratory Research
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3. Data Collection:
Secondary Data: We have collected the secondary data from the research report done by private financial institution, Government of India, Tea board of India other authorities dealing with the Tea in the world.

4. Information Analysis:
The analysis of the information can be done by using different software, preparing tables and graphs. For this report we have done analysis of the secondary information by some of the key tables, chart and graphs.

5. Findings Presentation:
The presentation of the finding of the research work can be done by preparing report as well as making presentation. For this report we will present our findings through report preparation and presentation both.

CHAPTER

5

-

ANALYSIS

OF

TEA

INDUSTRY

(EXPORT

&

CONSUMPTION) 5.1 Performance of India’s Tea Exports
From the available data it is evident that India is the largest producer and consumer of tea in the world. Over the years it has continued to be an important foreign exchange earner of the country. This is the only industry where India has retained its leadership over the last 150 years. The percentage share of tea in India’s total commodity export during 1997-98 is 1.43 per cent, during 2008-09 it has come down to 0.34 per cent. The decade of nineties and beginning of twenty first century has been quite depressing for the tea industry in India. On the production front India has been the major producer of the tea in the world. Other major producing countries include China, Sri Lanka, Kenya and Indonesia. During 1951-60, India was producing around 40 per cent of world production, declined to 11 per cent during 2008. China and Kenya are able to increase their share in world production considerably. The share of China and Kenya during 1951-60 was 13.59 per cent and 2.67 per cent
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respectively, increased to 30.04 per cent and 9.22 per cent in 2009. In recent years China emerged as major tea producer in the world. India’s share in world export declined from 42 per cent during 1951-60 to 21.91 per cent during 1981-90, further declined to 12.35 per cent during 2008-09.Kenya during 1951-60, was producing and exporting 3 per cent of the world, by 2008-09 share in world export of tea increased to 23.32 per cent and share in world production increased to 9.22 per cent. Kenya has done exceedingly well. China was exporting 5.37 per cent of world export during 195160, increased its share to 17.85 per cent during 2007-08. Now-a-days question arises that what are the factors responsible for decline in share of India’s tea exports in world tea exports and increase in share of other major tea exporting countries in world tea exports. Table: 1 Export of Tea of India Year 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 (Apr to Dec) Export 215,940.56 174,842.43 193,816.02 164,901.17 158,827.58 155,217.82 175,186.26 164,278.14 184,499.35 193,674.68 195,981.24 % Change 17.26 -19.03 10.85 -14.92 -3.68 -2.27 12.86 -6.23 12.31 4.97 -

(Source: Tea Statistics, Tea Board of India)

Fig : 1 Export of Tea of India

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(Source: Tea Statistics, Tea Board of India)

The above data say that in 1998-99 Export is 215,940.56, which is 17.26 % from the last year. In 2007-08 the export is decrease in the manner by 193,674.68, which is around 4.97 % from last year which shows positive growth but in compare to past data of 1998-99 it is in the negative situation. In 2007-08 export is also shown declining stage from the last year increase. The exports for tea industry are declining in the manner.

5.2 Analysis of India’s Tea Export
Before analyzing the tea export of India, let us see the structure of production and consumption within the country as domestic demand and supply play important role in export. The below Table illustrates the relative share of domestic consumption and exports in production of tea in India from 1950 to 2008.From the Table we find that, from 1950, the share of domestic consumption in production increased drastically. During 1950-60, the percentage share of consumption in production was 32.06 per cent, increased to 66.92 percent during 1981-90, increased to 76.94 per cent during 2001-04, this further increased to 81.75 per cent during 2008. Even though, India’s tea production, area and yield increased, it could not match the growing internal domestic demand. Increase in population and per capita income seems to be the major factors responsible for increase in share of domestic demand in production of tea in India. It is clear that over a period of time due
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to increase in domestic demand the percentage share of export surplus in production of tea in India declined drastically. Tea economy of India, which was more export oriented in the earlier period, was becoming more domestic market oriented. Table: 2 Share of Consumption and Export in Production Year Avg 1950-60 Avg 1961-70 Avg 1971-80 Avg 1981-90 Avg 1991-95 Avg 1996-00 Avg 2001-04 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 % Share of Consumption in Production 32.06 46.01 58.97 66.92 76.66 76.73 76.94 79.28 75.20 76.25 77.00 74.78 79.00 70.75 80.00 78.0 80.0 78.51 79.63 81.75 % Share of Export in Production 67.94 53.99 41.03 33.08 23.34 23.27 23.06 20.72 24.80 23.75 23.00 25.22 21.00 29.25 20.00 22.00 20.00 21.48 20.36 18.25

(Source: Tea Statistics, Tea Board of India Various Issues)

Fig: 2-Consumption and Export in Production

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(Source: Tea Statistics, Tea Board of India Various Issues)

From the above data say that in 1950-60 Export is more than the consumption of tea and in 2008 the consumption is almost 4.5 times more than the export of tea. From 1950-60 the export is decreasing and consumption is increasing which is shown in the data itself. The major reason behind for the same is the population growth of India, now the population is almost 3 times more than in the 1950-60. India’s export performance of tea from 1981 to 2004 is summarized in Table 3. In Table, India’s tea export share in total agricultural exports, Compound Annual Growth Rate (CAGR) in terms of quantity and value, Co-efficient Variation (CV) and movement in value of export (CAGR value\CAGR qty*100) have been given. The results show that, the percentage share of India’s tea export in total agricultural exports has declined drastically. During 1981-90 the share was 20.16 per cent, declined to 10.23 per cent during 1991-95 and further declined to 8.11 per cent and 5.78 per cent during 1996-2000 and 2001-04 respectively. The growth rate of India’s tea export in terms quantity shows that during 1981-90, it is -0.79 percent per annum and further negative growth rate of 6.86 per cent during 1991-95.However, during 1995-04 revival is witnessed, during this period growth rate in terms of quantity increased by 1.21 per cent per annum, but in terms of value it is -0.88 per cent per annum during the same period. Table-3: Tea Export of India (value in dollar) Year % Share CGR in CGR in CV in CV in CGR CV
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in

Total quantity

Value

quantity

value

Value * 100 -168.4 109.48 96.10 -117.8 -72.13 -46.30

/ Value / * 100 237.83 121.00 150.76 373.30 178.82 156.06

agri1981-90 1991-95 1996-00 2001-04 1995-04 1991-04 export 20.16 10.23 8.11 5.78 6.95 7.26 -0.79 -6.86 6.93 -0.9 1.21 0.54 1.33 -7.51 6.66 1.06 -0.88 -0.25 6.82 15.76 14.44 1.91 10.72 12.29 16.22 19.07 21.77 7.13 19.17 19.18

CGR qty CV qty

(Source: www.fao.org)

5.3 Movement in Quantity and Value of Export
From the above table it will be examined that the growth rate of India’s tea exports in terms of quantity and value. Value of exports increases either through increase in quantity of export or price of export or both. It is important to find out the relative importance of change in price of export and change in quantity of export in the overall change in value. In case of export, it is good for the economy, if export value is increased more than quantity of export. In this section, it is ascertained that the importance of quantity and price in export value. In the above Table, it is described that the ratio of both export growth rate in terms of quantity and value and multiplied it by 100 (CAGR value /CAGR quantity * 100). It gives whether value of export increased due to increase in price or quantity or both. In the above Table, if the ratio is less than 100, for that commodity, the increase in value has been less than that of quantity and hence the increase in value of exports has been more due to increase in quantity than increase in price. If ratio is more than 100, for that commodity the increase in value of exports has been more than that of quantity and hence the increase in value of exports has been more due to increase in price than increase in quantity. This is beneficial for the economy. This is true only when, growth rate is positive (increasing) for both quantity and value. If growth rate in quantity export is declining (i.e. negative value) and growth rate in export value is increasing (i.e. positive value), it is beneficial to the economy as it occurs only when prices are increasing. If growth rate in quantity export is increasing (positive value) and growth rate in export value is declining (negative value), it is not beneficial for the economy as it happens only when prices are declining. In such cases ratio will be negative. In case both export quantity and export value are declining, if decline in export value (negative growth rate) is less than decline in quantity export (negative growth rate), which is beneficial to the economy, it happens when prices are increasing. In such case ratio value will be less than 100. In other words, if decline in export value is more than decline in export quantity, it is not beneficial for the economy as it happens only when prices are declining. In such cases ratio value will be more than 100.
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The data shown in the table shows that, during 1981-90, growth rate of export in quantity declined but growth rate of export in value increased. The ratio value during 1981-90 is –168.4, which is beneficial to the economy. It happened due to increase in price per unit of export quantity of Indian tea. During 1991-95, both growth rates of export in quantity and value have declined. Decline in growth rate of export in value is more than decline in growth rate of export in quantity. It happened due to decline in price per unit of export quantity of Indian tea. Table-4: Average Export Unit Value of Indian Tea (US $ per ton) Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
(Source: www.fao.org)

Average Export unit Value 3010.35 2295.29 2207.95 2196.85 2061.08 2286.79 2080.83 2615.38 N.A. 2311.99 2174.83 2125.95 1854.83 1978.34 2254.14 2080.25 2242.02 1921.60 2136.72

This kind of trend is not beneficial to the economy and will lead to a decline in export unit value. For instance, in 1990, average export unit value of Indian tea is US $ 3010.35 per ton declined to US $ 2209.59 per ton during 1991-96. During 1995-04, growth rate of export in quantity increased, but growth rate of export in value declined. The ratio value during this period is –72.73. This kind of trend is not beneficial to the economy and will lead to decline in export unit value. To capture the variability and consistency in India’s tea export, co-efficient of variation (CV) is given in Table 2, shows that, tea exports in terms of quantity and value show instability more than for earlier period of 1981-90. With the help of CV for value of export and quantity of export, the instability ratio between value and quantity exported was given and then multiplied by 100(CV value/CV quantity * 100) was given in the Table- 2 it self. If ratio value is more than 100, it means volatility is more in value of export compared to quantity exported. If ratio value is less than 100, it
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means instability is more in quantity compared to value of export. The results of the table show that, for all the periods, instability in value exported is more than instability in quantity of export in India as ratio value is more than 100 for all periods.

5.4 Competitiveness of Indian Tea Exports
The competitiveness of Indian tea export is given in Table-4. Trade competitiveness basically depends upon the level of domestic prices relative to international prices. If domestic price of a commodity is lower than the net export price, the commodity is export competitive other wise it is not. There are lots of quality variations and there are several grade categories of tea produced in India. Similarly, India's tea export also consists of several types of tea like green tea, black tea, dust tea etc. The most common type is dust tea and the same has been selected to compare domestic and export price. From Table-4, we find that since 1991, international price of tea is higher than domestic price. Indian tea was experiencing export advantage of more than 30 per cent during 2000 -04. Interestingly, Export growth rate in quantity during 2001-04 has shown negative growth rate of 0.9 per cent even though Indian tea in world market during this period was very much competitive. The main reasons are, (i). After disintegration of former USSR in 1991, India lost USSR market, which was a major importer of Indian tea. For instance, in 1991, India exported 48.07 per cent of its total tea export to USSR; in 2001 this declined to 24.36 per cent and during 2004 further declined to 13.32 per cent. (ii) Indian tea lacks in quality compared to its competitors. (iii) Due to preference for other beverages like coffee, cold drinks etc, the consumption of tea in developed countries declined especially in U.K (Appendix fig-1).(iv). Emergence of new producer – exporting countries like East African countries, China, Indonesia, Latin American countries (Fig-1& Table-11) increased the world supplies and therefore competition in world market increased. (v). Depreciation of currencies in competing countries like Sri Lanka, Kenya and Indonesia increased export competitiveness of tea in these countries.(vi). Rising domestic demand in India, improved the relative profitability of domestic sales against exports. Table-5 International and Domestic Price of Tea in India (Rs. Per quintal) Year 1986 1987 1988 1989 1990 World Price 2434.083 2215.339 2493.514 3267.473 3174.355 (FOB) Domestic Ratio of domestic to 1-NPC Price 4150 4210 4250 4231 4334 FOB price (NPC) 1.70 1.90 1.70 1.29 1.37 -0.70 -0.90 -0.70 -0.29 -0.37 1-NPC*100 70.50 -90.04 -70.44 -29.49 -36.53
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1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

4186.121 5171.16 5845.421 5760.303 5329.815 6284.927 8625.881 9858.567 10018.95 11109.19 11031.07 10998.02 11086 11165.08 9216.91 9163.21 8535.52 10058.522

3531 4084 4777 4546 4641 4920 7853 9003 7987 7576 6649 5910 6708 6957 5805 6601 6741 7182

0.84 0.79 0.82 0.79 0.87 0.78 0.91 0.91 0.80 0.68 0.60 0.54 0.61 0.62 0.63 0.72 0.79 0.71

0.16 0.21 0.18 0.21 0.13 0.22 0.09 0.09 0.20 0.32 0.40 0.46 0.39 0.38 0.37 0.28 0.21 0.29

15.65 21.02 18.28 21.08 12.92 21.72 8.96 8.68 21.28 31.80 39.72 46.26 39.49 37.60 36.83 27.76 20.92 28.77

(Source: World price: International Financial Statistics-2008, IMF, World price--Annual average price of Sri Lankan dust tea, Domestic Price-- All dust Calcutta, annual average price)

5.5 India’s Tea Export in World Scenario
In this section, an attempt has been made to evaluate the performance of India’s tea export comparing it with the export performance of other major tea exporting countries. By doing so it is possible to assess the impact of global environment on Indian tea export in multilateral trade regime. Moreover, it is important in understanding the changing world market for tea in multilateral trade regime. Major tea exporting countries of the world are Kenya, Sri Lanka, China, India and Indonesia. However, prior to evaluation of export performance of major tea exporting countries of the world, it is necessary to analyze the production and domestic demand of tea in these countries. On the production front India has been the major producer of the tea in the world (Table-5). Other major producing countries include China, Sri Lanka, Kenya and Indonesia. Table-5 shows, during 1951-60, India was producing around 40 percent of world production, declined to 26 per cent in 2004.The declining trend can be observed in case of Sri Lanka as well. Only China and Kenya are able to increase their share in world production considerably. The share of China and Kenya during 1951-60 was 13.59 percent and 2.67 per cent respectively, increased to 24.90 per cent and 10.30 per cent in 2004.In recent years China emerged as major tea producer in the world. The Fig-1 shows, during 2004 and 2005, China became number one tea producer in the world pushing India into number two position. India had doubted China’s emergence as a top raking producer.

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Since 1985, even though China’s area under tea cultivation is lower than earlier period (Appendix Table-1), due to improvement in yield, production increased by 3.28 per cent per annum during 1984-94, further increased by 4.13 per cent per annum during 1995-05.In India production increased by 1.83 per cent per annum and 1.07 per cent per annum respectively during the same period. In Kenya, production increased by 5.53 per cent per annum and 3.12 per cent per annum respectively during the same period. Production in Sri Lanka and Indonesia also increased during this period (Table-9). With improvement in supply conditions in Kenya, China and Indonesia, India’s share in world production declined even though its total production increased. Table-6 illustrates the share of domestic consumption in production in major producing countries. Domestic consumption is calculated by deducting export from production. In case of India, there is continuous increase in share of domestic consumption in production, it increased from 32.06 per cent during 1951-60 to 66.92 per cent in 1981-90, further increased to 78.26 per cent in 200104.From Fig-2 we can observe that, whatever additional production is taking place, it is almost entirely consumed internally leaving export surplus to remain stagnant and some times export even shows declining trend. In contrast, Kenya’s domestic consumption share in production is very low and declined over a period of time (Table-6). Fig-3 shows that except for a few years, the increase in production of tea in Kenya is almost entirely used for export. Table-6 Share of Tea in Major Producing Countries in World Production (Percentage) Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 India 28.89 28.48 28.77 29.70 29.91 27.27 29.60 29.20 28.40 29.00 28.30 27.35 27.50 26.00 27.35 27.64 28.02 27.84 Sri Lanka 9.25 7.20 8.80 9.73 9.75 9.38 10.10 9.40 9.80 10.50 9.80 10.13 9.60 9.80 9.17 8.70 8.50 8.40 Indonesia 5.11 5.86 5.20 5.18 5.68 6.46 5.60 5.60 5.50 5.40 5.30 5.64 5.40 5.20 4.52 3.92 4.40 4.05 China 20.75 22.54 21.82 23.52 23.68 23.23 22.40 22.20 23.30 23.40 23.20 24.32 24.40 24.90 27.04 28.77 27.60 27.20 Kenya 7.80 7.57 8.02 8.37 9.67 9.73 8.10 9.80 8.60 8.10 9.80 9.37 9.30 10.30 9.35 9.05 8.90 9.20 Others 28.20 28.35 27.39 23.5 21.71 23.93 24.20 23.80 24.40 23.60 23.60 23.19 23.80 23.80 22.16 23.12 23.60 23.20

(Source: Tea Statistics, Tea Board of India)

Fig: 3. Tea in Major Producing Countries in World Production (Percentage)
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(Source: Tea Statistics, Tea Board of India)

From the above data, we can understand that the only two major tea producing countries, Kenya and china have increased more production in 2008 than 1991. But most of the other countries have minor changed in their production of tea in 2008 compare to 1991. In India, due to high and increasing domestic consumption, surplus available for export is declining. As noted earlier, India, which is leading producer of tea in world, is observed to retain a sizeable share of export in production with only around 22 per cent during 2001-04. With such developments within India and in major producing and exporting countries, India’s share in world export declined from 42 per cent during 1951-60 to 21.91 per cent during 1981-90, further declined to13.35 per cent during 2001-04. Kenya during 1951-60, was producing and exporting 3 per cent of the world, by 2001-04 shares in world export of tea increased to 19.50 per cent (Table-7) and share in world production increased to 9.69 per cent. Kenya has done exceedingly well. From Fig – 3, one can observe that tea production in Kenya continuously increased but the exports are not so buoyant. Sri Lanka’s share in world export also declined from 35.44 per cent during 1961-70 to 20.24 per cent during 2001-04.However, since 1995 with continuous increase in production and decline in domestic consumption in Sri Lanka, tea export from Sri Lanka increased continuously. Figures show that since 1997 Sri Lanka is top tea exporter in the world. China was exporting 5.37 per cent of world export during 1951-60, increased its share to 17.85 per cent during 200104.Eventhough, domestic consumption of tea increased in China, it is able to export more through higher production. Looking at the tea economy of China, no doubt in future it will be top producer and exporter in the world. In Indonesia, even though production increased, with increase in
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domestic consumption, the share of export in production declined from 81 per cent during 1951-60 to 57.57 per cent during 2001-04.Indonesia’s tea export share in world export also declined from 7.23 per cent during 1951-60 to 6.82 per cent during 2001-04. From the above data it is clear that, the major underlying factors for decline in export share of India in world export of tea is increase in domestic consumption in production and increase in supply of tea from other exporting countries. Table-7 Share of Tea Exports in Production in Major Producing Countries (Percentage) Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 India 26.74 23.67 23.47 17.58 22.11 19.35 24.80 23.75 23.00 25.22 21.00 23.97 20.26 22.00 20.00 21.48 20.36 18.25 Sri Lanka 87.27 99.40 90.54 92.06 95.38 88.94 92.74 94.52 92.54 90.71 97.03 92.07 96.25 90.71 94.18 98.05 96.59 94.04 Kenya 86.23 88.53 89.13 87.46 97,13 101.09 90.00 89.54 97.15 75.79 87.60 94.90 91.68 100.53 105.96 100.50 92.98 110.87 China 34.13 31.35 35.03 30.53 28.31 30.58 33.00 32.69 29.53 33.31 35.58 33.84 33.86 35.60 30.65 27.87 25.38 25.59 Indonesia 82.60 83.22 90.45 65.43 55.14 60.09 43.50 40.48 60.77 67.09 61.86 57.98 52.28 58.18 65.45 68.07 55.95 64.05

(Source: Tea Statistics, Tea Board of India, Various Issues)

Fig: 4. Tea Exports in Production in Major Producing Countries (Percentage)

38

(Source: Tea Statistics, Tea Board of India, Various Issues)

The above data suggest that there is drastic change in many tea exporting companies in the export situation. India is in the decreasing in the tea export from 1991 to 2008. In compare to India, Sri Lanka is in the positive situation of the export. India and Sri Lanka are going in steady situation but other countries like China, Kenya, and Indonesia faced huge downsizing situation around 1995 for tea export but after that they recovered and now doing positive situation in 2008 after 1995’s negative situation.

5.6 Tea Export from the view point of Growth Rate
The purpose of this section is to see the Tea exports response in major tea exporting countries under WTO regime. Unlike rice, tea is not trade distorted commodity in international market. Most of the export of tea comes from developing countries, where domestic subsidy, export subsidy are not given, and it is believed that in these countries tea export is taxed for the purpose of revenue to the government. Major importing countries are developed countries, where, due to consumer preference for tea and as tea is not competing with their domestic products, import of tea is not restricted except for quality standards The provisions of WTO AoA (Agreement on Agriculture) may not have much impact on global tea trade except for quality standard. Production increased in both the periods 1984-94 and 1995-2005 for all the major exporting countries and shown positive growth rates. Except Sri Lanka and China in 1984-1994, area under tea cultivation increased in the entire major
39

exporting countries in both the periods 1984-94 and 1995-2005. Except Indonesia in 1984-94 and India in 1995-05 yield increased for all the major exporting countries in both the periods. Table-8 Share of Tea in Major Exporting Countries in World Export (Percentage) Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 India 18.85 17.11 16.03 14.77 15.27 14.20 16.70 16.00 15.10 15.40 13.00 13.97 12.30 12.00 12.67 13.83 11.35 11.90 Sri Lanka 19.71 17.55 18.89 21.98 21.47 20.70 21.40 20.50 21.00 21.20 20.65 19.88 21.00 18.70 19.02 19.91 18.68 18.15 Indonesia 10.30 11.97 11.15 8.32 7.24 9.00 5.60 5.20 7.80 8.00 7.20 6.96 6.40 6.40 6.51 6.03 5.31 5.77 Kenya 16.41 16.44 16.95 17.96 21.70 21.70 16.50 20.30 19.30 16.40 18.50 18.94 19.40 21.80 22.18 19.74 21.82 23.30 China 17.28 17.33 18.12 17.61 15.22 15.10 16.90 16.80 15.90 17.20 17.93 17.53 18.70 18.70 18.30 18.12 18.37 18.03 Others 17.45 19.60 18.86 19.36 19.91 19.3 22.90 21.20 20.90 21.80 22.72 22.72 22.20 22.40 21.32 22.37 24.47 22.85

(Source: Tea Statistics, Tea Board of India various Issues)

Fig: 5. Tea in Major Exporting Countries in World Export (Percentage)

40

(Source: Tea Statistics, Tea Board of India various Issue)

In total world export, on the base of data we can say that the India is only country which is in more negative situation in 2008 compare to 1991. In 1991 India’ contribution in world export is around 18.85 % and in 2008 it is only 11.90 %. Other countries are moving steady form 1995 to 2008 only Kenya in increasing its share in world total export from 16.41% in 1991 to 23.30% in 2008. The major tea importers represent the demand side. The major tea importers of the world are shown in the Table-10. U.K continues to be the largest importer of the world. However, U.K registered declining trend. Large decline in import from, U.K, Saudi Arabia, Iran, Egypt, Japan and recent stagnant import in USA (Table-8) affected the global export of tea in recent years. It has lead to decline in average export unit value of major exporting countries. Table-9: Major importers and their percentage share in the world (value in million dollars) Country UK USA Pakistan Russia Japan Egypt UAE S.Arabia Iran Germany Poland France Canada World To 1991 332.59 164.06 139.00 N.A. 138.78 155.30 63.39 74.55 114.98 85.89 N.A. 63.11 60.28 2525 % 13.1 6.5 5.5 N.A 5.5 6.1 2.5 2.9 4.5 3.4 N.A 2.5 2.3 100 1996 317.94 202.93 171.20 202.93 200.84 86.71 92.35 62.22 68.00 159.11 69.83 63.72 62.56 2496.8 % 12.7 8.1 6.8 8.1 8.2 3.4 3.7 2.4 2.7 6.3 2.8 2.5 2.5 100 2001 289.68 208.69 178.79 208.69 208.69 99.82 102.00 114.49 50.06 97.24 53.64 74.45 74.65 2832.9 % 10.23 7.37 6.31 7.37 7.37 3.52 3.60 4.04 1.77 3.43 1.89 2.63 2.64 100 2004 292.02 204.88 190.20 292.15 193.49 0.00 172.06 37.42 32.20 117.31 65.58 102.31 98.76 3271.6 % 8.9 6.2 5.8 8.9 5.9 0.0 5.2 1.1 0.9 3.5 2.0 3.1 3.0 100 2007 307.2 288.7 213.4 432.3 180.2 0.00 123.8 159.3 57.3 153.6 69.1 129.7 138.9 3490.7 % 8.8 8.2 6.1 12.1 5.16 0.00 3.54 4.5 1.6 4.4 1.97 3.71 3.97 100
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(Source: www.fao.org)

The export growth rate of tea in major exporting countries shows that, no country has shown continuous positive export growth rate both in terms of quantity and value during both the period 1986-95 and 1995-2004. However, China and Indonesia shown export growth rate (in quantity) of 0.76 per cent and 0.73 per cent per annum during 1986-95 and 4.95 percent and 2.62 percent per annum during 1995-04. China’s average export in quantity increased from 201.70 thousand tonnes during 1986-95 to 232.85 during 1995-2007 (Table-9). However, value of tea export in China declined over a period of time. Kenya during 1986-95 shown high export growth rate of 5.56 per cent both in terms of export quantity and value; negative (decline) export growth rate during 1995-04 both in terms of export quantity and value. In contrast, Sri Lanka experienced negative export growth rate of 4.63 per cent in terms of quantity and negative export growth rate of 2.98 per cent in terms of value during 198695; however it has shown high positive (increase) export growth rate of 4.66 per cent in terms of quantity and 4.33 per cent in terms of value during 1995-04. It seems that, poor export performance of Sri Lanka in 1986-95 led to increase in export of Kenya during this period. The poor export performance of Kenya in 1995-04 led to increase in export of Sri Lanka during this period. Tea being an oligopoly market in the world, any decline in export of a major exporting country will lead to increase in export of other major exporting county or countries. From Table-9 and 11, we find that, compared to other major tea exporting countries, India’s export performance of tea is very poor. During 1986-95, export growth rate in terms quantity and value shown negative growth rate of 3.39 per cent and 4.35 per cent per annum respectively. However, during 1995-04, tea export growth rate of India in terms of quantity increased by 1.21 per cent per annum; export growth rate in value shown -0.88 per cent. Compared to 1986-95, during 1995-04, the average export in quantity and value of tea export of India declined. Among all the countries, China is the most consistent supplier of tea in the world. After China, India is the second consistent supplier of the world. Kenya and Sri Lanka show more volatility both in terms of quantity and value in both the periods. The results show that volatility in export value of India is quite high in both the periods under study. Except Kenya during 1986-95 and China and Indonesia during 1995-04, the volatility in export value is higher than export quantity for all the countries for both the periods under study. It shows that international price of tea fluctuated largely.

5.7 Factors Affecting Global Tea Export
42

From the earlier data we find that, since 1985, tea export from these major exporting countries is not economically benefited. Now question arises that what are the underlying factors, which affected tea export of major exporting countries in world tea market. The major underlying factors are both supply side and demand side. 5.7.1 Supply Side Factors From the earlier analysis, we find that production has increased in these major exporting countries. Except for India and China, most other producers consume only a small proportion of their production. Tea is mainly produced and exported by developing countries and tea industry in these countries is biggest employer. Limiting supply of tea in these countries creates social problems. Tea is also major foreign exchange earner in these countries. To earn more foreign exchange to meet their huge import bill, these countries adopted aggressive export strategy and encouraged more domestic production. Over a period of time, the global supply of tea became more than demand. Tea is exported by few countries of the world. Kenya, China, Sri Lanka, India and Indonesia export around 80 per cent of the world tea. It can be called oligopoly market. To dispose off their surplus tea, these countries compete among themselves by cutting prices. These supply side factors seem to affect tea export of major exporting countries in the world. 5.7.2 Demand Side Factors In our analysis we find there is large decline in import by major developed countries of the world. Even though, in recent years there is increase in import demand by developing countries, this increase is less than decline in import by developed countries. Many studies show that the demand for tea is primarily determined by the income elasticity of demand, as it is price inelastic and found negligible income elasticity for developed countries and high for developing countries. The possible major reason for decline in demand for tea import in developed countries could be; changes in consumer preference from tea to substitutes like coffee, alcohol etc. Finally in recent years, the consumption of cold drinks both hard and soft, as is expected, in an affluent society, is increasing rapidly; this is also another cause for decline in the consumption of hot beverages as a whole.

5.8 Prospects for Indian Tea Exports in World Market
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Looking at the poor performance of India’s tea export in recent past; rising domestic demand, slow increase in yield, slow expansion of area under tea cultivation and inability to compete with major tea exporting countries, the prospects for Indian tea export seems to be very weak. However, tea being income elastic, and high elasticity for developing countries, in recent years, the import share of developing countries in world import is increasing. India’s share of export to these developing countries is also increasing. Since 1986, the major importing countries, Russian Federation, Pakistan, UAE, Poland, Canada and France, the figures have shown increasing trend. India’s share in import of these countries is very low. For instance in countries like Pakistan, France and Canada (Table-9), India’s share in their import is less than 3 per cent. Pakistan is India’s immediate neighbor, India’s share in tea import of Pakistan is just 2.86 per cent during 2004 (Table-9); on the other hand, Kenya’s share in import of Pakistan is 66 per cent during 2003. Since Pakistan is member of SAARC (South Asian Association for Regional Co-operation) and SAFTA (South Asian Free Trade Area), as SAFTA is expected to move progressively, and India with gradually improving its relations with Pakistan, India has brighter prospects in Pakistan. If India can get a strong foothold in the Pakistani market, that would offset its loss of the Egyptian market to Kenya. Both Kenya and Egypt are members of COMESA (Common Market for Eastern and Southern Africa). As we know from the Table –10, India’s share in tea import of Egypt during 1986 was 16.26 per cent reduced to 0.56 per cent during 2001 and in 2004 share is virtually nill. The Russian Federation has witnessed increasing trend in tea import during the last 10 years, which is quite high and makes Russia biggest importer of tea in the world. India lost considerable share in Russian Federation in recent years. For instance, India’s percentage share in import of tea in Russian federation during 1996 and 2001 was 36.66 per cent and 42.86 per cent respectively, declined to 17.22 per cent during 2008. The main reason for this down turn may be that the Indian exporters were supplying poor quality tea in response to low prices offered by the Russian Federation under special Rupee- Rubles rate trade. In the process consumer behavior shifted as their income increased over a period of time and started giving preference for tea from other exporting countries. It is well known fact that, when an economy expands, more money comes to people, they seek wider choice and the market shifts in favor of better quality and convenience. India can bounce back, by exporting quality tea to Russian federation. In recent years Iran lifted import ban on tea; import of tea in Germany, Iraq and Kazakhstan is expanding. There are prospects for India’s tea in these countries also. With these developments one
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may infer, India’s prospects for tea are optimistic, provided India improves its export strategy and makes more availability of export surplus by improving its yield. Table-10: World and India Tea Trade Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 India’s Export** 490.292 360.933 331.845 308.399 359.054 282.579 497.239 518.258 406.1057 431.596 367.207 326.629 333.408 377.742 372.623 407.327 469.92 Tea India’s Export* 3048.4 2947.1 3357.4 3239.5 5493.7 5849.5 5656.4 5225.3 4642 4951 5233.9 5521.6 6504.4 7058 6994.4 7223.56 7882.25 (In million $) Agri World Tea Import* 2845.637 2563.537 2583.919 2461.552 2623.72 2654.659 2860.209 3086.250 2873.918 3002.622 2823.712 2815.203 2657.914 3059.002 2876.186 3008.55 3128.89

Source :( * FAO Trade Year Book and statistical year book ** www.fao.org)

CHAPTER 6 – ANALYSIS OF INDIAN TEA INDUSTRY 6.1 Porter’s Five force Model Analysis
1. THREAT OF SUBSTITUTE- MODERATE Although tea is the preferred beverage consumed in India; aerated drinks, health beverages and coffee are major competitors, advertising spends on cola facilitates their penetration in consumer lifestyles, especially among the younger are groups. Recent focus on coffee outlets may also boost coffee consumption. Particulars Low 1 I. Availability of close substitute 2. Switching Cost 3. Substitute price value 2 √ √ Attractiveness 3 4 √ High 5

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4. Profitability of the producer of substitute

2. BARGAINING POWER OF SUPPLIERS-MEDIUM Labor forms the largest cost component. Although Labor is unionized, Unavailability of other employment option in areas where tea estates are located keeps their bargaining power in check. Particulars Low 1 1. No of suppliers 2.Availability of Substitutes 3.Switching Cost 4.Suppliers Threat of Forward integration 5. Industry's Threat of Backward 6. Contribution to Quality 7. Contribution to Cost 8.Industry's importance to supplier 2 Attractiveness 3 √ √ √ √ √ √ 4 √ √ High 5

3. INTER FIRM RIVALRY-INTENSE Low growth in domestic demand regional fragmentation, increasing competition in export markets coupled a largely fixed cost structure have raised the competitive intensity in the industry competition from bought tea leaf manufactures and regional local brands is another factor affecting the players in the century. Particulars Low 1 1. No of competitor 2. Industry growth 3. Fixed cost 4. Differentiation 5. Switching cost 6. Openness of team of 7. Excess capacity scale 8. Strategic stakes 2 Attractiveness 3 √ √ √ √ √ √ 4 √ √ High 5

4. BARGAINING POWER OF BUYERS –LOW
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Being a consumer product, demand originates from million of household where consumption is widely distributed, resulting in low barraging power in the hands of any single buyer. Particulars Low 1 1. No of buyers 2. Availability of Substitutes 3. Switching Cost 4. Buyers Threat of Backward integration 5. Industry's Threat of √ Forward integration 6. Contribution to Quality 7. Contribution to Cost 8. Buyers Profitability √ √ √ 2 Attractiveness 3 √ √ √ 4 √ High 5

5. BARRIERS TO ENTRY-MEDIUM Very across the industry value chain high in tea leaf production, low in processing, distribution and retail. As retail and distribution drive the demand .Competition intensity of this segment drives the overall competitive intensity in the industry. Particulars Low 1 1. Economic of scale 2. Product differentiation 3. Brand identity 4. Switching Cost 5. Access to channels of distribution 6. Capital requirement 7. Access to technology 8. Access to raw materials 9. Government protection Interpretation:
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Attractiveness High 5 √ √ √ √ √ √ √ √

2

3 √

4

because no buyers are high in Tea industry.
• • • •

B a r g a i n i n g p o w e r i s m o d e r a t e h i g h

High competition among the competitors because close substitute product. Such as Moderate high supplier so the moderate high bargaining power of the supplier. Firm will enter in the market and also leave the market but need high capital The rivalries among competitors are high, so effects on price of Tea due to the

beverages like soft drinks and juices.

investment and in case of leave high capital investment loss. cutthroat competition in the market.

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Threat of new Entrance

Porter’s Five Force Model

The industry Bargaining Power of Buyer Jacking for Position among current
competition

Bargaining Power of Supplier

Threat of Substitute Product

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6.2 SWOT Analysis
STRENGTHS • Wide landscape for Production: The first sample of manufactured tea in Assam was ready in 1837. Today, India has 39,700 tea estates (32,000 in the south and 6700 in north) and a tea producing workforce of more than a million people. The plant that was widely growing in Assam would play a major role in the economy of India today. It is become helpful to become India to being the largest producer of Tea globally. • Technical & Manpower Skill: Technology has been introduced only in few pre sale activities like cataloguing, sale activities like bidding process and post sale activities like delivery orders etc. The Indian tea board grants to institutions for carrying out research in tea science and technology and development project. • Good Research Support: Research and Development works are carried out in eight research departments – Botany, Soil, Agronomy, Plant Protection, Biochemistry, Engineering and Manufacturing, Statistics, agriculture economics and Tea testing. At present about 18researcg projects are in operation. Tocklai also provides service functions like soil analysis, testing of agrochemical, identification of pest and diseases samples etc. Besides publications of research, another things are journal “Two and a bud”, Annual scientific reports, Occasional scientific papers, Bulletins, Leaflets etc. WEAKNESSES • Minimum investment in Development: Tea industry does not invest sufficient fund to develop the new advanced technology, it has even not invest for good research and development. In Assam still many TEA production plants have old technology for producing TEA. • Stagnant Production:
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Tea production in India declined by 2.85 percent, as output in both the Northern and Southern production regions contracted. A major factor contributing to the decline was the closure of up to 70 tea gardens in Assam due to the widespread recession in the industry. The downturn was further exacerbated by unfavorable weather both in the North and South part of the country. Output in 2008 was 945.27 million tonnes for the country with 718.21 million tonnes produced in the North and 227.06 million tonnes in the South. Tea production in Assam as well as in Tamilnadu decrease at the maximum leval. India's tea production is expected to decline to around 900 mkgs, mainly because of the low rainfall in major growing regions. Dry spells, coupled with temperatures between 35-37°C and extreme weather conditions, have resulted in the decline. • No effective Cost management: In the Tea Industry the plantation of crop is done with high degree of labour intensity. Labour cost account for around 34-35% if the cost of the production. Other major costs include selling and administrative costs. The costs are increased like manufacturing cost, Employee cost, selling and administrative cost, and other operating cost by 15.4, 33.8, 12.5, and 5.1 respectively. • Declining in Export: This is the only industry where India has retained its leadership over the last 150 years. The percentage share of tea in India’s total commodity export during 1997-98 is 1.43 per cent, during 2008-09 it has come down to 0.34 per cent. The decade of nineties and beginning of twenty first century has been quite depressing for the tea industry in India. In spite of accounting for around 27% of world's tea production, India accounts for only 12% of world's tea exports. India's international competitiveness in tea exports has been on a decline. From being a preeminent supplier of the world's tea, India has lost ground in virtually every export market. In the early 1980s, Indian tea exports accounted for around 40% of the domestic production. By the end of 1980s, the share of the tea exports fell to 30%. The decline continued till 1994 when exports accounted for only 20% of the domestic production of tea. Thereafter, the proportion of exports improved to around 24% of the
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domestic production during 2003. However, exports have again declined to 20.94% of production in 2008. OPPORTUNITIES • Quality and Brand Equity: Darjeeling Tea, Assam Tea and Nilgiri Tea are most popular in the world. Darjeeling tea is delicate flavor, rich aroma and exquisite bouquet. These unique characteristics make Darjeeling tea “The Champagne of Teas”. The combination of a cool and moist climate, the soil and the sloping terrain give Darjeeling its unique “Muscatel” flavors. Naturally, these are the teas that are in great demand globally, thus being sold at premium prices. Assam tea is known for it’s strong, pungent, full- bodied liquor. For those who like a bright, strong cup of tea, Assam tea is the answers. Nilgiri Tea Nilgiri teas are relatively mild teas with mellow, light and clean liquor and grow all the year round unlike the seasonal Assam and Darjeeling. Fine flavor teas are produced here. Stylish leaf throwing very bright, brisk, quality liquors with strength and pronounced flavor are the characteristics of Nilgiri Tea. A Flavor is derived from the high elevation and prevails throughout the year in the varying degrees. • Export Potential: As we mention of different Indian Tea has the opportunity and potentiality of higher export. And as the usage of tea increases as health drink which enhance the sale of tea in the foreign market. So being the largest producers of tea in the world, India has the chance to get more market. • Big domestic market (mention as data of consumption): During 1950-60, the percentage share of consumption in production was 32.06 per cent, increased to 66.92 percent during 1981-90, increased to 76.94 per cent during 2001-04, this further increased to 81.75 per cent during 2008. Even though, India’s
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tea production, area and yield increased, it could not match the growing internal domestic demand. Tea is the country's primary beverage, with almost 85% of total households in the country consuming tea. India's expenditure on beverages and processed foods accounts for 8% of food expenditure in rural areas, and 15% in urban areas. Tea is the prime beverage consumed in India, and private final consumption expenditure (PFCE) on tea, coffee and cocoa aggregated Rs. 134.96 billion in FY2005, accounting for around 2% of India's PFCE on food, and 0.7% of India's PFCE. The latest available data indicates that tea accounts for 90.6% for India's consumption of stimulants (tea, coffee, and cocoa beans). • Financial Institution support: The union budget has proposed contribution of 1 billion towards special tea fund, aimed at re plantation and rejuvenation of tea. Further, the customs duty on packaging machines has been reduced. The allocation of Rs 1 billion towards the special purpose tea fund is likely to be helpful for development of the industry. The reduction in customs duty on packaging machinery is likely to benefit packaged tea manufacturers. Overall the impact of change in union budget is likely to be positive. THREATS • Open global competition: From a leadership position in international markets up to 1991, India has lost market share to Sri Lanka and Kenya, the two countries which mainly dominates international trade. A major loss of its market shares occurred in the former USSR, where India occupied an almost monopolistic position but generally tea exports from India have been on a declining trend over the last two decades. Some recovery in export volume has occurred since the late 1990s, but generally tea exports from India have been on a declining trend over the last two decades. The lack of competition in the earlier days, remunerative prices in the domestic markets and buoyant export off take from CIS provided little incentive to the Indian
53

tea industry develop alternative export markets. In comparison, Sri Lanka has been aggressively marketing its produce and penetrating markets in which it earlier had little presence. Prices of Indian tea became prohibitively expensive. As a result, Indian exports became uncompetitive as compared with cheaper imports Indonesia, Vietnam, Georgia, Sri Lanka and South India. • Lack of marketing initiatives: The lack of marketing initiatives led the industry to industry’s failure to penetrate new markets and inability to secure preferential duty treatment from countries. The lack of competition in the earlier days, remunerative prices in the domestic markets and buoyant export off take from CIS provided little incentive to the Indian tea industry develop alternative export markets. In comparison, Sri Lanka has been aggressively marketing its produce and penetrating markets in which it earlier had little presence.

Low Cost Structure: The cost structure of the industry is as follows. The labour cost works out to be higher at 46%, while the global labour cost is much lower. Within the domestic market, labour cost in south India is much more than in North India. The selling expenses are 12%, power and fuel 7%, stores and spares 9%, repair and maintenance 5% and other 21%.

Price uncertainty: Indian tea price determination is differing from region to region because of clean, crisp, golden and neutral character, with a delicate flavors and aroma. And prices are fluctuating year by year due to the auction, labour problems, competition, and also the rain base production, Low Profitability in Production.

Tea Import: India's tea imports are low, but had increased significantly from the year 2005. Quantitative restrictions on tea imports were removed from March 2001.
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However, customs duty was raised from 35% to 70%, and subsequently to 100%. The bulk of the tea imported by India is orthodox tea from Indonesia, Vietnam and Sri Lanka. The industry is encouraging orthodox tea production as an import substitution strategy to reduce imports.

6.3 PESTEL Analysis
A scan of the external macro environment in which the firm operates can be expressed in term of the following factors:
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 Political Factors  Economical Factors  Social Factors  Technological Factors  Environmental Factors  Legal Factors

1. POLITICAL FACTORS The tea industry in India is highly regulated. Under the Tea Act, 1953, the Tea Board has been constituted by the Government of India (GOI) to regulate the production and extent of cultivation of tea; improve the quality of tea; promote cooperative efforts among growers and manufacturers of tea; secure better working conditions and the provisions and improvement of amenities and incentives for workers; etc. Permission has to be obtained from the Tea Board for planting of tea on any land not planted with tea; replacement of tea area by planting tea on area not planted with tea. The Tea Board also regulates and controls the total area of land under cultivation. The Tea (Marketing) Control Order, 2003 regulates tea sales and stipulates that a defined percentage of tea produced from each garden be sold through the auction system. The Tea (Distribution and Export) Control Order, 2005 provides that no distributor shall carry on the business of distributing imported tea and no exporter shall export tea or export imported tea except under a business license obtained in accordance with the provisions of the Order. In order to ensure the supply of genuine Darjeeling tea and check labeling of other teas as ‘Darjeeling Teas’, the Government has incorporated a compulsory system of certifying the authenticity of exported Darjeeling tea into the Tea Act. This system makes it compulsory for all the dealers in Darjeeling tea to enter into a license agreement with the Tea Board of India on payment of an annual license fee. The terms and conditions of the agreement provide, inter alias, that the licensees must furnish information relating to the production and manufacture of Darjeeling tea and its sale, through auction or otherwise.

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The Tea Board is thus able to compute and compile the total volume of Darjeeling tea produced and sold in the given period. No blending with teas of other origin is permitted. The customs authorities in India have instructed, by circular, all customs checkpoints to check for the certificates of origin accompanying the Darjeeling tea consignments and not to allow the export of any tea as ‘Darjeeling’ without this certificate. This ensures the sale-chain integrity of Darjeeling tea until consignments leave the country. Government targets - neither feasible nor desirable: The Government has set a target of Ibn kg of production by 2003; this would require additional land of 50,000 hectares and explanation of 200,000 hectares. Given the gestation period of 5-7 years, the target is impossible to achieve. The production growth is estimated to be 1.5-2% pa. Even if targets were achieved, it would do more harm than good to the industry. The domestic demand of 600mn kg will rise at 1.5-2% pa. Indian tea in international market will remain price uncompetitive due to high production costs. Available surplus for exports will dampen prices. Geographical Indications: In order to provide legal protection in India, the Tea Board has also registered the 'Darjeeling logo' and also the word 'Darjeeling' as certification trade marks (CTMs) under the Indian Trade and Merchandise Marks Act, 1958 (now the Trade Marks Act, 1999). At the national level, the words 'Darjeeling' and 'Darjeeling logo' have been proposed for incorporation in the Indian Geographical Indications (GI) registry under the Geographical Indications of Goods (Registration and Protection) Act, 1999 which came into force with effect from September 15, 2003. The use of a GI may act as a certification that the product possesses certain qualities, or enjoys a certain reputation, due to its geographical origin (such as champagne). At the international level, a number of treaties administered by the World Intellectual Property Organization (WIPO) provide for the protection of geographical indications, most notably the Paris Convention for the Protection of Industrial Property of 1883 and the Lisbon Agreement for the Protection of Appellations of Origin and Their International Registration. At present, GIs for
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all products are covered under Article 22 of the Trade-Related Aspects of Intellectual Property Rights (TRIPS). The pending issue is to whether to expand the higher level of protection under Article 231 of TRIPS currently given to wines and spirits-to other products. A number of countries want to negotiate extending this higher level of protection to other products. Some others oppose the move, and the debate has included the question of whether the Doha Declaration provides a mandate for negotiations on this issue. The Doha Declaration notes in its paragraph 18 that the TRIPS Council will handle work on extension under the declaration's paragraph 12 (which deal with implementation issues). Paragraph 12 says "negotiations on outstanding implementation issues shall be an integral part" of the Doha work programmes, and that implementation issues "shall be addressed as a matter of priority by the relevant WTO bodies, which shall report to the Trade Negotiations Committee (TNC)... by the end of 2002 for appropriate action'. India, along with other countries is advocating extending the higher level of protection to other products. These countries view the higher level of protection as a way to improve marketing their products by differentiating them more effectively from their competitors'; and they object to other countries "usurping1 their terms. The EU has also called for the TRIPS Agreement to be amended so that all products would be eligible for the higher level of protection in Article 23, together with the multilateral registration system currently being negotiated for wines and spirits. However, US and many other countries, argue that the existing (Article 22) level of protection is adequate. They argue that providing enhanced protection would be a burden and would disrupt existing legitimate marketing practices.

2. ECONOMICAL FACTORS Indian economy become the strongest than it is coma ring since last many years, it is absolutely good time for Indian tea industry. The total net foreign exchange earned per annnum is Rs 1847 crore, highest foreign exchange earning agricultural product of
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India. The rapid growth of domestic demand is expected to reduce the export surplus in the coming years. Exports: In spite of accounting for around 27% of world's tea production, India accounts for only 12% of world's tea exports. India's international competitiveness in tea exports has been on a decline. From being a preeminent supplier of the world's tea, India has lost ground in virtually every export market. In the early 1980s, Indian tea exports accounted for around 40% of the domestic production. By the end of 1980s, the share of the tea exports fell to 30%. The decline continued till 1994 when exports accounted for only 20% of the domestic production of lea. Thereafter, the proportion of exports improved to around 24% of the domestic production during 2003. However, exports have again declined to 17.5% of production in 2005. India's tea exports have declined at a 3-year CAGR of 4.1 % in volume terms during FY2004-06. Although exports are marked by significant yearly fluctuations, India's tea exports have declined over the long-term. Exports peaked at around 216 nikgs (Rs. 12.11 billion) in FY199I, but have declined subsequently. During FY2006, exports declined 6% in rupee terms, and 4.6% in US$ terms. In volume terms, tea exports declined 11.2% during FY2006 lo around 163 mkgs. Exports started slowing down starting October 2004 owing to rise in domestic auction prices which made exports unviable, and unavailability of orthodox variety of tea which is preferred by importing countries. World Imports: World net tea imports increased 1.5% during 2004 to around 1,416-1,420 mkgs, mainly because of increases in traditional developed country markets of the EU, US, and Japan. Most of the growth in these markets is reportedly in response to promotional efforts on the health benefits of tea consumption. Amongst the developing countries, Pakistan is the largest importer.

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During 2005, world tea imports declined to around 1,401 mkgs mainly because of decline in exports in Japan and Iran. An analysis of major tea importing markets indicate that Russia is the largest importer of tea with imports of 169 mkgs in 2005, followed by Pakistan (134 mkgs), UK (128 mkgs), US (102 mkgs), and Egypt (72 mkgs). India's tea imports are low, but had increased significantly till FY2005. Quantitative restrictions on tea imports were removed from March 2001. However, customs duty was raised from 35% to 70%, and subsequently to 100%. The bulk of the tea imported by India is orthodox tea from Indonesia, Vietnam and Sri Lanka. The industry is Encouraging orthodox tea production as an import substitution strategy to reduce imports. India's tea imports are estimated to have declined significantly from 31.8 mkgs in FY2005 to around 18.7 mkgs in FY2006. The decline was mainly because of imposition of strict quality norms by the government on re-export of imported tea. Taxation - an issue: Income tax liability for tea companies is calculated differently. It is deemed that 60% of the pre-tax profits are agricultural income, which is taxable by the states. The remaining 40% is taxable as corporate income by the Centre. The state tax rate is higher and is around 50-70%. The corporate tax rate is 35% for domestic income and export is exempt from taxation. Also, 20% of total profit is tax exempt, provided the funds are deposited with NABARD and used for capital expenditure after a year. Tea Marketing Control order requires all the manufacturers to sell 75% of tea (excluding exports and packet sales) through auction houses. Tea is politically sensitive. Imports are not allowed for domestic consumption. CTC exports were banned for a brief period in 1977 and 1984 External Environment:

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Tea in India is consumed as a regular refreshing beverage and has been adopted as a habitual drink. The consumption of tea is concentrated all over India barring a few states of south India. Consumer in different parts of the country have heterogeneous taste according to Indian culture guest are consider to be god. The guests are generally welcomed by offering tea. Tea industry employees one of the largest work force in India, 50% of tea work force are women. Tea companies recruit young graduates generally for planting jobs. It is highly labour intensive industries as 46% of the costs consist of plucking of tea leaves from the tea gardens. Tea is concentrated more for adults markets. As tea as not considered healthy drink for children's, the marketers do not focus on these segments, when they advertise. Still n\many children are the regular consumer of tea in India. Generally the market is being segmented on the basis of income. We can classify the tea market in to three segments premium, popular, and economical. 3. SOCIAL FACTORS Promotion of Tea as a Health Drink: Because of low growth in domestic consumption in major producing countries, and the higher prevalence of coffee consumption in some major tea importing countries such as US, the tea industry has increasingly focused on promoting tea as a "health drink'. Tea can be categorized into 3 types according to the different levels of fermentation: green (unfermented), oolong (partially fermented), and black (fermented). Tea contains polyphones (of which the most prominent components are flavones, commonly known as catechism). Flavones are regarded as the biologically active constituents of tea, constituting around 36% of the dry weight of tea. The main flavones found in GT, and to a lesser extent in BT, are EGCG, EGC, ECG, and EC. EGCG and ECG have the highest antioxidant properties. Antioxidants
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reduce oxidative damage to cells and biochemical. In general, GT shows stronger antioxidant activity than semi fermented and BTs, mainly because of the manufacturing process. All varieties of tea come from the leaves of a single evergreen plant, Camellia sine sis. All tea leaves are picked, rolled, dried, and heated. With the additional process of allowing the leaves to ferment and oxidize, black tea is produced. Because it is less Processed, GT contains higher levels of antioxidants than BT. although; GT and GT supplements contain higher amounts of polyphones than BTs, Darjeeling and Ceylon BTs contain even higher amounts of EGCG. Because of the worldwide popularity of tea and because of the absence of toxicity as a natural dietary agent, tea is an excellent candidate for dietary cancer prevention. Antioxidants may protect cells from the damage caused by unstable molecules known as free radicals. Free radical damage may lead to cancer. Antioxidants interact with and stabilize free radicals and may prevent some of the damage free radicals otherwise might cause. In the laboratory, studies have shown tea flavones act as powerful inhibitors of cancer growth in several ways. They scavenge oxidants before cell injuries occur, reduce the incidence and size of chemically induced tumours, and inhibit the growth of tumour cells. In studies of liver, skin and stomach cancer, chemically induced tumours were shown to decrease in size in mice that were fed GT and BT. However, at present, there is no widespread credible evidence to .support health claims for green tea consumption and a reduced risk of gastric, lung, colon/rectal, esophageal, pancreatic, ovarian, and combined cancers in humans. Nevertheless, there exists limited credible evidence for qualified health claims specifically for green tea and breast & prostrate cancers.Flavonoids present in tea also are claimed to inhibit the oxidation of low-density lipoprotein (LDL) cholesterol, patient thereby reducing the risk of heart diseases. Oxidized LDL may promote atherosclerosis, so this property of tea may help prevent additional heart attacks, at least in some patients. Epidemiological studies suggest that people with a low intake of flavonoid had a higher death rate from coronary heart disease than did those who consumed more flavonoid (about 5-6 cups of tea per day). Flavonoids also have
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been shown to inhibit the aggregation and adhesion of platelets in blood, which may be another way they lower the risk of heart disease. Tea & Beauty: Apart from being a healthy drink, tea is an excellent beauty aid too that is easily available in all homes. Brew 1/2 cup of unscented black or green tea leaves in approximately a liter of boiling bottled water for at least 10 minutes. Strain and set aside. Cool the filtrate and refrigerate. Use this solution to soothe sunburns. For minor cuts and scrapes, apply the cold tea brew with a pure cotton pad onto the cuts or abrasions. Leave the cotton pad on the affected area for at least 5 minutes. Do not wash off. Apply this 4 times and day and see the difference. Apply a piece of cotton cloth that's been soaked in the cold tea brew to the sunburned area. Leave on until the affected areas cool off. Repeat this 3-4 times a day. To remove puffiness from eyes, soak cotton pads in the cold lea brew and keep the pads on your lids for about 10 minutes. Refrigerated used tea bags are another alternative. In case you have had a rough day, soak your feet in the cold tea brew for about 15 minutes. This is a great way to treat your feet after a long day of standing, walking, or running. For an aromatic soak, you can use flavoured tea brews. For a face scrub, mix 1 teaspoon of fine commeal or oatmeal with cooled chamomile tea brew. Apply on face and neck. Rub off gently when dry. This scrub is not recommended for sensitive skin. Another exfoliating paste would be using chamomile tea brew with powdered milk. Rub entle and wash with warm water when dry. Rinse your face with brewed tea solution. Tea acts as an astringent, so it works well on pimples. To strengthen hair warm 1/2 cup olive oil, 2 teaspoons fresh ground lavender and the dry contents of 2 peppermint tea bags (easily available in departmental stores). Massage into scalp over damp hair. Cover hair for 20-25 minutes to keep the heat in. Shampoo and rinse hair. Repeat this treatment once a month. A great nourishes and hair strengthening agent. Tea also makes excellent hair colour. It's cheap and can be easily made at home. Make a pot of medium strength tea, strain and cool. Pour as last rinse over shampooed hair. This tea rinse
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imparts color to hair. For a glossy took on your hair, polish it gently with a silk scarf. Alternatively, to colour hair, you can mix henna with tea when applying the henna pack to your hair. To ease toothaches, apply spent tea leaves on affected tooth till you manage the visit to the dentist. 4. TECHNOLOGICAL FACTORS The labor force accounts for about 50% of the cost of production, as plucking of the leaves requires expertise and these leaves are responsible for producing superior quality tea. The technology that is used in tae production is not very advanced. New technology innovation is not very advanced the basic product i.e. the tea. Tea industry is not an industry where overnight changes have to be made or production is affected due to new technology. Being highly labor intensive technological factors is least affecting the tea industry. India is the largest manufacturer and exporter India. Incorporating the highest technological standards in its production of tea, the company is a symbol of excellence giving a perfect bland of quality and care in every cup of tea.
5. ENVIRONMENTAL FACTORS

of

tea machinery. Other

major tea producers (also developing nations) source equipment and technology from

Tea has a great impact on the environment. In 1999, the area of land cultivated by tea in just the five major producing countries (China, India, Indonesia, Kenya and Sri Lanka) amounted to one million acres. Tea is grown in monoculture, which reduces bio diversity. In the absence of other plants to maintain the ecological balance, intensive use of pesticides and fertilizers is needed to protect the plants against pest infestation and to enhance productivity, leading to the soil being leached out.
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The nature of the chemicals being used makes this problem all the more serious. The tea gardens are using chemicals such as Aldrin 20E, Carbofuran 30, Endosulfan 35 EC, Malathion 50 EC, Tetradifon 8 EC and Calixin 80 EC, most of which are listed as hazardous and toxic and some of them are banned. Pollution in tea plantations is strongly linked to the ill-treatment of workers. The spraying of pesticides is usually done by untrained casual daily wage workers, mostly children and adolescents, who are illiterate and cannot read the warnings or the instructions on the containers. Their lack of knowledge leads to improper use of the chemicals. The compulsory gap 8-10 day gap between spraying and plucking is designed to protect the workers, but managers do not abide by it, at once putting the workers in danger and resulting in a high degree of toxicity in the soil and water. The inadequate provision of toilets for workers exacerbates the water pollution created by pesticides, destroying fish and aquatic life and causing a particularly serious problem where such water is used for drinking by the local population. The unsafe use of chemicals not only puts the workers and the environment in danger, but also leaves traces of harmful pesticides and insecticides in the processed tea. According to a report published in the Economic Times, the European Tea Committee in its findings claimed a high incidence of pesticides in Indian tea exported to overseas markets. Other environmental problems identified by Oxfam in South Asia include the disposal of plastics in waterways, deforestation and, particularly in Darjeeling, landslides and erosion. A number of rivers flowing through sanctuaries and reserve forests get residual pesticides drained from tea gardens. Sometimes toxicity of these rivers go up to an alarming level, as environmental research groups like Ashoka Trust for Research in Ecology and Environment and Peoples Science Institute have found. Pesticides worth Rs.730m ($15.5m) are annually used in North Bengal's 104,226 ha of tea gardens. Since usage of high yielding tea plant varieties has gone up and since these are highly susceptible to pests the use of pesticides too has gone up. When mixed with other solvents, these pesticides exert massive toxic effect on environment for a long duration, affecting birds, animals and humans.
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“Wild animals accumulate these toxins in their body through regular intake of river water containing these. This causes cancer, uncontrolled gene mutation, weakening of egg shell and visceral organ damage. Already there are visible signs of that also," says District Forest Officer (Wildlife) R Das. Despite the evidence against harmful pesticide use, planters fear that yields will decline dramatically without it. While there is clear evidence that the monoculture of non-organic tea contributes to grave environmental problems, some aspects of tea-growing make organic farming more difficult for tea than for other crops. Common to all crops are the high costs of certification and lower yields during the period of conversion, and tea is no exception. However, organic tea-growing also faces greater risk with respect to higher labor costs and lower-than-anticipated demand. In an industry where the cost of labor can be as high as 60% of the total cost of production, a significant increase in labor costs can pose a serious financial risk. Organic agriculture is considerably more labor intensive than non-organic agriculture, with the main areas of cot increase being in weeding and in producing and applying sufficient compost. For tea, where chemical fertilizers are applied at a few hundred kg per hectare, compost and oilseed cake are required in tones per hectare, shooting the cost of labor upward. The market for organic tea is also not as promising as for other organic produce. Although demand for organic produce is growing rapidly in Europe, the market remains small, at less than 1% of the market in 1999. Furthermore, while the trend is for continued growth, current research suggests that tea is not a product type where there is particularly strong demand for organic varieties. The price premium that organic tea now receives will not be sustainable with higher organic production. Another important aspect for demand for organic tea is that it is currently restricted to Europe, which consumes only a minor part of the world tea production.

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Nevertheless, the few tea growers already converted to organic production have reported success. The Samabeong factory in Darjeeling, for example, was one of the first to convert to organic and now has yields equal to or even greater than its preorganic period. Meanwhile, the environmental benefits of organic production are undeniable. In the case of Oothu in South India, the conversion saw bird life in the tea fields increase, insect life, the most affected by the use of chemicals, resumed as old food chains were restored.

6. LEGAL FACTOR
Stock reduction – Although there is some correlation between stock levels and prices, the perish ability of tea means that stocks are normally small in relation to consumption, so that this scheme will only have a small impact on raising prices. Reduced production – Because tea is domestically a popular beverage in many producing countries, most notably India, opposition from such countries is likely to make such a scheme very difficult. High domestic demand in those countries will mean that a lower share of production is exported, thereby reducing their share in the export market, which they will find unacceptable. Minimum quality standards – Removing substandard tea from the export market would address the problem of oversupply, while demand could also be stimulated by increasing customer satisfaction with tea. A number of producing countries – including India, Sri Lanka and Kenya – already have minimum standards below which teas are destroyed, but countries such as Argentina, China and Malawi rely on exports of low-priced tea unfettered by quality controls. The latter group would not be willing to impose minimum export standards. Export quotas – As the experience after the agreement of 1969 showed, opposition from expansion-oriented countries makes this scheme difficult. However, it is worth reconsidering a global export quota based on the ‘principle of differential growth’ of the kind advocated by Sri Lanka and India in the 70s. A uniform ad valorem export tax – With this tax, the domestic producer and consumer prices in participating countries would be reduced relative to the world price, which would reduce production and increase domestic consumption, thereby leading to a
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run-down in producer stocks and a fall in export volume. A major problem with this scheme, however, is the large domestic tea market of countries such as India. Wages in the tea plantation sector are abysmally low, even by the plantation sector’s standards. In India, official government figures for average daily earnings indicate that a tea estate worker earns Rs.28.08 ($0.60) a day, while a rubber estate worker earns Rs.40.24 ($0.85) and a cotton estate worker earns Rs.77.77 ($1.65). Existing legislation ignores the category of casual workers – who compose an increasing proportion of plantation labor – thereby excluding them from any protection against exploitation. They should be covered under protective legislation. The ethnic minorities that often make up the plantation population are discriminated against, particularly in Sri Lanka where some 300,000Hill-country Tamils are denied citizenship. These workers should be granted the same rights as the rest of the population. Current legislation on labor rights needs to be much better enforced. For the Plantation Labour Act in India, for example, the maximum penalty for any offence is only Rs.500 ($10.61). A second prosecution invites a penalty of Rs.1000 ($21.22). Legislation must be tougher and more punitive to offenders for plantations to reform.

6.4 Financial Analysis
6.4.1 Ratio Analysis
Ratio means numerical relation between two types of information. This relation is highly significant to the corporate world. It provides importance to the investors, Landers, Bank etc. Ratio is most commonly used in three different ways. The first is proportion e. g. current assets is twice the current liabilities so the current ratio is 2 : 1the second method is percentage e. g. rate of return on capital employed is 30% and the third method is rates e. g. stock turnover is 6 or stock turnover is 6 times a year. The utilities of Ratio analysis are as under. • • • To know the profitability of the business. To know the liquidity of the business. To know the efficiency of the business. 68

• • • •

To make inter firm comparison. To indicate trend. It is useful for budgetary control It is useful for decision making.

The ratio analysis of the Indian tea industry is as given below.

PROFITABILITY RATIO: 1) Return on Net Worth:
Years PAT / Avg. Net Worth Mar-04 -3.03 Mar-05 -0.37 Mar-06 -6.31 Mar-07 3.73 Mar-08 -3.63

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Interpretation: From above data we can say that in 2003-04 return on net worth is -3.03%. The negative trend in the return on Net worth is continuing till 2005-06. In 2006-07 the return on net worth was increase by almost 10.04 %, which shows good sign for tea industry. But again in 2007-08 it will decrease rapidly upto -3.63%. It suggests that Industry has to take certain steps for this particular situation. 2) Return on Capital Employed: Years PAT / Avg. Capital Employed Mar-04 -2.86 Mar-05 -0.36 Mar-06 -6.37 Mar-07 3.54 Mar-08 -3.19

Interpretation: From above data we can say that in 2004 return on capital employed is -2.86, which is shown negative ratio. In 2006 this negative ratio increased and reached upto -6.37. But in 2007, it bounces back with good margin of 9.91%. It suggests that the year 2007 was come up with good recovery for the overall tea industry. In 2007 the capital employed shows the positive ratio which shown positive signal for tea industry but again it reduce in the year 2008 and come to the -3.19%. Which shows that the
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negative trend for the tea industry continues through out the years except the year 2007 and it may possible that this trend may continue in to the future. 3) Return on Total Assets: Return on assets is a key profitability ratio which measures the amount of profit made per dollar of assets that they own. It measures the industry’s ability to generate profits before leverage with its own assets, rather than by using leverage in the form of shareholders' equity or other debt liabilities.

Years PAT / Avg. total assets

Mar-04 -1.81.

Mar-05 1.27

Mar-06 -11.51

Mar-07 3.91

Mar-08 2.98

Interpretation:

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The above data says that in 2004 return on total assets is -1.81. The total assets are increase and decrease in the manner and shown many fluctuation year by year. In 2006 there is a deep decrease in the ratio upto -11.51. But in 2007 return on total assets ratio is recovered and increase by very good margin of 15.42% and the increase was maintained in the year 2008 i.e. good sign for the growth of the industry. LIQUIDITY RATIO: 4) Quick Ratio: The quick ratio - or the quick assets ratio or the acid-test ratio - is a liquidity indicator that further refines the current ratio by measuring the amount of the most liquid current assets there are to cover current liabilities. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash. Therefore, a higher ratio means a more liquid current position.

Years Quick ratio

Mar-04 0.34

Mar-05 0.36

Mar-06 0.3

Mar-07 0.3

Mar-08 0.38

Interpretation:

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From the data we can say that in 2004 Quick ratio is 0.34. In 2006 the ratio is decrease in the manner upto 0.3%. After that the ratio are constant in the manner. In 2008 Quick ratio increase by 0.08 which is not so high increments in the quick ratio.

5) Current ratio: The current ratio is a popular financial ratio used to test a industry's liquidity (also referred to as its current or working capital position) by deriving the proportion of current assets available to cover current liabilities. The concept behind this ratio is to ascertain whether a industry's short-term assets (cash, cash equivalents, marketable securities, receivables and inventory) are readily available to pay off its short-term liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes). In theory, the higher the current ratio, it is better.
Years Current ratio Mar-04 0.96 Mar-05 0.94 Mar-06 0.69 Mar-07 0.63 Mar-08 0.71

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Interpretation: The above data say that in 2004 Current ratio is 0.96 times. In 2006 the ratio is more decrease in the same manner upto 0.69 times. In 2007 current ratio is 0.63 which is also shown more declining of the current ratio. But in the year 2008, it shows positive trend and reach to the 0.71 times. The current ratios for tea industry shows that the industry could not able manage its current assets in the comparison of current liabilities and it is not so good for the industry. 6) Debt to Equity ratio: Debt to Equity Ratio is also referred to as Debt Ratio, Financial Leverage Ratio or Leverage Ratio. The debt to equity (debt or financial leverage) ratio indicates the extent to which the business relies on debt financing. Upper acceptable limit of the debt to equity (debt or financial leverage) ratio is usually 2:1, with no more than one-third of debt in long term. A high financial leverage or debt to equity ratio indicates possible difficulty in paying interest and principal while obtaining more funding. Years Debt to equity ratio Mar-04 0.94 Mar-05 0.94 Mar-06 1.29 Mar-07 1.5 Mar-08 1.37

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Interpretation: From above data we can say that in 2004 Debt to equity ratio is 0.94. In the year 2005 the ratio is somewhat constant. In 2006 the ratio is increase in the impressive manner by 1.29. In 2006 it further increase and reach upto the 1.5 mark. But again in the 2008, it decreases little bit and reach 1.37. The Dept to equity ratio of the tea industry shows increasing trend in the effective manner except 2008. 7) Net profit ratio: Net profit ratio is the ratio of net profit (after taxes) to net sales.

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Years PAT/Total income

Mar-04 -2.09

Mar-05 1.28

Mar-06 -10.46

Mar-07 3.15

Mar-08 2.4

Interpretation: From above data we can say that in 2004 net profit ratio is -2.09. In the year 2005 tea industry has covered from the loss to the profit making industry. But the 2006 is not so good for the Tea industry. It shows deep decrease in the profit making capabilities of the industry. The ratio shows 11.74 % decrease in the net profitability of the industry. While in the year 2007 net profit ratio boost up very hardly and reach to the 3.15%’s positive mark, which shows good situation of tea industry. From the year 2007 tea industry is on the path of growth. Again in the year 2008 it decrease little bit and reach to 2.4%. So overall this ratio shows mix-up trend for the Tea Industry. If we think as a profitability point of view, it is not so good for the Tea industry for the long term.

6.4.2 Trend Analysis
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The trend analysis of any company or industry will show the direction of the move of the particular company or industry. It will show that whether we should invest in that company or industry or not. Thus it will be very much useful from the analysis point of view. The trend analysis of Indian tea industry is as given below. 1. Total Income Except the year 2004 the income level of the industry is decreasing constantly year by year. This shows that the demand and sales of the tea is decreasing in the Indian market or many other factors affect the demand and sales of the Tea into the market.

2. Total Expenses The total expenses of the industry are also increasing constantly year by year till 2006. While in 2007 it is decreasing. This shows that the tea industry has to make lots of expenses in order to sustain in the Indian market as well as the global market.

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3. Profit before Tax The profit before tax is increased in the year 2005 and then it takes deep decrease in the year 2006. On the opposite side in next year it recovers a lot and takes a positive position. But the industry can’t able to maintain the sufficient level in to the upcoming year and takes decreasing trend. This shows that the sales of the industry are fluctuating year after year.

4. Profit after Tax In the year 2005, the ratio shows increasing trend but in the year 2006 it takes a wide decrease in the profitability of the industry. While in 2007 and 08 it comes in positive trend with 78

fluctuations. The net profit of the industry shows highly fluctuation every year. This shows that the profitability of the tea industry is not constant through out the years.

5. Reserves The reserve of the industry is also decreasing year by year. This shows that the financial condition of the companies of the Indian tea industry is not sound and they have not enough funds with them to make investment in assets.

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Trend Analysis of Indian Tea Industry for the Financial Years March 04 to March 08

Particulars Total Income Total Expenses PBT PAT Reserves

March 2004 100% 100% 100% 100% 100%

March 2005 129.54% 128.24% 283.13% 179.49% 114.42%

March 2006 124.70% 138.98% -441.16% -1171.47% 103.11%

March 2007 116.76% 101.99% 166.65% 401.07% 95.79%

March 2008 104.11% 104.24% 99.73% 79.41% 82.35%

CHAPTER-7 TREND FORECASTING
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7.1 Trend Forecasting
Trend is the basic tendency of a series of grows or decline over a period of time. Trend is a slow and steady fluctuation on the values of a time series spread over the period of a time series spread over a long period of time. If a time series is observed, there are may appear many ups and downs in the series. However if it carefully examined, a persistent growth or persistent decline is found to be present in the series. This tendency of a series is known as trend. Trend is a combined influence of number of forces spread over a long period of time. If a time series of price of any commodity is observed, a steady increasing trend is seen in the price. Population growth is the main factor responsible for an increasing trend in the most of the economic time series. The changes in the habit of the people, in their likes and dislikes, changes in the tastes etc. are also responsible for an increasing trend in a time series. If a series showing the number of deaths due to tuberculosis for last twenty years is observed. New scientific inventions, new medicines etc. are responsible for the decreasing tendency of such time series. In the Tea it can be analytical that Production and Export shows the mix up trend while the Consumption shows the continuous increasing during the years.

7.2 Production
Year Production (Y) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 810 874.10 825.90 846.90 853.90 838.50 878.10 893 946 981.80 X 11 -9 -7 -5 -3 -1 1 3 5 7 xY -8910 -7867 -5781 -4234 -2562 -839 878 2679 4730 6873 x² 121 81 49 25 9 1 1 9 25 49 Ŷ= a+bx
(Trend forecast)

(Y- Ŷ / Ŷ) ×100
(Cyclical Residual)

807.55 822.45 837.35 852.25 867.15 882.05 896.95 911.85 926.75 941.65

0.3 6.28 -1.37 -0.63 -1.53 -4.94 -2.10 -2.06 2.07 4.26
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2007 2008

944.70 980.82

9 11

8502 10789

81 121

956.55 971.45

-1.24 0.96

Total

10673.72

0

4258

572

-------

--------

2009 (F)* 13 986.35 2010 (F)* 15 1001.25 2011 (F)* 17 1016.15 2012 (F)* 19 1031.05 2013 (F)* 21 1045.95 *It is assumed that all factors affecting are constant throughout the years. a = 10673.72 / 12 = 889.5 b = 4258 / 572 = 7.45

Forecast Ŷ = 889.5 + 7.45x [where x = (2002-2002.5) ×2] In the above table data shows the positive growth in the production in the similar pattern like the past data suggest. And the trend forecasting method suggests that the production will increase in the next years.

7.3 Export
Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Export (Y) 215.94 174.84 193.82 164.90 158.83 155.22 197.67 199.05 218.73 178.75 196.03 x -9 -7 -5 -3 -1 1 3 5 7 9 11 Xy -1943.46 -1223.88 -969.1 -494.70 -158.83 155.22 593.01 995.25 1531.11 1608.75 2156.33 x²
(

(Figures in M.Kgs) Ŷ= a+bx
Trend forecast)

(Y- Ŷ / Ŷ) ×100
(Cyclical Residual)

81 49 25 9 1 1 9 25 49 81 121

182.99 183.77 184.55 185.33 186.11 186.89 187.67 188.45 189.23 190.01 190.79

18 -4.85 5.02 -11.02 -14.65 -16.95 5.34 5.62 15.59 -5.92 2.75

Total
2009 (F)*

2237.94

0
13

223.94

572

------191.57

-------

2010 (F)* 15 192.35 2011 (F)* 17 193.13 2012 (F)* 19 193.91 2013 (F)* 21 194.69 *It is assumed that all factors affecting are constant through out the years. a = 2237.94 / 12 = 186.5 b = 223.94 / 572 = 0.39
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Forecast Ŷ = 186.5 + 0.39x [where x = (2002-2002.5) ×2] In the above data, we can see the positive growth in the Export that is opposite in the pattern like the past data suggest. And the trend forecasting method suggests that the Export will increase in the next years while assuming the other variable are constant but it may be changed also by the negative effect of other variable.

7.4 Consumption
Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Expor t (Y) 615 633 653 673 693 714 735 757 771 786 802 X -9 -7 -5 -3 -1 1 3 5 7 9 11 xY -5535 -4431 -3265 -2019 -693 714 2205 3785 5397 7074 8822 x² 81 49 25 9 1 1 9 25 49 81 121 Ŷ= a+bx
(Trend forecast)

(Figures in M.Kgs) (Y- Ŷ / Ŷ) ×100
(Cyclical Residual)

616.11 635.29 654.47 673.65 692.83 712.01 731.19 750.37 769.55 788.73 807.91

-0.18 -0.36 -0.22 -0.096 0.14 0.28 0.52 0.88 0.18 -0.35 -0.73

Total

8429

0

5487

572

--------

--------

2009 (F)* 13 827.09 2010 (F)* 15 846.27 2011 (F)* 17 865.45 2012 (F)* 19 884.63 2013 (F)* 21 903.81 *It is assumed that all factors affecting are constant throughout the years.

a = 8429 / 12 = 702.42

b = 5487 / 572 = 9.59

Forecast Ŷ = 702.42 + 9.59x [where x = (2002-2002.5) ×2] From the above table of consumption forecasting shows the positive growth in the consumption in the similar way like the past data suggest which directly affect by the population of India. And the trend forecasting method suggests that the consumption of tea will increase in the next years which can also affect to the Tea Export.

7.5 World Demand and Supply of Tea
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(Figures in M.Kgs) Year 2004 2005 2006 2007 2008 World Supply 3334.53 3457.59 3572.66 3802.94 3749.78 World Demand 3192.93 3348.52 3466.99 3710.84 3603.25 (+) or (-) (+) 141.60 (+) 109.07 (+) 105.67 (+) 92.10 (+) 146.53

7.6 Future Outlook
7.6.1 Production This section of the document examines projections that were generated for the medium term (10 years from the latest complete set of data available, i.e. 2003) to 2014. It takes into account the Group’s projections to 2010, which incorporated the revisions provided by members at the 15th Session of the Intergovernmental Group on Tea in Sri Lanka. Members are requested to review the data and forecasts pertaining to their own situation and provide updates, where necessary, to allow the Secretariat to revise the projections. The projections were based on dynamic time series models. Principally, autoregressive distributed lag models were used to capture the dynamic process of market adjustment in tea markets. The forecasts are obtained from s-step a-head ADL models, where s is the forecast horizon. The FAO Tea Composite Price was included as an exogenous factor. Its values, over the forecast horizon, were obtained from its autoregressive representation. Projections were based on the assumption of normal weather conditions, and a continuation of the past trends in yields, planted areas, population and income growth. Adjustments were made to reflect current policies and future market prospects. The forecasting models captured cycles and trends in tea markets to a satisfactory level. Among countries in Africa, a significant growth in output is expected as tea bushes reach optimum producing age and smallholder skills are maximized through intensive capacity building. Tea harvested in the largest producing country, Kenya is expected
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to grow by 2.4 annually to reach 379 000 tonnes in 2014, signifying a slowing in growth rates of the last decade. Other producing countries of significance include Malawi where output is projected to increas by 7 000 tonnes to reach 49 000 tonnes by 2014, while in Uganda and Tanzania output should reach 38 000 tonnes and 33 000 tonnes, respectively by 2014. In the Far East, output in India, is expected to grow by 1.6 percent annually to reach 1.01 million tonnes in 2014. Among the other major black tea producing countries in the region, a slightly higher growth rate of 1.9 percent is projected for Sri Lanka to reach 370 000 tonnes, while output in Indonesia will reach 150 000 tonnes, an annual growth rate of 1.5 percent. Black tea production in China is expected to decline, as the balance of production shifts to other teas with stronger market prospects. World green tea production is expected to grow at a faster rate than black tea at 2.3 percent per annum, but volumes are much smaller at a projected total of 975 000 tonnes by 2014. China would continue to account for more than 75 percent of world green tea output with an output of 740 100 tonnes, replacing some of its black tea production. However, the annual growth rate would slow from 3.8 percent over the last decade (1993-2003) to 2.2 percent over the next (2003-2014). A similar slowdown is expected in Viet Nam as the expansion in area has somewhat abated in recent years, but volumes are considerably smaller. Production in Viet Nam is projected to grow at 2.6 percent from 30 000 tonnes in 2003 to 39 600 tonnes in 2014, while production in Japan will slightly increase by 0.5 percent annually to reach 92 000 tonnes in 2014. For Indonesia, growth rates are expected to pick up again in the next decade after a slow-down since the Far East economic crisis in 1997. Output in Indonesia is expected to expand to 49 100 tonnes in 2014, from 41 000 in 2003. Most of the growth in green tea output would be due to an expansion in area planted and harvested. 7.6.2 Consumption The growth rate in world black tea consumption is expected to be reduced from 2.2 percent over the last decade (1993-2003) to 1.2 percent over the next (2003 to 2014) to reach 2.67 million tonnes by 2014 (Table 6). The main reason is the slow-down in
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consumption in producing countries, as the production growth rate outpaces the growth in demand for exports. Global tea consumption is divided into net imports for non-tea producing countries, and domestic consumption in producing countries, measured by production less exports. 7.6.3 Net imports World net imports of black tea, a proxy for consumption in importing countries, are projected to increase annually by 1.2 percent to reach 1.34 million tonnes in 2014. Imports by the CIS (predominantly the Russian Federation) and Pakistan are expected to increase by 3.0 percent and 3.4 percent annually, respectively, in line with GDP growth expectations. Net imports by these countries are expected to reach 342 000 tonnes and 120 300 tonnes, respectively, by 2014. In the EC (15) a slight decline in imports is expected due mainly to the 1.6 percent annual contraction expected in the United Kingdom. Notable increases are expected in Germany, the Netherlands and France, but the expansion in these countries will be insufficient to offset the decline in the United Kingdom. 7.6.4 Domestic consumption In 2014, the quantity of black tea consumed in producing countries is expected to grow by 1.3 percent per year to reach 1.33 million tonnes. Producing countries consumed 52 percent of their black tea production in 1993-2003, and are projected to consume only 49 percent in 2014, adding to the demand and supply imbalance. The largest increase in domestic consumption would occur in the Far East, as teaproducing countries in Africa are expected to continue to export most of their output. Domestic consumption of black tea in India is expected to increase by 1.5 percent annually to reach 805 700 tonnes in 2014 or almost 80 percent of the tea produced in that country. Consumption in Indonesia is expected to increase at an annual rate of 1.6 percent to reach 57 000 tonnes by 2014, while in Bangladesh and Sri Lanka, tea consumption would grow at 3.0 percent and 2.5 percent to reach 48 400 tonnes and 17 500 tonnes, respectively. 7.6.5 Exports
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World black tea exports are projected to reach 1.3 million tonnes in 2014, reflecting an average annual increase of 1.4 percent per year from 1.1 million tonnes from 2003. About half of the increase would originate in Africa, where production is likely to continue to grow while domestic consumption remains small. The region's total black tea exports are projected to amount to 518 000 tonnes by 2014. Exports from Kenya would increase by 2.7 percent annually to reach 358 000 tonnes in 2014, giving Kenya a 27 percent share of the global black tea export market. Privatization of the Kenya Tea Development Authority (KTDA) and the abolition of grower permits and export licenses are expected to improve Kenya’s export performance. Substantial growth in black tea exports is also projected for some other East African countries, such as Malawi (1.2 percent annually) and Uganda (2.2 percent annually). The Far East would account for the other half of the expansion in black tea exports. Sri Lanka, the second largest exporting country in the world, is expected to increase exports by 1.2 percent annually to reach 330 000 tonnes by 2014, continuing to account for 25 percent of the global total. Exports from India are projected to increase annually by 2 percent to reach 211 000 tonnes in 2014. More modest growth rates are expected for Indonesia and Bangladesh where exports contracted in the previous decade and annual increases of 0.4 percent and 0.2 percent, respectively should now be attained. World green tea exports are projected to grow by 2.8 percent annually to reach 275 000 tonnes by 2014 (Table 6). China is expected to continue to dominate this trade with a volume of 242 000 tonnes, followed by Viet Nam with 28 000 tonnes, and Indonesia with 5 800 tonnes.

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CHAPTER 8 - FINDINGS & CONCLUSION 8.1 Findings
By doing the research work on the Indian tea industry we find some results and findings. The results and findings of our research work are as listed in the following points. • India is the largest tea producing and consuming country in the world. It produces

about half of the total global tea production. In India we find the different characteristics for tea industry. Productivity and quality of tea, Labor intensity, Long gestation, Commodity nature of tea, Inconvenient but healthy drink, Tea organized industry etc are characteristics for industry. • In India out of the 757 M.Kgs of tea consumed, around 41% is sold in the form of

branded products. The branded tea segments, which earlier had a very insignificant part in the industry’s total value is now estimated to account for 60% of the tea industry. • The rapid growth of domestic demand is expected to reduce the export surplus in

the coming year. The total net foreign exchange earned per annum is and Rs. 1,847 crore, highest foreign exchange earning agriculture product of India. The global demand growth at around 2 per cent per annum will be easily met by rising production from Kenya, Sri Lanka, Malawi, Indonesia and other countries. These countries are foreign exchange starved and tea is a vital part of the economy. • The impact of WTO on Indian domestic industry will be negligible because of the
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re-export clause. Tariff reduction is likely to cause higher imports by Pakistan, Iran, Iraq,

and Egypt. India and other exporting countries will benefit from freer trade and lower tariff barriers. • By identifying the factor which are affecting to Tea industry, we understand the

role of WTO, Tea board of India and also the effect of other factors like health, price variability, FAO tea mark, Labor problems and also the domestic market consumption.

By doing the analysis of Tea export and consumption, we find out that the India is

decreasing in export side at everywhere also in the percentage shares in total world export. It is now only around 11.90% which was 18.85% in the 1991. But in the consumption side it is increased due to some big reason like population growth. • With the help of analyzing the tea industry by Five Force, SWOT, and PESTEL, we

can find the situation of tea industry. By doing Five Force analyses, the level of the forces, which is at where from moderate to intensive level. We also indentify the strengths, weaknesses, threats and opportunities by doing SWOT analysis so we can reduce our weaknesses by using more strength and also grab the major opportunities and keep threats away. By doing PESTEL analysis, we can find out the how these factors are affecting the Indian Tea Industry.

Financial analysis of tea industry is done due to find out the financial strength and

also for finding of the weaknesses of Indian Tea Industry. Financial analysis shows mix up trend. The Profitability and Liquidity of Tea Industry is up to the mark but for the long term it is not so good for the future of the Industry. The year 2006 and 2007 is not as good for the Indian Tea Industry as point of view of financial functions and capabilities due to the recession and global crisis. • By the help of trend forecasting method we identify the future trend of Indian tea it

shows the increasing way by assuming other variable are constant. It helps to find out the future steps for Indian tea industry for increasing export and keep it in the positive side.

8.2 Conclusion
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Agricultural industry plays a key role in the economies of many developing countries. The prices of exports have in the last two decades experienced considerable declines that have negatively affected the incomes and well being of producers. An examination of the tea trades shows that the price declines result largely from an oversupply and the existence of market structures that are buyer-driven, as producer countries have been losing their market power. The expansion of consumption of tea in all of its many forms, black, green, soluble, tea bags, specialty etc, will lend underlying strength to the market and eventually benefit producers. Clearly, quality assurance is of the utmost importance, and ever more so among the health conscious consumers of the future. Tea industry being an export oriented industry plays a significant role for the earning of foreign exchange. It provides a great employment opportunity mainly for the backward classes and tribal. To improve the Indian economic position, Government should take appropriate steps to increase the export of tea and developed the industry as well. Thus to conclude we can say that the future of the Indian tea industry is very bright and the companies involved in this industry will make good business.

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BIBLIOGRAPHY
Books, Journals & Reports Brown, Richard D. Revolutionary Politics in Massachusetts: The Boston Committee of Correspondence and the Towns, 1772–1774. Cambridge, Mass.: Harvard University Press, 1970. Indian Tea Association, World Bank, Note: International prices have been converted at an exchange rate of Rs40.1 Tea Statistics, Indian Tea Association, 2006; Tea Board of India, 2007 53rd Annual Report 2006-2007 Tea Statistics, Tea Board of India Various Issues World price: International Financial Statistics-2008, IMF, World price--Annual average price of Sri Lankan dust tea, Domestic Price-- All dust Calcutta, annual average price FAO Trade Year Book and statistical year book ** www.fao.org Tea Board (2002), Mid Term Plan Strategies of Increasing Exports, Kolkata. The study was done by Accenture. Tea Board constituted a group to implement the recommendations. In the final analysis nothing much was implemented. Tea Board, Tea Statistics, Kolkata. Tea Board of Kenya, Nairobi. Also see, Fact Sheet, from the same source. Tea Board of Sri Lanka, Colombo. Websites http://www.stockwatch.in/tea-import-bill-surges-46-due-re-export23923#ixzz0X2iw4ZQk
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