Industry in focus

Tea INDUSTRY
By Ismat Sabir

Pakistan is a leading tea consumer in the world. In fact, the consumption of tea is so widespread in Pakistan that it possesses 3rd position in the tea importing countries of the world, and is only behind the United Kingdom and Russian Federation. The already high tea consumption level may further increase in future due to urbanisation and increase in per capita income.

TABLE-1: QUANTITY AND UNIT

VALUE OF TEA IMPORT

Year Qty /000 kg Unit Value/Rs/kg

1997-98 98,649 99.52

1998-99 119,695 93.15

1999-00 108,644 100.27

2000-01 111,867 107.54

2001-02 99,396 96.69

2002-03

(July-March) 83,040 93.53

Tea is Pakistan's favourite hot beverage. Although efforts have been made to cultivate tea in the mountainous areas, the projects could not achieve the desired results. Under this scenario, tea imports rose from approximately US$ 120 million in 1998-99 to US$210 million in 1999-00, showing an increase of over 65 per cent. Its imports were US$173 million in 2002-03. In rupee term, imports increased from Rs348 million, in 1990-91, to as high as Rs1, 8754 million in 1998-99. However, the imports decreased to some extent, and reached Rs1,040 million in 2001-02. (See table-2)

TABLE-2: TEA IMPORT

Tea Imports Million Rs.

1990-91 348

1991-92 344

1992-93 336

1993-94 307

1994-95 971

1995-96 971

1996-97 512

1997-98 512

1998-99 1,854

1999-00 1,207

2000-01 1,097

2001-02 1,040

2002-03 July-April 881

2003-04 July-April 979

Discovered around 5,000 years ago, tea is generally considered the oldest prepared beverage. Whatever its colour (black, green, yellow or white, depending on how it has been processed), tea can be produced from three main varieties: camellia sinensiss, camellia sinensis assamic and camellia seinensis cambodiensis. When the tea tree grows under natural conditions, it is evergreen and can reach 10 to 15 meters, but when it is cultivated in gardens (the name given to tea plantation worldwide), its height is artificially limited to one meter in order to facilitate the pickers. Tea trees are grown mainly in tropical and subtropical regions with humidity of 70 to 90 per cent. Rainfalls must be abundant and regularly distributed throughout the year, with a yearly average of 1,500 to 2,500 millimetres.

Production

Leaves can be picked by hand or mechanically. Manual picking yields leaves of higher quality. Picking is generally done according to the maturity of the leaves (from the top to the bottom of the tree, as a rule), and three levels of quality can be distinguished:

* Imperial picking involves picking only the terminal bud (Pekoe) and the first leave.

* Fine picking involves picking the terminal bud and the first two leaves.

* Classical picking, the main technique used today, includes the terminal bud plus three to four leaves.

Because of the product's perishable nature, final processing must occur as soon as possible after the leaves are picked, and special care is required during transportation and storage. The average yield per hectare from 1990 to 2003 was around 1.2 metric tons, with yields in leading producing countries being 1.4 tons per hectare in Sri Lanka and 2 tons per hectare in Kenya. Black tea is the only kind of tea that is subject to international quality regulations. It is classified according to two main methods: orthodox and crushing/tearing/curling (CTC). Within both categories tealeaves are classified into sub-categories, with the best quality represented by the pekoe and the condition of the pekoe and the lowest by the dust of leaves.

Trade in tea

In some of the leading tea-producing countries, such as China, India, Iran, Japan and Turkey, most of the tea produced is consumed domestically. In some others - including Bangladesh, Burundi, Kenya, Malawi, Rwanda and Sri Lanka - exports are important.

The tea marketing chain typically resembles one of two models. The first one, used mainly by large trans-national companies, is vertically integrated, with one company managing all the steps, from cultivation on large estates (which is often highly mechanised) to processing of tea bags. The second model can be considered more "traditional". The tea is grown in smaller gardens, which are often owned by a co-operative of producers, and is then usually marketed by national boards, as in India, Kenya and Tanzania. The fair trade movement has had an impact on the tea trade. Several organisations, such as Fair-trade Labelling Organisations International (FLO), work to increase the prices paid to smaller producers in order to enable them to cover production costs and improve their living conditions.

Prices

Tea prices are highly volatile. However, with the closing of the London Tea Exchange, it has become increasingly difficult to hedge price risks. Currently around 85 per cent of domestic production is sold through regional auctions; the balance is being supplied through forward contracts. In 2002-03, a packet of 200 grams was sold for Rs340. The per unit price in international market, however, has not increased as compared to an increase in local market, see table-1.

TABLE-3: TEA PRICES IN KARACHI

MARKET (LIPTON YELLOW LABEL)

250 grm/ Rs

Year Six Packet

1993-94 181

1994-95 210

1995-96 230

1996-97 285

1997-98 337

1998-99 341

1999-00 350

2000-01 364

2001-02 340*

2002-03 340*

* 200 gram packet

 

Tealeaves are sold mainly in tea bags in western countries and as entire leaves in the east. In the United States and the United Kingdom, instant tea, to which hot or cold water is added, is widely consumed, but globally this form of consumption remains negligible (2 to 3 per cent of world consumption). Tea is also used in medical and paramedical applications.

The share of tea import in food group was 11.11 per cent in 2002-03. The imports increased by 6 per cent only in one year, i.e., 2002-03 over 2001-02.Imports are mainly from Kenya and other African countries, while the two multinationals blenders import tea from Sri Lanka, Indonesia and Bangladesh. In addition, tea is smuggled into the country via the border areas of the NWFP and Balochistan. It is also smuggled to Afghanistan. Perhaps this is the reason that tea imports suddenly increased to three times in 1998-99 as compared to 1997-98.

TABLE-4: TEA IMPORT

Million Rs.

Year Value Unit Value (MT) %

2001-02 157 1575 --

2002-03 173 1597 6.0

Currently, Pakistan is predominantly a CTC tea market. However, it is felt that the tea consumer in Pakistan has a strong preference for Ceylon tea due to its superior quality. Seeing the scope of tea export, Sri Lanka is planning to enter in Pakistan's tea market, following the signing of a Free Trade Agreement (FTA) with Pakistan. Sri Lankan tea exporters are looking forward to the early signing of a FTA with Pakistan, as they immediately want to enhance their trade with their Pakistani counterparts.

After FTA Sri Lankan tea would have an advantage in terms of tariff and would be able to compete with all other CTC teas in the world. Sri Lankan exporters are quite aware of the Pakistani tea market and they are ready to compete with their closest rivals in CTC tea market, especially Kenya. Sri Lanka produces better quality CTC, but due to tariff barrier it was unable to penetrate Pakistan's market. Hence, Sri Lanka hopes that it can regain at least some part of its lost share of the global tea market. Pakistan was one of the leading buyers of Sri Lanka's tea in the 70s, along with UK, Egypt and Iraq.

The share of Sri Lanka tea in Pakistan started declining from about mid 1980s due to many reasons, foremost among them being lower prices offered by other supplier countries and a shortfall in Sri Lanka's tea production in the 80s. However, during 1980s, due to a special trading arrangement between Sri Lanka and Pakistan, Sri Lanka exported around 20 million kilograms (kgs) tea to Pakistan's market. It is hoped that in the light of the proposed FTA and recent reduction of the duty on imports of black tea in Pakistan, Sri Lanka may capture some part of its lost share.

SHARE OF TEA IMPORT IN TOTAL IMPORTS

Year (%)

1990-91 2.2

1991-92 1.9

1992-93 2.1

1993-94 2.2

1994-95 1.8

1995-96 1.4

1996-97 1.1

1997-98 2.2

1998-99 2.4

1999-00 2.0

2000-01 1.9

2001-02 1.5

Source: Economic Survey

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