Granting access to the tea market under RCEP will be disastrous for the Indian tea industry, especially due to the yearly surplus of indigenous tea and an insignificant market size and growth potential in RCEP countries. On the other hand, countries like China will have an unprecedented opportunity to flood India with cheap imports.
India produces around 1,350 million kg of tea, out of that 1,220 million kg is CTC and 130 million kg is Orthodox & Green tea. India consumes mainly CTC tea. It imports 20 million kg, consumes 1,000 million kg and exports 250 million kg. Thus absorption level (consumption plus export) has not kept pace with production level, resulting in oversupply year after year. Growth in production in the last few years is attributed to the emergence of the small grower/bought leaf sector that contributes to 50% of the total production and is growing steadily.
Due to oversupply of 70/80 million kg every year, the industry has been suffering from depressed prices in the past 6-7 years. India makes all types of tea, which all other producing countries together produce. There are some vulnerable areas like Cachar (55 million kg production), Dooars (235 million kg) & Terai (160 million kg), which cater exclusively to the domestic market and would suffer in the event of an influx of imports.
The government’s imposition of 100% import duty has kept the Indian tea industry protected so far. But the industry sees a potential threat with the opening of its market to RCEP countries, if tea is brought under the ambit of FTA, leading to dilution of Rules of Origin through change in Tariff Classification & PSR and zero/lower import duty.
In the RCEP, there are 16 countries which want a free trade agreement for free imports & exports of goods within the block. Now, if you go through the trade within that block in individual countries, you’ll find that that trade is not in India’s favour – import contents exceed that of exports.
There are countries like China, Japan, Vietnam and Indonesia in the block, which also make tea apart from India. Exports of Indian tea to this block is limited to 18-20 million kg. On the other hand, India has a market of over 1,000 million kg, which is growing at @2.3% annually. On signing FTA, RCEP countries will get this big ready market that will be disastrous for the Indian tea industry.
When we look at the import and export content of tea in RCEP bloc, we find that our exports to China are 10 million kg and to other countries in the block are around 8/10 million kg. Thus there is very limited opportunity to increase tea exports because China, Japan, etc are mainly green tea consuming countries. China, apart from making green tea, also makes sizeable quantity of black tea which is not sought after in its own market. China will then target India’s black tea market and flood it. It is difficult for China to expand exports to US, Western countries or Middle East, which are mainly black tea markets and almost saturated.
Every country maintains high tariffs on certain products to protect its farmers and labour intensive industries or to promote manufacturing. India should be no different. Developing countries need to protect their indigenous industries and millions of workers, traders, etc associated with them.
India’s tea production cost is the highest in the world as it bears lot of social welfare costs apart from high transportation costs. In fact, no other industry in India or tea industry in any other country bears those costs. In the last 6 years, production cost has increased at a CAGR of 10%, while price has not kept pace (CAGR of 1%).
The financial condition of the Indian tea industry is critical due to supressed price and rising cost. In the midst of this, if the government allows imports of tea, it will be disastrous for the Indian tea industry. We have requested the government to pragmatically look into the issues and put tea into the negative list of RCEP, where there would be no negotiation on either export or import of Tea and no dilution of import duty from 100% on the following grounds:
• Indian tea industry provides employment to over 1.2 million workers directly and another 6 million associated with the industry. Around 50% of the workforce is women.
• Indian tea suffers from over-supply, stagnant prices and significant mismatch in demand & supply.
• Low CoP in many RCEP nations will enable export of tea at much lower price. Teas from those countries would be cheaper even after payment of 100% import duty.
• Limited scope of exports of Indian teas within the RCEP bloc when huge scope for other countries exists to enter into the big Indian tea market.
The tea industry strongly suggests that instead of going into the hurdles of negotiation, it should be put in the Negative List of FTA to protect interests of the industry and millions of people associated with it. There should be no dilution of PSR and Rules of Origin or reduction of import duty for the tea sector.
Mr Sujit Patra is Secretary, Indian Tea Association (ITA) the largest & oldest tea organisation in India. He has been working with the ITA for more than 30 years. Mr Patra is directly involved in multi-functional areas like domestic & overseas tea promotion exercises, market analysis, financial planning, supplies & transportation, general administration, MIS and liaison with various government depts, embassies, etc on all aspects of the tea industry.
