NEPAL

ADVISORY SERVICES ON EXPORT DEVELOPMENT OF

PRIORITY SECTORS OF NEPAL

SECTOR STUDY ON TEA

June - September 2007

MAHINDA WARAKAULLE
International Consultant on Tea

RAMESH MUNANKAMI
National Consultant

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

Project NEP/A1/01A
A project financed by the EU and ITC under the Asia Trust Fund
While efforts have been made to verify the information contained in this document, the
International Trade Centre UNCTAD/WTO cannot accept responsibility for any errors that it
may contain. The views expressed in this report can in no way be taken to reflect the official
opinion of the European Union, the Trade and Export Promotion Centre and ITC. The usual
disclaimers regarding responsibilities apply to this report.

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Preface
This sector study is part of the Technical Cooperation Project “Advisory services on export
development of priority sectors of Nepal” (NEP/A1/01A). The project is implemented by the
International Trade Centre UNCTAD/WTO (ITC) and the Trade and Export Promotion Centre
(TEPC), and co-funded by the European Union and ITC through the Asia Trust Fund (ATF).

The project is intended to identify products that show good export potential, taking demand
and supply side issues into account, and to formulate practical recommendations for the
development of Nepal’s most promising exportable products, with a view to develop and
diversify Nepal’s export potential. The project consists of two phases. The first phase of the
project consisted of a comprehensive Export Potential Assessment, looking into the export
potential of 14 non-traditional products. During the second phase the five most promising are
studied in more detail, engaging international product specialists.

The results of the Export Potential Assessment were presented to representatives of Nepal’s
private sector, Government and donor community in February 2007. Following this meeting it
was decided to study the following products in more detail during the second phase of the
project: large cardamom, pulses, Chyangra cashmere and silk products, floriculture and tea.
The present study must be seen in this context.

The sector study on Tea was prepared by Mr. Mahinda Warakaulle (International Consultant
on Tea), Mr. Ramesh Munankami (National Consultant), who conducted a number of
interviews with enterprises concerned in Nepal, and Mr. Bastiaan Bijl (International Trade
Data Analyst).

The sector study builds on the results of a fact-finding and needs-assessment mission
conducted in Nepal in June 2007 (see Annex I for mission programme). During this mission,
the ITC Consultant entertained a number of meetings with individual companies, exporters,
producers, traders, government officials, and business associations. The main findings and
recommendations of the report were consequently presented to - and validated by - key
sector stakeholders during a workshop in Kathmandu in August 2007.

The authors would like to thank Mr. Koen Oosterom, Office for Asia-Pacific, Latin America &
the Caribbean (OAPLAC), ITC, for his support. Lastly, the authors would like to thank all
enterprises concerned who kindly answered the ITC questionnaire and key sector
stakeholders who engaged in meaningful discussions with the team and volunteered their
views and knowledge. For further details on the present study, please contact Mr. Koen
Oosterom (email: oosterom@intracen.org).

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

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Table of Contents

Preface .................................................................................................................................. iii

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

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5.1 The Government Institutional Supports ............................................................................50
5.2 The Private Agencies and NGOs ......................................................................................51
6. Recommendations and Action Plan................................................................ 54
6.1 Recommendations for farmers, producers and exporters ................................................54
6.2 Recommendations for the business environment.............................................................57
6.3 Micro-level action plan ......................................................................................................58
6.4 Meso-level action plan ......................................................................................................59
6.5 Macro-level action plan .....................................................................................................60
6.6 Prioritization of action plan – If we have a million ….........................................................61
6.7 Conclusion.........................................................................................................................68
Annex I: Timetable of Meetings and Activities: .....................................................................................69
Annex II: geographical distribution of tea cultivation.............................................................................72
Annex IV: List of contacts in main two potential markets......................................................................75
Annex V: Flow chart ..............................................................................................................................77
Annex VI: Guidelines for good leaf standards and processing .............................................................78
Annex VII: Composition of a typical tea beverage ................................................................................79

Tables

Table 2.1 - International trade in tea .....................................................................................................19

Table 2.2 - Production of Tea according by CTC/Orthodox in various countries, 2005 .......................19
Table 2.3 - Major Importers of black tea in bulk....................................................................................21
Table 2.4 - Major Importers of black tea in <3kg packages..................................................................22
Table 2.5 – Pakistan’s Imports of black tea- mainly CTC in bulk, 2003-2006 .....................................23
Table 2.6 - Major Importers of green tea in bulk ...................................................................................23
Table 2.7 - Major Importers of green tea in <3kg packages .................................................................24
Table 2.8 - Growth in cultivation and trade of Nepalese tea.................................................................25
Table 2.9: Export and Import of Tea from/to Nepal to India (Q in Kg., Value in ‘000Rs.).....................25
Table 2.10 - Export of Nepal Black and Green to other countries except to India................................27
Table 2.11: Total Tea Production and Tea Plantation Area..................................................................29
Table 2.12 - Type of tea produced 2005/06..........................................................................................29
Table 2.13 - Geographical distribution of production ............................................................................31

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1. General Context and Executive Summary

1.1 Background and Objective

Nepal is a landlocked country with a highly literate population of 28 million, with land
area of 147,181 sq km that stretches 885 km from east to west. It enjoys diverse
weather and climatic conditions where the topography ranges from 305 m to 8848 m
altitude, about 70% hilly areas having ideal conditions for agriculture development
and crop diversification. Administratively, the country is demarcated into 5
development regions, 14 zones and 75 districts whilst ecologically it can be divided
into the mountain, hill and lower or Terai regions.

Over the years the importance of some agricultural crops such as paddy and jute
have declined sharply due to loss of export markets and farmers changing to other
cash crop and to tea cultivation which seem to be more remunerative and eco
friendly.

Currently, Nepal depends heavily on exports of hand woven carpets and ready made
garments which bring in nearly 60% of their annual export earnings. With the phasing
out of the Multi Fibre Agreement from 1st January 2005 and the decline in export
demand for the carpets, the significance of these two major items, which dominated
the export sector, is declining and facing increased threats.

India is the main trading partner of Nepal and the official figures indicate that 68% of
export and 67% of import trade of Nepal is with India. If the unofficial figures are
added on, these percentages will be above 80. This dependence makes the
economy of Nepal vulnerable. The decline in their rice and jute exports, dependent
mainly on this one market caused these two items to lose their importance as a
sustainable agriculture commodity bringing in earnings to the rural farmers.

Against this background, the Government of Nepal requested the support of the Asia
Trust Fund to identify products that show good export potential, taking demand and
supply side issues into account, and to formulate practical recommendations for the
development of Nepal’s most promising exportable products, with a view to
developing and diversifying export business. This study is in the spirit of a quest to
diversify and lift Nepal’s exports away from its overdependence on Carpet and
Clothing exports.

A comprehensive Export Potential Assessment looked into 14 non-traditional product

sectors and five sectors were identified as having high potential for further export
development. Further in-depth studies were conducted on the five product sectors
that included large cardamom, lentils, tea, Pashmina and silk based products, and
floriculture products.

This document covers the study on Tea. An immediate purpose of the study is to
assess the export promotion potential of tea products and to present the findings,
conclusions and recommendations at a roundtable meeting of stakeholders that will
validate the main findings and endorse a future course of action.

The objectives of this study are to identify the priorities for export policies, determine
the strategies, recommend practical action programmes and provide guidance to the
government, the private sector and the donor agencies for the export development
and promotion of tea from Nepal.

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1.2 Coverage of the Study

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

- Overview of the sector and opportunities

- Key obstacles and shortcomings for export
- Consequences of multilateral, regional and bilateral trade agreements on the
sector
- Export Services in Nepal of interest to the sector
- Action Plan for further development of the sector.
- Wise spending on recommendations for future projects – “If we had a
million....”

1.3 Parties involved

The major parties involved in the study are the Government of Nepal, the European
Union, the International Trade Centre UNCTAD/WTO, and the Trade and Export
Promotion Centre (TEPC). The other responsible supporting agencies for the
programme or project implementation are the Ministry of Industries, Commerce and
Supplies, Ministry of Agriculture and Cooperative, Department of Agriculture, Nepal
Agriculture Research Council, Nepal Tea and Coffee Board (NTCDB), Agro-
Enterprise Centre of Federation of Nepalese Chambers of Commerce and Industries
(FNCCI), Local Chamber of Commerce and Industry, Bilateral and Multilateral Donor
Agencies, Himalayan Orthodox Tea Producers Association (HOTPA), the Nepal Tea
Planters Association (NTPA), the Nepal Tea Association (NTA), Himalayan Tea
Producers Cooperative (HIMCOOP).

1.4 Key Findings: Obstacles and Short Comings

This report highlights the current obstacles and shortcomings in production,

processing and marketing, focusing on the areas that need be improved so that
Nepal tea can gain a firm foothold in the international tea market both for quality and
supplies.

Shortcomings for Exports:

Shortcomings or gaps for export are the factors missing – and which could facilitate
existing and potential export.

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

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 b) Certifications and test reports on the products from accredited laboratories/
authorities are not available.
c) Accredited and equipped laboratory not available to test and analysis of
samples for exports. Many buyers and countries require test reports on
residue level, heavy metal, radiation clearances with each consignment.
Orders are held up for long periods till the results are released from
laboratories overseas.
d) Insufficient product diversification to interest buyers of speciality range of teas
into niche markets.
e) No brand image still built to make global buyers aware of Nepal tea and their
quality.
f) Only small parcels of lots are available to be offered out. No blending or
mixing facilities available to cater to the demands of buyers who require
bigger consignments. Inconsistent quality and non-uniformity of products with
no supportive certificates causing difficulties to make good blend mixes.
g) No central marketing facility, such as an auction market to attract sellers and
buyers to one location.
h) Lack of human resources and professionally qualified and experienced
personnel to promote tea sector. And there is no institutional setup that
generates such human resources in the country.
i) No market information system available to give guidance to exporters on
current trends, price movements in other auction centres, changes in
consumption habits, etc
j) Facilities to add value to the basic product are not available. This has been
due to the overdependence on Indian exporters and marketers performing
this function using blend mixes of both origins with Nepal tea “lost” in their
identity.
k) No research facilities of tea including for promotional and marketing linked
with research, which will help in developing new products suitable for
changing market demand.

Obstacles for Exports

Obstacles or bottlenecks to export are the existing factors reducing or delaying or

otherwise disturbing existing and potential export.

a) Cost of inputs and mainly electricity with interruptions to supply, affect quality,
increase the cost of processing and the exportable item becomes too pricey.
The State’s supply of electricity to essential business houses such as tea
factories should be made available on an uninterrupted and continues basis.
The machine downtime and effect to quality of product can be at high cost.
b) Bank loans are difficult to obtain and interest rates are high. Export prices can
be higher by 1-2 USCts per kg, which is sometimes the difference between a
contract or refusal mainly to the bottom level of tea.
c) Packing material such as plywood chests/paper sacks, all imported, and used
for packing tea for export to India and other destinations are not eligible to a
duty rebate. This duty of 10—15%, if waived, will make the product more
competitive.
d) Export trade is not supported by the Government. Exporters are levied a VAT
payment of 13% which although refundable is very difficult to get back. Thus

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 finances are scarce and export cost pricing calculations has to include such
costs
e) Exporters unable to deliver as per standard accepted by buyers resulting in
loss of credibility of Nepal trade.
f) Although bilateral and multilateral trade agreements have been entered into
with various Governments, no real benefits have still accrued to Nepal except
with Pakistan.
g) Delays and hold ups at Indian seaport and in transit effecting delivery times.
h) Route via India to the Bangladesh seaport of Chittagong should be developed
to overcome delays, and facilitate shipments to Pakistan, Poland and
elsewhere.
i) Policies in India affecting consignments to some buyer countries.
j) Tea policy and NTCDB are conceptually well established but are ineffective.
These should either be abolished or made seriously effective. The
government’s commitment should be clear and transparent.
k) Little Government support for active participation in international trade fairs to
showcase Nepal tea.

1.5 Recommendations

Recommendations for farmers, producers and exporters

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

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

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

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

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

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

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

e) Quality Controls: Whilst the farmers should ensure that their pluckers are
following the practice of selective plucking, the factories should be very strict

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

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

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

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

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

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

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

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

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

k) The traditional plywood chests, which were discarded from use some time
ago, are still being used for exports into India. These items are imported and
re-exported. Duty concessions should be available for such transactions. As it
is not an environmentally friendly form of packaging material, its use should
be discouraged and the use of rigid paper sack should be promoted.

l) The made tea is packed into PE/PP bags and are stored till they are ready for
use. This form of packaging, particularly in the Terai areas where
temperatures and humidity can be very high will speed up the deterioration of
the product. In such instances dispatch of the made, packed and ready
product to more suitable storage facilities should be done without delays.

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

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

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

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

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

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

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

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

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

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

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

t) Research and Training: Like all other areas of the industry this too lags
behind. Research has been generally neglected. Due to the vicinity of India
and easy access, progress at field level and development of new plant
varieties, usage of inputs, and technology have all been directly or indirectly
brought into Nepal. All the machinery is of Indian origin except those in the
older factories some of which are from UK. Therefore the tea
produced/processed bear a very close similarity to the Indian Darjeerlings and
CTC’s.

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

There is a need to establish a tea training centre or tea school to develop

human resources required for the tea sector.

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Recommendations for the business environment

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

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

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

Export services at present are lacking and this aspect too has to be drastically
improved not only on the state side but also with the private sector’s
participation.

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

Page 14
 Export Credit Insurance scheme available to safeguard exporters in the event
of default from overseas buyers which is now a grim reality. Factoring
opportunities are not available. The Government has to look at opening up
opportunities for more foreign participation not only in the fields of finance and
banking but also joint venture partnerships and land ownership by foreigners.

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

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

Page 15
2. The tea Industry in Nepal

2.1 The Sector in General

The tea industry began in 1863 in the Himalayan area with the first factory for
processing built in the district of Ilam in 1878. Although tea was known as a
commercially viable crop, it was not until 1982 that it’s significance as an export
earner was identified by the government with the designation of eastern districts
(Jhapa, Ilam, Panchthar, Terhathum and Dhankuta) of Nepal as tea zones. From
then onwards, the Government provided assistance to the tea growers and processor
in a modest way for its development.

The industry began to be more organized and recognized as a potentially significant

sector with the government promoting the establishment of the Nepal Tea and Coffee
Development Board Act in 1993 and setting up of the Tea Board. A National Tea
Policy was introduced in year 2000 to support the growth of the sector. The
Government divested their holdings so that the private sector would become the
engine of growth for the industry envisaging that tea would be one of the major crops
for poverty reduction in the rural and Hill areas and become a significant export
earner. Against this background, there has been a significant increase of export in
quantity and value of tea over the past years. Nonetheless, tea constitutes only 0.5%
to the total export earnings of Nepal commodities at present.

Due to the varied weather conditions and soil composition, tea is grown in two areas,
under significantly different agro-climatic regions, in the Terai and the hills. It is a
seasonal crop with no harvesting in the cold period. The first flush leaf comes out in
May/June and followed by the second flush. The rainy period starts in July and more
weathery teas are processed at this time, which are lower in quality. Again in
August/September, the leaf improves with good sunshine and dry winds to give the
Autumnal teas with better quality. This quality differences are more pronounced in
the orthodox teas.

Nepalese tea plantations, benefiting from diverse agro-climatic conditions, have

comparatively young bushes with 29% of smallholder farmers owning bushes less
than 5 years old. The bushes are grown both from clones and seed stock varieties
and should enable the producers to capitalize on these natural conditions to
increase, diversify product range, and improve on quality with proper application of
new developments using modern technology. However, because of individual or
separate interests and insufficient willingness to work together in a cohesive manner
to achieve a common goal, these aspects have not been addressed by the vast array
of authorities, organizations, associations and local bodies involved in the tea
business. There appears to be a lack of committed focus and outlook for the
betterment of the industry as a whole.

A large number of small holder farmers are engaged in growing tea in both areas and
they now account for 26.5% whilst the bigger estates produce 73.5% of CTC tea.
Over 30,000 people are directly involved in the industry with a large percentage
being rural women. Therefore this industry has the potential to empower rural women
through poverty alleviation and has become the focus of attention of many
international organizations and many NGO’s.

The tea produced in the Terai region originates predominantly from clone bushes,
which are very similar to those of the Indian Siliguri region, and producing similar

Page 16
CTC type of tea. They reportedly produce around 12 m kgs per annum in 23
factories, using Indian lines of machinery. Although data available in general, seem
to be inaccurate, a guesstimate is that around 20m kgs of green leaf goes to Indian
factories across the border.

Orthodox tea grown in the hill regions mainly from seedling varieties is very close to
the Indian Darjeerling type, the processing too, being similar. With tea growing areas
very close to each other, across the borders of the two countries, the plant material
used come from the same mother bushes and clones. As the machinery used for
processing being the same supplied by Indian manufacturers, the final product range
of Orthodox tea is same/similar. Over 90% of the produce is exported to India
officially/unofficially whilst the small balance find their way to international speciality
tea markets in small parcels at attractive prices. A guesstimate, based on available
data indicates that approximately 17- 20 m kgs of green leaf from the hill areas find
it’s way to Indian factories in the Darjeerling area.

Reliability of data

It should be noted that accurate data is not available, in-spite of there being many
authorities, institutions, associations, cooperative units, farmer groups, NGO’s and
INGO’s working in the sector. There seem to be a lack of a cohesive working
environment being followed and implemented so that a united national development
effort is lacking.

There is a large volume of trade in many countries across the borders, a fairly high
percentage of which is done unofficially or smuggled. Tea is one item, which is
traded heavily in this manner. These porous borders are a haven for unofficial
business in tea. Large quantities of tea, produced in countries such as China, India,
Bangladesh, Iran, Turkey, Nepal and many other countries remain therefore
unaccounted for. Most of this trade goes unchecked and cannot be quantified,
although most governments in these countries accept it and even encourage it.

It must be noted that the per capita consumption in the Asia producer region, which is
normally high, particularly in China, India, Vietnam and their neighbouring countries
cannot be correctly calculated and even guesstimates may not be accurate. This is
due to the rapid expansion in land area and increased production, a high amount at
cottage level, all of which are not monitored and recorded. Most of produce in border
areas enters neighbouring countries via unofficial channels. Therefore customs data
in these countries are inaccurate. This situation is spread even to the CIS states,
Afghanistan, Pakistan, Iran, as cross border trade and smuggling is common.

As no one source is able to provide a comprehensive picture, different data sources

are used in this report to present production and export figures, i.e. National Tea and
Coffee Development Board, TEPC, Department of Customs and ITC databases.
Differences in methods of measuring and recording data (official and unofficial),
assumptions used, classifications, etc. lead to some pertinent discrepancies. These
figures must therefore be treated with care. However, the data is not contradictory in
supporting the main message of the report, the main findings, obstacles and
recommendations for future action.

Page 17
Box 1: Comparison of Orthodox and CTC Tea
Orthodox Tea
Leaf
Mainly leaf from seedling plants, China
JAT (type) is preferred.
Seedling leaf has less moisture, more
leathery appearance and has more
concentration of flavour compounds
(amino acids) which can be enhanced
with environmental conditions.
In the withering process of green leaf, ,
the moisture content has to be reduced
to 40-45% by using hot air for 12-16
hrs
Processing
Processing broken up to 4 main stages
of withering, rolling in 4-5 rolls,
fermentation and drying (firing). The
leaf is rolled to process whole leaf,
semi leaf size and a lesser percentage
of small leaf. There are about 10-12
grades based on leaf size.
Liquor properties
Leaf black in appearance. Has more
flavour, aroma and quality, less bright
infusion, not very strong and coloury
but brisk and bright in cup.
Suitable for traditional brewing but
small leaf grades are used in the
quality conscious and high end teabag
markets
Marketed as loose tea in packets, tins
as well as the now developing pyramid
bags.
Popular in the Middle East and high
end developed markets
2.2 The global tea market
2.2.1 Overview of world production and trade
In the year 2005 International Tea Committee bulletin, published the following
figures, expressed in thousand metric tons, extracted from available data collected.
Page 18
CTC (Cut, Tear and Curl) Tea
Leaf from VP plants. Assam JAT is
preferred
More moisture or juicy, less leathery
and environment does not assist in
enhancing the concentrates.
Withering is done to reduce moisture
to 65-70% using normal air for a
shorter period of time.
The process is continuous. The leaf is
broken into small particle sizes using a
rotovane (similar mincing machine),
and sent though the CTC machine to
make the small sized leaf shotty. It
then goes through the fermenting bed
and into the drier. There are no big
leaf grades in this method of
processing. Only 3 grades.
Leaf brown in appearance. Very strong
liquor, with darker colour and bright
infusion. Less quality, flavour and
aroma.
Suitable for teabags but also used in
the traditional manner of brewing in
certain countries which prefer a very
strong liquors.
Mainly marketed as the single or
double chambered 2g teabags
servicing the middle segment of the
global market
Quick brewing convenience item very
popular in the developed markets.
Table 2.1 - International trade in tea
Year Production in Retention at Imports Global
35 countries Origin Consumption
2005 3,420 1,869 1,446 3,315
Source: International Tea Committee Statistics Yearbook

It must be noted that above figures, usually obtained from official channels do not
present the correct picture as data available from China, Vietnam and a few other
countries of origin do not reflect the actual situation.

From above data, the origin countries retain nearly 100m kgs additional, from their
increased production, for growing domestic consumption annually. Calculated figures
based on per capita consumption, indicates an annual increase of around 1.5%,
which is about 21,000 MT. However it must be noted that in the Middle East, and
Near East, tea consumption is very high and increasing at 3.5% or higher whilst in
the highly populated Asia it would similar.

The production figures indicate a rate of expansion and growth at 3.29% per annum,
which will reflect an official increase of 110,000 MT. The increased quantity retained
in all producer countries is calculated at 94,000 MT annually thus indicating a figure
of 5,000MT shortfall from the calculated 21,000 MT to supply the world non-
producing consumer markets only. It can be safely assumed that there would be an
annual shortfall in production to meet the demand much more than the data indicates
of 5,000MT.

The current world export is 1,563,199 million kgs (incl. re-exports) produced in 12
Asian, 13 East African, 4 South American countries together with some smaller
producers (COMTRADE). From a global perspective Nepal is still one of the smallest
players representing two tenths of a percent of global production. Also as a producer
of orthodox tea Nepal is a small player. Table 2.2 shows world tea producers broken
down into CTC and orthodox teas. As can be seen from the table, orthodox
production is in smaller volume, especially in Africa, but the opposite in the case of
producers like Turkey, Indonesia, Sri Lanka and Vietnam.

Table 2.2 - Production of Tea according by CTC/Orthodox in various countries,

2005
CTC Orthodox
India 833 88
Bangladesh 57 2
Sri Lanka 16 298
Indonesia 12 113
China - 48
Taiwan - 1
Iran - 25
Malaysia - 3
Myanmar - 18
Nepal 7 1
Turkey - 135
Vietnam 8 62
Africa 475 16
CIS countries - 17
S.America - 83
PNG 7 -
Total 1,415 910
*Includes Estimates, excludes other teas
Source: International Tea Committee Statistics Yearbook

Page 19
The production quantities in each major producing country is closely monitored by
international buyers, particularly now due to the very advanced communications
systems. Decline in quantity or damage to crop, political upheavals, change in import
and export regulations that may disrupt normal supplies can cause price fluctuations..

Although it would be difficult to list all big buyers in most consuming countries there
are some like Unilever/Lipton who have become worldwide marketers of tea with
others like Lyons-Tetley, Nestle, Douwe Egberts and a few other brands which are
also marketed worldwide although not as widely.

The bigger international buyers usually wish to base their purchases on “just in
time” deliveries at their doorstep to reduce financial costs and also buy large
consignments. Nepal tea industry does not have the facilities to offer such large
consignment as a central warehousing and blending complex is not available. On
both counts Nepal is at a distinct disadvantage.

Annex V presents a typical flowchart that described the consecutive steps involved in
growing, processing and exporting of tea.

Table 2.3, 2.4, show the main world importers of black tea in bulk (mostly CTC),
black tea in <3kg packs (orthodox and CTC tea) pre-packed and retail packed, and
green tea respectively. As orthodox tea is of higher value, it can be assumed that the
countries showing highest unit value imports in table 2.4 have a preference for
orthodox teas. Norway and Finland especially stand out in this context and to lesser
but not insignificant extent, Italy and Canada. Germany is an important buyer of
Nepalese orthodox tea, and paid an average CIF value of 19,000 US$/ton in for its
imports from Nepal. The German market is also showing steady growth, averaging
12% in value over the last 5 years and paying increasing prices as growth in value
exceeds growth in quantity over this period.

Pakistan is an important buyer of CTC tea from Nepal and is in fact the world’s
second largest buyer of bulk packed black tea. As table 2.5 shows, Pakistan’s
imports in 2006 were up from 2003 and mainly in value. Pakistan buys most of its tea
from Kenya/other East African producers meeting 61% of it’s import requirements in
2006. In 2005 Pakistan’s imports peaked significantly higher than other years, East
African producers, mainly Kenya met this supply requirement with 72% market share
in the same year. Pakistan is clearly an attractive market for Nepalese CTC exports
and Nepal also enjoys a 10% tariff advantage under SAPTA over Kenya. Strong
growth in imports of black tea in bulk is occurring in Middle East, in countries such as
Iran, Saudi Arabia, Syria, UAE, Egypt and Jordan (likely to be importing on Iraq’s
behalf) and CIS countries like Ukraine and Kazakhstan.

Page 20
Table 2.3 - Major Importers of black tea in bulk
Av.
Av. Growth
Growth p.a.
Imported Imported Value p.a. Quantity
Value US$ Quantity Unit value 2001-2005 2001-2005
Importers thousand (MT) (US$/unit) (%) (%)
World estimation 1,809,369 1,022,965 1,769 4 1
UK 243,439 144,551 1,684 -2 -2
Pakistan 227,800 137,600 1,656
Russian Federation 166,151 128,684 1,291 13 8
USA 124,967 75,350 1,658 1 -1
Japan 98,271 31,430 3,127 -4 -4
UAE * 94,920 39,962 2,375 5 2
Iran 87,423 33,914 2,578 92
Germany * 78,467 28,775 2,727 2 -2
Saudi Arabia 57,534 16,916 3,401 31 27
Kenya * 43,002 51,962 828 11 15
Syria * 41,507 19,241 2,157 0 0
Ukraine 37,884 15,896 2,383 40 15
Kazakhstan * 36,161 20,147 1,795 23 19
Sudan 35,145 17,684 1,987 4 -14
Netherlands* 34,852 23,193 1,503 7 5
Poland * 34,556 25,649 1,347 2 -2
South Africa 22,742 19,307 1,178 10 5
Chile 20,521 17,636 1,164 2
India 19,828 15,223 1,303 18 16
Canada 19,485 8,606 2,264 5 1
Jordan 18,262 4,632 3,943 153 114
Ireland 16,796 8,454 1,987 -3 -3
Iraq 16,701 7,916 2,110 -18 -25
Hong Kong 16,640 7,429 2,240 -7 -5
Malaysia 14,648 12,882 1,137 20 10
Source: ITC calculations based on COMTRADE
* Re-export figures included

Page 21
Table 2.4 - Major Importers of black tea in <3kg packages
Av.
Av. Growth
Growth p.a.
Imported Imported Value p.a. Quantity
Value US$ Quantity Unit value 2001-2005 2001-2005
Importers thousand (MT) (US$/unit) (%) (%)
World estimation 1,021,863 243,180 4,202 5 -4
Russian Federation 122349 38,206 3,202 7 -10
Saudi Arabia 70228 8,713 8,060 -7 -8
Canada 68588 6,309 10,871 9 -6
UAE * 63,028 26,670 2,363 4 6
USA 56663 10,565 5,363 19 19
France 56,661 5,719 9,908 8 -5
Australia 56552 10,231 5,528 16 14
Japan 42919 4,744 9,047 0 4
Italy 29,084 2,658 10,942 9 6
Sweden 25,210 2,747 9,177 8 -1
Syria * 23,369 8,526 2,741 12 7
United Kingdom 21,588 6,371 3,388 8 -3
Poland 20,872 3,765 5,544 9 2
Libya 20,614 10,643 1,937 -22 1
Ukraine 17,494 3,694 4,736 -11 -26
Iraq 17,269 11,234 1,537 12 9
Netherlands 16,723 4,088 4,091 7 -6
Kenya 16,225 13,437 1,207 -2 -7
New Zealand 13793 2,767 4,985 11 13
Germany 13,539 3,797 3,566 12 11
Belarus 12927 2,544 5,081 42 26
Belgium 12,729 1,854 6,866 6 8
Norway 11,659 868 13,432 7 2
Denmark 11,269 1,181 9,542 7 6
Finland 11,070 846 13,085 3 -5
Source: ITC calculations based on COMTRADE
* Re-export figures included

Page 22
Table 2.5 – Pakistan’s Imports of black tea- mainly CTC in bulk, 2003-2006
Value Value Value Value
2006 Quantity 2005 Quantity 2004 Quantity 2003 Quantity
US$ 2006 US$ 2005 US$ 2004 US$ 2003
thousand (MT) thousand (MT) thousand (MT) thousand (MT)
World 221,008 115,419 227,800 137,600 200,843 118,634 190,567 114,576
Kenya 138,431 65,458 164,442 91,497 139,565 75,862 134,277 72,646
India 18,211 13,191 9,365 8,487 4,050 3,977 6,687 6,276
Indonesia 14,704 8,941 12,645 9,199 12,322 9,435 10,612 8,578
Sri Lanka 8,136 3,504 7,035 3,261 6,177 2,813 6,182 2,941
Rwanda 7,991 4,050 6,227 3,469 5,042 2,672 831 462
Viet Nam 5,315 4,067 1,727 1,476 3,207 2,710 3,283 3,265
Bangladesh 5,207 3,748 9,118 6,777 11,952 9,337 12,257 9,570
Burundi 5,163 2,484 2,559 1,721 3,568 2,178 822 445
Tanzania 4,071 1,957 2,897 1,910 5,451 3,086 5,485 3,077
Uganda 3,446 1,743 3,302 2,101 1,222 767 40 23
Malawi 2,663 1,467 1,542 1,081 1,441 991 1,492 1,117
Nepal 1,398 806 1,013 685 728 631 969 819
Source: COMTRADE

Table 2.6 and 2.7 show the world’s major importers of green tea. Traditional markets
are in North Africa and France’s North African population, but the importance of
United States, Canada, Russian Federation and West Africa cannot be ignored.
Growth and upward pressure on prices can be seen in both bulk and non-bulk global
imports. Very rapid growth in Ghana cannot go unnoticed.

Table 2.6 - Major Importers of green tea in bulk

Av. Av.
Growth Growth
Imported Value p.a.
Value Imported Unit p.a. Quantity % of
US$ Quantity value 2001-05 2001-05 World
Importers thousand (MT) (US$/unit) (%) (%) Imports
World estimation 263,241 141,232 1,864 10 3 100
USA 41728 11,325 3,685 27 8 16
Japan 36987 14,136 2,617 -1 -2 14
Germany 26,886 9,460 2,842 20 19 10
Morocco 12,355 9,392 1,315 -5 -7 5
France 10,918 2,134 5,116 20 9 4
Russian Federation 9,518 7,901 1,205 34 28 4
Mauritania 8,316 3,767 2,208 22 4 3
Uzbekistan 7,092 12,283 577 0 -7 3
Senegal 6,372 5,900 1,080 -8 3 2
Algeria 6,287 3,238 1,942 7 0 2
Source: ITC calculations based on COMTRADE

Page 23
Table 2.7 - Major Importers of green tea in <3kg packages
Av. Av.
Growth Growth
Value p.a.
Imported Imported p.a. Quantity % of
Value US$ Quantity Unit value 2001-05 2001-05 World
Importers thousand (MT) (US$/unit) (%) (%) Imports
World estimation 318,770 120,427 2,647 21 11 100
Morocco 70,821 40,394 1,753 18 8 22
France 29,296 5,402 5,423 15 1 9
Ghana 23,018 11,326 2,032 134 120 7
USA 20,217 2,822 7,164 19 14 6
Canada 19,536 3,196 6,113 41 9 6
Russian Federation 15,057 4,786 3,146 54 23 5
Algeria 14,833 8,163 1,817 19 13 5
Mauritania 9,836 4,848 2,029 70 60 3
Libya 8,245 5,884 1,401 33 3
Belgium 7,345 1,705 4,308 12 38 2
Source: ITC calculations based on COMTRADE

2.2.2 Trends in world consumption

The world market has developed 3 distinct preferences in which to enjoy the favourite
cup of tea.

a) Teabags mainly in the developed countries and for convenience.

b) Orthodox tea sometimes whole and semi leaf tea which gives a light brew
c) Green tea which has a completely different taste

There are subtle changes from the above 3 main types where consumers with
special preference and fancies look for their requirements1.

The tea market fluctuates according to the demand of these three main types, being
distinctly seasonal in temperate countries. There is also a shift in the manner in
which tea is consumed with these seasonal changes with a move from it being a hot
beverage to iced tea or cold beverage.

Weather plays an important role in the production as the quality of the made tea is
considered to be lower during the rainy seasons and buyers who seek a distinct
quality in the blends operate to a lesser degree during these “rush” periods.

An interesting development is the increased demand for speciality, bio-organic and

herbal teas. Capitalizing on tea being increasingly recognized as a health beverage
following recent scientific and medical findings, there is more demand now being
created with emphasis more on bio-organically grown varieties.

2.3 Export of tea from Nepal

2.3.1 Growth in national tea exports

1
Annex VII presents a composition of a typical tea beverage

Page 24
Due to a strategy of expansion, the total area for tea cultivation has increased with
some 450 % over the last 10 years. As the following table shows, growth of tea
exports from Nepal has even been more impressive, and reached some 650% over
the last decade.

Table 2.8 - Growth in cultivation and trade of Nepalese tea

1996/7 2005/6 percentage
increase/decrease
Area 3,500 ha 15,700 ha 450%
Imports 6.2 million kgs 0.5 million kgs (800%)
Exports 0.77 million kgs 5.0 million kgs 650%

The exporters have grown to 20 whilst the importers have decreased. An increase of
61% is recorded in export volume of unit packs below 3 kgs whilst bulk exports have
risen by 35% over the last one year. The total recorded export earnings in 2005/6
amounts to US$ 982,000.

2.3.2 Export of tea to India

Nepal tea industry is very vulnerable due to their dependency on one major market –
India, for over 90% of their orthodox and nearly 40% for the CTC teas. Therefore any
changes outlined above which will affect this one outlet will cause severe price
fluctuations.

Table 2.9: Export and Import of Tea from/to Nepal to India (Q in Kg., Value in
‘000Rs.)
EXPORT IMPORT
Year Green Tea Black Tea Total Total
Quantity Value Quantity Value Quantity Value Quantity Value
2005-06 80,449 7,246 4,279,524 375,579 4,359,973 382,825 195,093 18,196
2004-05 704,196 98,825 3,608,681 347,512 4,312,877 446,337 330,327 31,157
2003-04 2,983,176 264,549 1,024,500 113,749 4,007,676 378,298 323,966 31,297
2002-03 28,714 6,006 2,839,350 219,697 2,868,064 225,703 291,946 28,640
2001-02 482,158 2,455 1,613,994 262,469 2,096,152 264,924 408,946 44,421
2000-01 360,800 25,496 39,518 7,874 400,318 33,370 757,890 82,055
1999-00 410,207 58,195 NA NA 410,207 58,195 736,533 74,854
Source: Department of Customs.

As the above table shows, the dependency on India as a trading partner for tea has
increased tremendously in the past 5 years, which further illustrates Nepal’s
vulnerability. It is therefore imperative that their agricultural produce as well as
expansion of their international markets be diversified.

Nepal has a very large border trade going on primarily with India although there is
also some border trade with Tibet. There appears to be about 10-12% of the green
leaf from the CTC areas and over 200% of green leaf from the orthodox areas going
across the border to India. They may be sold locally in the mountain areas out of
small householders’ domestic production units. This is based on the land area in the
orthodox region of 6,700 ha calculated even at a low yield of 750 kgs made tea per
ha from available data. The published figure of processed orthodox tea is only 1.6 m
kgs.

The imposition of strict control at the border and stopping of imports of orthodox
made tea as well as green leaf by India caused a complete stoppage to the otherwise

Page 25
free flow of export and sharp price declines occurred, whilst green leaf became un-
saleable and unusable.

Similarly, the work stoppages caused due to political unrest in India, which is now
taking it’s toll on the Darjeerling tea with both quality and quantity declining will open
the possibilities for Nepal orthodox tea for price gains and entry into new markets.

Indian authorities are getting more concerned by the decline in the volume produced
of their own Darjeerling tea, and potential threat posed to their special tea image and
brand built over many years. Many discerning overseas tea buyers/packers and
consumers are aware of this situation in the planting areas and there is a danger of
the value of the Geographical Indicator (GI) of Darjeeling Tea eroding. Therefore
Indian border patrols have been intensified this year to stop the flow of green leaf and
made orthodox tea from Nepal, which has caused many hardships to the farmers.
This situation has become a problem of concern to the Nepal Government. Unless,
urgent action is taken to rectify the shortcomings mainly in the orthodox tea sector, it
is likely that Nepal orthodox tea would face the same fate as their rice and jute
industries.

Herein lie the problems the tea industry confronts as the giant neighbour with
unlimited porous borders can/will use the produce of Nepal origin to sell into, both
their insatiable domestic market and lucrative export markets either passing them off
as Indian tea or unfortunately using the Nepal tea as low priced blend mixes or
“fillers” and “price reducers” in their export blends. In this way, Indian traders have
created a psychological myth that Nepal tea is lower in quality and does not
command as high a price in the open market or through auction system.

Another reason for the price to be beaten down is that once Nepal teas enter the
Indian territory it becomes a terminal market for it’s disposal and unscrupulous
traders capitalize in such situations. This position is further compounded by the
indiscriminate use of pesticides and insecticides by the Nepali farmers who have
therefore brought upon themselves a dubious reputation of being producers of tea
that has higher than accepted pesticide residue levels rejected by most buyers in the
EU, North America, Japan, Australia and New Zealand.

2.3.3 Export of tea to countries other than India

The following table presents the recorded exports of black and green tea to countries
other than India.

Page 26
Table 2.10 - Export of Nepal Black and Green to other countries except to India
Country Black tea Black Tea Green Green Tea Total Total Value
quantity Value Tea Value (in Quantity (in NRs)
kgs (in NRs) Quantity NRs) kgs
kgs
B’Desh 4,800 40,752 4,800 40,752

Japan 6,267 1,707,715 856 930,903 7,123 2,637,826

Korea R 859 16,497 859 16,497
Pakistan 327,086 28,770,246 13,720 119,662 340,806 28,891,959
Taiwan 1,942 1,502,676 1,942 1,502,676
UAE 264,256 24,987,263 264,256 29,987,263
USA 2,832 923,960 8,147 537,229 10,979 1,461,189
France 2,843 2,886,468 38 351,080 2,901 3,237,548
Germany 65,176 28,808,721 3,791 1,922,318 68,967 30,731,039
UK 38 25,508 38 25,508

Latvia 2,367 27,036 236 27,036

Hong 5,000 155,892 525 21,663 5,525 177,555
Kong
Canada 115 54,455 156 139,270 271 193,725
Italy 1,200 43,830
Czech 61,665 2,446,551 60,545 2,331,211 122,210 4,777,762
Rep
Total 746,446 92,397,570 87,778 4,255,236 834,224 100,739,810
Source: TEPC

Over 90% of orthodox tea processed is sold to India through official and unofficial
channels. Reportedly, nearly 60% of the CTC tea is sold in the domestic market2
whilst nearly the total balance goes to India. There is some interest now coming from
Pakistan with about 10% exported in the last year.

2.4 Tea production in Nepal

A large number of small holder farmers are engaged in growing tea in both areas: the
CTC in Terai and orthodox in the hill districts. And their contribution in total
production is increasing over the years as more small farmers are being attracted
towards tea cultivation due to many reasons, including its profitability compared to
other substituting crops, particularly in the hill areas. It is estimated that they now
account for 26.5% of CTC tea production and 67.6% of orthodox tea. For the sake of
this report, the following classification is used:

Smallholder farmers: 0-40 ha

Medium-sized gardens: > 40 ha
Plantations: > 40 ha and including a factory

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

Page 27
2.4.1 Growth in tea cultivation and production

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

Figure 1
Area and Production of Tea: NEPAL

18,000

16,000

14,000

12,000

10,000
Quantity

Area Ha.
Production Mt.
8,000

6,000

4,000

2,000

0
0
/3

/4

/5

/6

/7

/8

/9

/1

/2

/3

/4

/5

/6
/0
92

93

94

95

96

97

98

00

01

02

03

04

05
99
19

19

19

19

19

19

19

20

20

20

20

20

20
19

Year

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

Page 28
Table 2.11: Total Tea Production and Tea Plantation Area

Tea Plantation area in hectares Tea production in Kg's

Financial
Year Small holders
No. of
small- Plantatio Small
3
Private NTDC farmers n area Total Private NTDC holders Total

1992/3 75,400 860,000 1614000

1993/4 1,191 493 687,000 982,000 75000 1744000
1994/5 1,788 644 837,000 1,009,403 10,000 1946403
1995/6 2,243 828 1,500,000 1,112,329 125000 2737329
1996/7 1,685 938 2,390 879 3,501 1,800,000 925,942 18,000 2905942
1997/8 2,192 938 2,591 1,385 4,515 194,655 603,136 468980 3018571
1998/9 6,073 938 4,915 3,239 10,250 3,577,857 496,881 418242 4492980
1999/00 6,073 938 4,915 3,239 10,250 3,577,857 496,881 1010499 5085237
2000/1 8,179 5,310 3,818 11,997 5,089,579 1548503 6638082
2001/2 8,179 5,575 4,186 12,346 5,864,720 1653855 7518575
2002/3 8,321 5,760 4,314 12,643 6,478,000 1720000 8198000
2003/4 8,869 6,252 6,143 15,012 7714669 3956535 11651204
2004/5 8312 6,845 6,989 15,900 7789893 4816188 12606081
2005/6 8,912 7,154 7,100 16,012 8,443,907 5,244,320 13,688,237
Source: National Tea and Coffee Development Board

Although the government’s plan was to have 28,000 ha under tea cultivation by year
2010 and further projected to 62,000 ha by 2020, the expansion has been much
lower and estimates have been revised to have 18,000 ha under tea cultivation by
2010. Nonetheless, growth has been impressive.

2.4.2 Type of tea produced

There are reportedly a total of 12,2004 smallholder plots, 134 medium sized gardens
and 38 large plantations. Combined, these produce a total 13.6 million kgs of made
tea of which 1.6 million kgs is orthodox type.

Table 2.12 - Type of tea produced 2005/06

Particulars Orthodox CTC Total

Production Production Production
Area in ha in kg. Area in ha in kg. Area in ha5 in kg.

1 Garden 2,805 542,090 6,107 7,901,817 8,912 8,443,907

2 Small Holder 4,231 1,113,060 2,869 4,131,270 7,100 5,244,330
Total 7,036 1,655,150 8,976 12,033,087 16,012 13,688,237
Source: National Tea and Coffee Development Board

3
The Nepal Tea Development Corporation (NTDC) was established in 1966 by the Nepalese
Government. The Government divested their holdings so that the private sector would
become the engine of growth for the industry
4
Table 2.1 indicates a total of 7,100 smallholder farmers. However, data collected from
associations/chambers/and INGO/NGO's suggests that a total of 12,200 smallholder farmers
are active in areas concerned.
5
Please note that other data sources suggest a total of 15,700 ha in 2005/2006

Page 29
According to this table, smallholder farmers account for 67 and 34 percent of the
production of orthodox and CTC tea respectively. These data should be taken with
care though, as more than 11 plantations and 45 gardens (mostly non-small farmers)
have not yet been registered with NTCDB. Also, other data suggests that smallholder
farmers account for 26.5 % of the CTC produce.

2.4.3 Yield and Cost of Production (COP)

According to NTCDB field representatives and Farmers in the CTC area, the average
yield per plant is 1.55 kg pa and the density of plants is 14,000 per ha. Farmers in the
CTC areas are able to get a fair price for their leaf, almost double their cost of
production (COP), during better times whereas the orthodox tea farmer suffers very
often obtaining a price about 10-15% lower than their COP.

In the orthodox areas, however, the yields are significantly low, nearly 25% lower
than India and 30% below Sri Lanka. In the CTC areas the yields are lower than in
Kenya. As the international tea market is very competitive, relative low yield is a
cause of concern.

At the factory level, there seem to be no fixed method of calculation to arrive at the
green leaf price. Farmers have to accept price levels indicated by the factories. In the
CTC areas, the Siliguri auction prices are used as a guideline and is reviewed every
week whereas in the orthodox regions they are completely at the mercy of the
factory.

The farmers sometimes get paid almost after six months from date of direct delivery
to the factories. They prefer to sell to middlemen or tea dealers as most often money
is paid immediately on delivery. However they are beaten down on the price by about
10-20 %. Those who follow the Code of Conduct are able to get a premium of nearly
20 % for their green leaf.

The farmers are unable to get an accurate calculation of their COP and very often the
financial costs are not taken into account. Even fertilizer and pest control inputs seem
to be inaccurately compiled. This is due to lack of knowledge of simple costing
methods.

Smallholder farmers

Smallholder farms are generally well maintained with plant population being
adequate, although in some instance overcrowding was observed.

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

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

Page 30
mercy of the middlemen, habitually they are not amenable to accepting technical
advice and change their methods

Medium sized gardens and big plantations

These are tea gardens in excess of 40 ha and with many having their own
processing factories. The larger estates average lower yields/ha than the smallholder
farmers. Their yields are lower being around 14,500 to 16,000 per ha. Here again the
same scenario of coarse plucking and haphazard use of chemicals were evident.

The estate workforce tea plucker earns US$ 1.50 per day for delivering 26 kgs of leaf
with an incentive payment of 0.018 US$ per each additional kg. There are instances
of pluckers delivering up to 35 and even 50 kgs, consisting of mixed leaf - good and
coarse, which affects quality whilst processing. However due to political pressure on
labour matters the factories are forced to accept all leaf delivered.

2.4.4 Geographical distribution of production

In 1982, the Government declared the five districts i.e. Jhapa, Ilam, Panchthar,
Terhathum and Dhankuta of the eastern development region as 'Tea Zone'. In these
five districts the main production of tea is concentrated, as also highlighted in map
included as annex II.

The bulk of the tea, however, is grown in Jhapa (only CTC grown there), which is
situated in the far southeastern Terai part of Nepal. According to NTCDB data,
presented in table 2.13 below, this district alone accounts for approximately 88 % of
the tea production of Nepal.

Table 2.13 - Geographical distribution of production

S. No District Gardens Small Farmers Total

Production Area Production Farmers Area Production
Area Kg ha Kg No. ha Kg

1 Jhapa 6,107 7,901,817 2,869 4,131,270 857 8,976 12,033,087

2 Ilam 1,347 406,220 3,469 889,350 4,647 4,816 1,295,570
3 Panchather 382 80,220 141 119,114 297 523 199,334
4 Dhankuta 219 45,990 425 36,334 789 644 82,324
5 Terathum 23 4,830 123 36,344 247 146 41,164
6 Other 834 4,830 72 31,928 317 907 36,758
Total 8,912 8,443,907 7,100 5,244,330 7,154 16,012 13,688,237
Source: National Tea and Coffee Development Board

2.4.5 Crop diversification

Although crop diversification in tea has been looked into, due to maximum land
usage and close planting of bushes, there is not much area left for any other crops to
be inplanted. However most farmers have short term mixed cash crops such as
vegetables, corn to supplement their income making maximum use of the space
available. Some have the bigger trees such as Jak, interspersed in the land with
some shade trees usable for generation of biogas.

This type of mixed integrated farming which causes minimum damage to the
ecological system must be encouraged as they form self-sustainable units and bring
in additional income. They should not only have mixed crops but also livestock

Page 31
rearing cattle, buffalo and goats to obtain diary products for consumption and sales
but also poultry including ducks. Inland ponds can de constructed to rear fish
varieties for protein supplements in their diet. The animal waste is usable in getting
biomass

2.5 Tea development

At present there are 43 varieties of tea grown in Nepal, nine from seed stock and
others being clones. The characteristics of each of these plant types should be
studied in detail and manual prepared, which is not being done due to lack of an
authority to conduct such research and development.

There are two main types from the same botanical plant species, Camelia sinensis,
which had been developed at the Indian Tea Research Station and used extensively
in Indian tea gardens, which have been introduced to Nepal for planting in the two
different growing areas.

The clone varieties developed from cuttings from mother bushes are used in the tea
gardens in the Terai regions of Jhapa and Morang districts. These are ideally suited
for the processing of CTC variety where the leaf is more succulent.

In the hilly areas varieties from seed stock are used to propagate the nursery
plants. These too have been experimented and developed in India at their Tea
Research Station for the Darjeerling region and introduced into Nepal. Their leaf is
more leathery and during the changing climatic cycles, concentration of juices vary
thus giving aroma and flavour for limited periods.

Nurseries are operated by the National Tea and Coffee Development Board’s
(NTCDB) regional offices, estates and private farmers. These shoots are sold at a
price around USCts 0.23 each giving on average 3 cuttings.

The NTCDB farms have experimental plots of about 5 -7 different varieties, to

prevent disease effecting one type, and these are also divided according to usage of
types of fertilizer. NTCDB have a scheme to assist in nursery development and
maintenance by providing 50% grant on plant material and seedlings, (US$ 0.12
subsidy on the material). They also provide subsidies for purchase of tools and
implements as well as training of farmers through their extension offices. Providing
loans at low interest of 1.5% is being considered.

The extension offices provide technical know-how on the preparation and use of bio-
organic fertilizer, control of pests and insects and the proper use of chemicals,
pesticides and insecticides. Field visits are made to designated areas on a regular
basis to educate farmers. Quarterly surveys are done to assess the field problems.

NTCDB extension offices have 4 main activities to perform:

a) Training of farmers
b) Crop Protection methods through demonstrations and distribution of sample
materials of Pesticides, Insecticides, and Chemical and Organic fertilizer.
c) Mobilize farmers to form into working groups or cooperatives
d) Constant monitoring of the farmers fields to see incidences of pest/insect/
fungal infestations and advice on control methods.

Page 32
Box 2: Incidence of pests, insects and other diseases

Observations on visits to farmers holdings showed evidence of many insect and pest
diseases and it seemed likely that they were spraying the control chemicals, to protect the
plants and ensure their high yields for commercial gain ignoring the set down regulations of
following the correct cycle for spraying.

Indiscriminate and high use of pesticides and insecticides and incorrect application cycles
mainly in the orthodox areas, where the insect and pest presence is higher due to the
dampness of the atmosphere, have caused the final product to contain more than the
maximum level of residues permitted. This has caused environmental damage and an
imbalance in the insect population.

Fertilizer, insecticide and pesticides are all imported duty free on official and unofficial
channels and are readily available. The strengths and efficacy of some of these products
available in the open market is questionable and there is no proper monitoring. The Agro
Import Association based in Jhapa district is the only one trying to monitor and give the
farmers the correct guidelines on their usage.

The pests, insects and other diseases seen in Nepal are Blister Blight, Brown Blight, Rust,
Trips, Aphids, Looper, Flush Worm, Leaf Roller, Red Spider, Purple Mite, Scarlet Mite, Pink
Mite, Helopeltis, Jassid, Bunch Caterpillar and Reds Slug Caterpillar.

Due to financial constraints, all above extension and advisory activities are not being
performed at optimum levels. Some extension offices, having large plots sell the
green leaf produce (current level in Ilam USC 0.25 to 0.28 depending on leaf
quality/grade. The COP in the experimental plots is around USC 0,18/kg.green leaf.

The nursery system seems to be adequate as they have been able to supply plant
material for the increased demand in the past few years.

2.6 Processing of Tea

With mainly two diverse types of tea being processed, the factories and machinery
used are dissimilar. The basic process, however, is the same being Withering,
Rolling, Fermentation and Drying with adjustments on time frames and using different
method to obtain the final products. Annex VI presents some guidelines for good leaf
standards and processing.

2.6.1 Basic household units

These are small cottage level workshops, mainly located in the hilly orthodox regions,
where the withering is done on crudely turned out troughs and the withered leaf hand
rolled in wooden pans. The product is a green tea of about 5 grades ranging from the
full leaf to smaller grade. The output per day is about 8-10 kgs.

It is likely that small holders having bigger plots of around 5 or more ha are engaged
in this type of processing, doing their own direct marketing at the small townships on
a busy day. The population in the mountainous areas may be obtaining this type of
hand made tea as regular marketing channels are unable to reach them.

This type of small workshops were not seen/visited in the Terai region but it is likely
that there are such units processing a type of green tea from their own leaf for
marketing in localized areas.

Page 33
Farmers wish to form into cooperative units and run their own small factories of
output of 100 to 150 MT per annum in some instances more as a measure to spite
the existing ones who do not service them adequately whilst in certain areas it is a
necessity due to availability of large quantities of green leaf.

2.6.2 CTC processing units:

According to data available, there are 23 CTC factories. Some of them are recently
constructed with large capacities going upwards of 600 -1000 MT per year, built at a
cost of around US$ 500,000, with new continuous processing lines of CTC
machinery imported from India. Others are smaller ranging from 100 MT to 400 MT
with older machinery but processing a good final product. Some of the factories have
applied for HACCP certification whilst a few are seeking ISO certification.

The CTC factories process the following 6 grades:

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

Some factories separate the green leaf into those supplied by COC certified farmers,
having a different production, from those that are not certified. This is one way the
factories are trying to overcome the problem of pesticide residue level. To achieve
this factories have to keep strict records of the suppliers of green leaf up to the final
packed product stage. If this exercise does not bring in a higher price, the effort is not
worthwhile.

The indiscriminate use of pesticides has been able to prevail due to the lack of
market diversification; primarily being restricted to the domestic and Indian market,
which are less strict. However, a select few factories are conscious of maximum
residue levels and their importance and either use only green leaf produced in their
own fields or under their monitoring with farmer associations who follow the correct
agricultural practices.

Due to the expansion program and increase in leaf production it is envisaged that 2-3
more CTC factories will be needed to meet the supplies.

2.6.3 Orthodox tea factories:

These are all located in the hilly areas of Ilam, Panchthar, Terathum and Dhankuta
and are styled along the lines of the Indian Darjeerling factories. Their capacities
range from 100 MT per annum to 500 MT. They have a green leaf collection area to
receive the raw material and large withering troughs as their withering time is longer
than for the CTC tea. Each factory has between 4-6 rollers of the Indian type with
different tables and battens to the ones used for the conventional orthodox tea
processing with 2-3 driers of UK or Indian manufacture and a sufficiently well
equipped sorting and packing room.

In the orthodox factories too, there is separation of leaf supplied into the 2 categories
of COC certified farmers and others. Nearly 90% of the product goes into the Indian

Page 34
market, with about 7% to EU, 3% consumed locally mainly in the big cities, marketed
to expatriates/tourists and about 1% in special gift wrapped units.

The grades processed in the orthodox factories are as follows:

Leaf Grade Nomenclature

STGFOP Special Tippy Golden Flower Orange Pekoe
TGFOP Tippy Golden Flower Orange Pekoe
GFOP Golden Flower Orange Pekoe
FOP Flower Orange pekoe
OP Orange pekoe

Broken grades

BOP1 Broken Orange Pekoe 1

GFBOP Golden Flowery Broken Orange Pekoe
BP’S Broken Pekoe Souchone
GBOP Golden broken Orange Pekoe
FBOP Flowery Broken Orange Pekoe
BOP Broken Orange Pekoe

Fannings

TGOF Tippy Golden Orange Fanning

GOF Golden Orange Fanning
OF Orange Fanning

Green Tea

Leaf Grade

YH Young Hyson

Broken

FYH Fine Young Hyson

GP Gun Powder
H Hyson
Fanning Soumee
Dust Dust

2.7 Availability of raw material, price and quality

Due to the recent rapid expansion seen in land area under cultivation in both the
Terai and hilly regions, harvesting from very young bushes, some just coming into
bearing, will give good growth and sufficient green leaf to keep the factories in full
operation.

With adequate availability of fertilizer and chemicals for controls, farmers seem to
make use of them to increase their yields as observed in some fields. Indiscriminate
and over use of these will be detrimental in the long term not only to the fields but

Page 35
also the environment as detected in certain areas but the commercial interest seem
to override others.

The chemical inputs are available at affordable prices but due to the open policy of
entry some of the products are of inferior quality and may also include banned
substances.

Due to the stringent controls imposed on Indian factories in the Darjeerling areas and
closer border checks, the flow of green leaf and made tea into India through the
border has come to a virtual standstill this year. Therefore green leaf is available in
abundance with farmers having great difficulties in disposing of them. The existing
factories in the orthodox areas are unable to absorb all the produce and leaf prices
have declined sharply as well as having to be destroyed due to spoilage.

Urgent attention is needed to address this problem as it is likely that the Indian Tea
Board will be more vigilant on this as the international reputation built over many
years of their prestigious geographical indicated brand has been threatened.

Farmers working under the COC rules and regulations seem to adhere to them in the
use of chemicals and periods of applications, but the quality of the plucking is done in
a haphazard manner with unsuitable coarse leaf also included in their deliveries to
the factories. Although there is provision for rejection of bad leaf, due to political
interference there is undue pressure put on the factories to accept all of what is
delivered, in spite of the quality being poor.

The growers who are not with the COC are likely to produce a leaf, which will have
MRL’s over the required parameters, not only due to excessive use but also spraying
the chemicals at the incorrect time to gain maximum advantage commercially.

All these shortcomings contribute to the final product being of poor leaf appearance,
cup quality and on closer analyses and tests for residue levels, an overall unsuitable
and almost un-saleable product into sophisticated markets.

Other production inputs

Chemical fertilizer, pesticides, insecticides and bio fertilizer, insect control

repellents

According to official data only, the import of insecticides and pesticides has increased
by 118% in the past five years. Fertilizer and chemicals required are mostly imported
from India or brought across the border illegally. These are available to the farmers at
market prices and since there is no duty, are reasonably priced. Whilst there is
adequate availability in the Terai regions, due to the close vigilance at the border of
the hill areas, shortages occur for these farmers.

According to observations some of the items that are smuggled seem to be

adulterated and lack the expected efficacy. Banned pesticides and insecticides may
find their way into the market through these unofficial channels.

The Extension offices of the NTCDB instruct farmers on the proper use but have no
hand in the sales. There are private dealers, some of whom are able to provide
technical expertise along with the sales.

The methods of preparing bio-fertilizer is also taught to the farmers by the extension
offices and the NGO’s working in certain areas who produce it themselves whilst

Page 36
some marketing outlets also have these on sale. In addition the farmers are educated
on the use of natural insect repellents such as Neem-based products.

However, due to the purchasing power of farmers being low, the usage of fertilizer is
restricted, the average being a low 32 kgs per ha. The reluctance to use organic
fertilizer, apart from the yields becoming lower is that since Indian farmers are not
“organic” the thinking is that there is no need for the Nepal farmers to change
sacrificing quantity.

Energy Sources

Electricity is costly and there are very frequent power failures, which cause
disruptions to the factory operations. This affects product quality. Power is required to
run the withering fans and some of the machinery.

Furnace oil, and coal are the other energy sources used in the factories and these
too are imported from India. Firewood is used in 4 factories and mainly in the
household units. Although the usage is small, it is discouraged due to environmental
damage.

Tea bushes do not require high irrigation and the seasonal monsoon rains provide
the required amounts sufficient for the season unless in very adverse periods. The
yields increase during the rain periods and decline when drought conditions affect the
bushes. There are also subtle changes in the concentration of the chemicals in the
leaf, with the dry periods bringing these more onto the leaf surface thereby giving a
better raw material for producing a made tea with more flavour and aroma.

Packing materials

The commonly used packing materials are the polyethylene/polypropylene (PE/PP)

bags, which are used to pack mainly the lower grades in both regions. The better
quality and leaf grades in the CTC tea are packed into multi wall inner aluminium foil
lined, 4 or 5 ply kraft paper sacks mainly of the valve mouthed variety, imported from
India and of Sri Lanka origin through Indian suppliers. The paper sacks are subject to
an import duty of 15%, development tax of 1.5% and VAT 13%. In addition, transport
cost is about 5% of the sack cost.

For the orthodox teas, the packing material is the old traditional tea chests, all of
Indian origin, mainly to pack the leaf grades such as SFTGFOP and TGFOP. The
medium and smaller leaf grades are packed in paper sacks of the valve mouthed
variety. Not many open-mouthed paper sacks are in use

The tea chest is an obsolete form of packing and has been discarded in the western
countries, Japan, Australia and New Zealand due to the difficulty encountered in
storage space, disposal and potential damage to environment. Since 90% of
orthodox exports end up in India, this form of packaging is acceptable as there is a
two-way trade beneficial more to the Indian side. The packaging requested/required
by the western buyers are paper sacks even for the leaf teas. The Rigid Paper Sack
developed in Sri Lanka especially for big leaf grades is now increasingly used in
consignments to these destinations, and as observed some factories in Nepal use
them. This sack is now used in larger volumes from Sri Lanka, as even some Middle
East buyers are beginning to request this form of packaging.

Page 37
The retail sales market uses printed boxes, printed aluminium foil packages, cloth
pouches, woven material, wooden boxes and a wide variety of gift packages which
are all made in Nepal of good quality at cottage level.

The tea-bagging industry is still in its nascent stage with hardly any packers having
modern machinery.

2.8 Rules, regulations and standardization in the sector

There are no Codex standards set for Nepal tea as yet although some preliminary
work has been conducted. It is the intention of the Department of Food Technology
and Quality Control to give this aspect priority in the preparation of manuals based on
Codex/ISO in making original listings. Nepal tea standard has been set with some
variations in its components, i.e. having a lesser percentage of fibre content, and
including caffeine parameter. The overall limiting factors are stricter than the Indian
standard. The Nepal Government tea standard complies with ISO 3720
internationally accepted parameters for made tea.

If one wants to compete in the international market, growers and exporters are
expected to meet internationally accepted standards that have been set, or are being
introduced, related to radiation levels, pesticide maximum residue levels, heavy
metal content. Buyers increasingly ask for a pesticide MRL certificate, a regulation
imposed by many importing countries. This exercise takes about 3 weeks and if the
test proves positive, there is no end user available anymore for the producer.
Therefore like all goods, what is unsold has no value.

There is no laboratory equipped to carry out all these required tests nor is there any
accredited international survey company available in the country. Due to this,
samples have to be sent to Indian or other foreign laboratories, which are costly and
time consuming.

Within this context, adherence to good agricultural practices (GAP) and good
manufacturing practices (GMP) are very essential and the Code of Conduct drawn up
by the Tea Alliance is a step in the right direction to achieve this goal.

Furthermore with Nepal striving to become a major supplier of bio-organic tea, which
is a fast growing segment, adherence to all aspects to obtain the necessary
certifications are imperative.

2.9 Quality and international competitiveness

Because of the almost monopolistic Indian market, with little attention paid to quality
levels, MRL etc, the Nepal farmers and factories seem to overlook the importance of
controls. Only those factories venturing to seek other markets and better/higher
prices are being very selective about quality controls. Some are seeking ISO and
HACCP certifications whilst HOTPA/HIMCOOP -the associations with whom all the
bigger factories have membership strive to achieve the standards set down by the
COC in working with farmers who have opted to become a part of the program.
These farmer groups have Internal Control Officers to monitor the progress and each
farmer’s details of inputs and outputs will be recorded. The NASAA based in
Kathmandu records the reports.

The current Terai region products of Nepal are very similar to the Indian CTC tea.
However there is a difference as the prices realized are 10 – 15% lower. This is due

Page 38
to the cup quality being a little “thinner” and less strong. Furthermore buyers look for
a very strong quick brewing tea for CTC grades as they are used primarily in
teabags. The Kenyans and better Sri Lanka CTC teas are distinctly better in this
respect. The orthodox Nepal tea is also discounted compared to the Indian
Darjeerlings.

The quality of the orthodox teas are not consistent, as there seem to be difference in
the same classified grade in leaf and liquor properties making it difficult for orthodox
teas to be sold in big parcels unless there are blending facilities available.

The reputation that has Nepal earned of excessive, indiscriminate and incorrect use
of chemicals, fertilizer, insecticides and pesticides has caused doubts in the minds of
buyers in certain countries as the news travel when samples are rejected on
analytical reports. The factory is unable to determine with certainty that their product
will be clean unless close monitoring in field practices of the large numbers of
smallholder farmers is conducted, which seems to be difficult.

The secondary grades of orthodox teas are difficult to sell because their liquor
properties do not qualify for any speciality market although their two main grades will
have some demand from niche markets. The strong position of well-established
brands such as Darjeerlings and some specific Ceylons for the orthodox teas, make
it difficult to gain entry into competitive international markets.

CTC teas will always face strong competition from Kenya, Malawi, Rwanda, Burundi,
Uganda and some Sri Lankan teas in the world tea bags market segment, which are
the price leaders. In addition, Indian, Bangladesh and Indonesian CTC’s are active
on the international market along with emerging producers of this category of tea
such as Vietnam.

Over 90% of the exported Nepalese CTC quantity finds its way to the Indian market,
very likely the domestic arena whilst there is growing interest from Pakistan but the
prices are low and even not remunerative. This is due to the product being
discounted in comparison to the East Africans and other good origins although the
discounts do not seem to be justifiable.

New CTC markets should be looked at to overcome this situation. Annex III provides
an overview of the major tea consuming countries and their preference in tea grades.
Pakistan and Germany show potential for growth in the 2 types of tea. The list
attached as annex IV gives names and addresses of companies of two main
potential markets that the export trade in Nepal could approach to develop contacts
and foster business.

In addition to the usual orthodox grades, some factories are also processing in small
quantities types such as Oolong tea, White Tea, Sencha and Green Tea. However
these are types that have very limited interest. Green tea and Oolong tea produced
are too small in quantity to make an impact in the markets that look for these types.
Buyers in North America who may look at these speciality teas are also unlikely to
pay good prices as such teas are available at cheaper prices from China and
Vietnam who are big producers.

2.10 Existing studies, strategies and policy papers in the sector

There have been a number of studies undertaken for the industry in the recent past
for its development. With the establishment of the Nepal Tea and Coffee
Development Board in 1993, to give direction and policy guidelines, the sector

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

1) The Tea Policy Paper in November 2000: - This outlines the future
program for tea. This is still to be presented as a policy paper to the
Parliament for approval. The main items are:
- Increase land area coverage to 40,875 ha in 5 years
- Increase annual production to 46.1M kgs of which 30m to be orthodox
- Additional employment opportunities for 79310 people
- Priority lending at 1.5% concessionary rate of interest and schedule
facilitation
- Rebate on land registration tax
- Up to 50 years lease prospects of Government land
- Introduction of Cess levy to manufacturers/importers/exporters
- Establishment of research development center with private sector
participation
- Incentives to ancillary industries
- NTCDB to be revamped to have more private sector involvement
- Establishment of a Tea Development Fund.

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

GTZ/USAID/Winrock/FNCCI/AEC/NTCDB/SNV /HOTPA and HIMCOOP.
The Code of Conduct for tea growers and processors was conceptualized
by this alliance for the overall improvement of the product, originated in the
USA based on standards outlined by IFOAM/CODEX ALIMENTARIUS/The
International Social and Environmental Accreditation and Labeling(ISEAL)
and Alliance and Social Accountability International. Once implemented, the
next step would be the creation of an agency to assess and issue
certificates independently on the product conforming to GAP and GMP
practices. This will give vital assistance to the processing units to enable
them to obtain the ISO 22000 and HACCP certifications, now an essential
requirement in many importing countries. Some factories in the hill areas
have already been successful or are in the process of obtaining these
certifications. Financial assistance of up to 20% is being considered as a
package by some donor agencies.
3) UNIDO assistance with technical guidance from FAO through a study
conducted is to be made available to strengthen the Department of Food
Technology. A laboratory building is already completed and funding is now
being sought for maintenance and equipping with testing machinery such as
GC, GCMS, GCSMS, HPLC, AAP, Graphite Furnace and requirements for
microbiological analyses. This will enable the department to be competent
in testing for almost all the requirements as laid down internationally. A
training program for qualified personnel is also an essential part of this
program. This is still to commence. On completion, accreditation with
internationally accepted laboratories is imperative to gain recognition. A
drawback to this program is the financial viability as the demand for
commercial usage may be limited.
4) NTCDB conducted a study that identified new tea areas of virgin land for
growing of bio-organic tea using products such as Neem, Neemgel and
biogas. This will provide the opportunity to develop a Geographical Indicator
Tea for identified areas as a good marketing tool.

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 5) A three year World Bank Project Study on Food Research and
Agriculture Commercialization and Trade is being undertaken with the
Ministry of Agriculture to study the improvement of existing cash and
commercial crops and implement a research and development program.
6) Export Potential Assessment study done by ITC in early 2007 and follow
up studies on five identified export items including tea.
7) Nepal’s Export of Green Leaf Tea to Indian Market done by M N Sharma
with NTCDB
8) NARC 2001- Identification of Tea Problems /Constraints and it’s future
Rsearch Strategy - August 2001.
9) Poverty Reduction through Development of the Tea sector in Nepal -
Deva 2001- Development Associates for Regional and Rural Development -
Report prepared for GTZ in cooperation with ICON-Germany
10) AEC-2002- Tea Event Proceedings of Agro Business Interface 2001- April
2001
11) Economic Survey –Government of Nepal –Ministry of Finance 2005/6
12) GTZ-Nepal 2002- Challenges and Prospects of Himalayan Orthodox Tea
Industry in the 21st century
13) 2005 – The Souvenir of Nepal Tea Association
14) Orthodox Tea Profile – HOTPA –2000
15) AEC-Agro Business Interface -2001 - Compilation of papers by resource
persons
16) Extension and Research Needs of the Nepal Tea Industry A M Whittle
2003
17) Concept Paper on the Study of Nepalese Tea Industry – Vision 2020 –
Nepal Tea Crop Global Development Alliance - A N S Thapa for Winrock
International
18) Study on the Prospects of Orthodox Tea Business in Nepal – A Field
Work Report by Campion Collage – B Shakya 2000
19) Report on Orthodox Tea ‘Market Study in Spain and Germany –
HOTPA 2000

Other than for the study conducted for the EPA, which was not sector-specific, there
has been no recent studies done for tea. The tea scene is changing continuously with
demand and marketing strategies varying with time. Therefore constant updates are
necessary to keep abreast with new developments.

2.11 Socio Economic Impact of the Sector

Nepal has a predominantly rural population similar to other Asian neighbours. About
30,000 family units are involved within the sector and more than 40,000 labour force,
with a majority of the workforce being women. From a gender perspective this is
important although the work is in the lower categories, mainly as pluckers with lesser
incomes. Nonetheless, it provides important additional income to families as well as
empowering rural females.

The tea farmer earns more income from their land than those involved growing other
crops except for cabbage and ginger. A recent study done indicates the tea farmer

Page 41
earns an average income of US$ 175 per month. The earnings are reportedly around
US$ 20 per ha per month in the Hills and US$ 32 in Jhapa.

The land use is better for tea as the undulating terrain and barren areas can be used
due to the hardy and deep roots of the bushes, able to bind the soil and stop erosion.
Government assistance by way of land allocation without restriction on size as well
as lease agreements facilitated by the government are available through the
Agricultural Development Bank. Loans at concessionary rates at 1.5% are possible
for cultivation of land.

Indiscriminate and high use of pesticides and insecticides and incorrect application
cycles mainly in the orthodox areas, where the insect and pest presence is higher
due to the dampness of the atmosphere, have caused the final product to contain
more than the minimum level of residues permitted. This has caused environmental
damage and an imbalance in the insect population.

The Code of Conduct introduced has focused attention on the social responsibilities
too for the community. They are:

a) Ending of child labour

b) Ending of caste and social discrimination
c) Salary and wages payable based on labour laws of the country
d) Women empowerment, child education and human development
e) Clean and secured workplace
f) Cultural and development and information
g) Recognition of corporate social responsibility by the factories.

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2.12 SWOT Analysis
Based on the above, the relative advantages/disadvantages of the sector in the
global marketplaces are being discussed in the table below.
Strengths
• Good climate and geographical conditions
• Large area under tea and availability of land for
expansion
• Environmentally friendly crop
• Short crop cash cycle
• Young bushes
• Low labour costs
• Farmer cooperatives willing to work together
• Methods of cultivation and standards required
clearly laid down
• Rural and women employment/empowerment
• Contribution to poverty alleviation
• Steady growth in export volume and earnings
• Institutions are in place to guide the industry
• Communication system adequately developed in
village areas
• Private sector driven
• Availability of international expertise
• Government grants and subsidies on land lease,
plant material, tools and machinery. Loans at
attractive interest rates
• Code of Conduct drawn up to achieve GAP/GMP
and Fair Trade practices
Opportunities
• Good brand image including GI could be
established specially under deteriorating image of
Darjeeling tea
• Additional factories could be established given the
existing green leaf production
• Large blending, warehousing and packaging facility
for supply of bigger consignment could be
established
• Sufficient availability of land in identified areas for
expansion and new plantations
• Developing new export markets
• Strengthen NTCDB dedicated for the development
of tea sector with private sector participation and
making itself functional and more effective
• Developing a research and training centre that can
produce new clones and seed stock suitable for the
Nepal environment. .
• Banks are interested to facilitate easier agriculture
and export financing and develop export insurance
cover and factoring facilities.
• Improving facilities of food laboratory and obtain
accreditation
• Improving/expanding bilateral and regional trade
and transport agreements to improve exports and
cargo facilities with India and Bangladesh
• Existence of new organically certified growing areas
in virgin land for bio-organic tea now having
increasing global demand.
• Unique environment and natural weather patterns to
develop better quality and speciality product
• Emerging private sector to be speciality advisory
agents/suppliers of inputs for the industry
• Supports available for obtaining internationally
accepted certifications for new and existing
factories.
Page 43
Weaknesses
• Shortage of processing capacity
• Poor quality chemicals/insecticides and pesticides
and their overuse and incorrect applications
• Poor on farm infrastructure
• Irregular supply of electricity
• Financing difficulty. VAT refunds delayed
• Dependant on Indian port and territory for
transportation
• Implementations of good government policy
ineffective and often overruled
• Inadequate government supports
• Poor reputation for product due high MRL and
quality.
• Lack of well equipped and accredited laboratories
• No research facilities
• No central marketing facility
• Lack of human resources
• Packing materials expensive
• Market information inadequate
• Quality of product inconsistent and need be
standardized to meet buyers demands
• Facilities and standardised quantity not available to
prepare large consignment for export
• Low yield
Threats
• Losing markets due to poor quality
• Political instability
• Interference from outside elements in the internal
management of companies/factories
• Lack of human resources, especially in quality
control and export marketing contributing to loss of
credibility.
• Relying heavily on Indian processing and
marketing expertise thereby losing country image
• Inadequately policed border trade having a
detrimental effect on inputs, product quality and
exportable quantities.
• Ad hoc changes in Indian policy effecting smooth
operation and causing sudden hardships to all in
the industry
• Competition from other producer countries, which
are rapidly developing to meet global requirements.
• Migration of young labour force to urban areas for
better employment
• Global warming and other natural disasters having
adverse effects on agricultural areas mainly low
lands..
• Middle men interfering with the supply chain mainly
at rural farmer level due non-availability of finances
• Increasing global availability of tea with many
countries expanding tea areas resulting in an
oversupply situation
• Due to poor performance by exporters and differing
of offer/delivery samples, loss of credibility and
important buyers
• Unless quality is improved to higher standards, the
declining prices of poor teas globally which are the
first to suffer in market price movements can affect
produce
3. Bilateral, Regional and Multilateral Trade Agreements

3.1 Bilateral agreements

Nepal has entered into many trade agreements with other countries towards
improving trade and exchange of cultures.

- Peoples Republic of Bangladesh

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

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

3.2 Transit Agreements

The sea port of Kolkata is allowed to be used for transit cargo of Nepal with two
covered sheds totalling 6,835 sq meters provided at Kidderpore docks and also shed
no 8 at Kolkata jetty. Open land area space is provided in Circular Garden Reach
Road of 4972 sq m and Haldia dock interior zone of 6985 sq m. Residential and
office space of 2000 sq m is provided at Haldia. Entry to Kolkata port through Indian
territory is allowed through 15 entry points but the most commonly used is Birgunj in
central Nepal and Kakarbhitta in eastern border.

The transport/transit agreement with Bangladesh allows entry of Nepal goods to the
ports of Chittagong and Khulna-Chalna through Biral, Banglabandh, Chilhati and
Benapole.

To facilitate trade overland from Nepal to China the trading points of Kodari/Nyalam,
Rasuwa/Kyerong and Yari (Humla)/Purang at their frontiers are allowed to be used.

3.3 Regional Trade Agreements

The SAFTA6 is considered as one-step forward in the process of regional economic

integration in South Asia. With the increase in importance of global economic

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

Page 44
integration, SAARC members were motivated to set up SAFTA to harness the
benefits of "free flow of goods" for the optimum utilization of resources and thereby
support to develop their respective national economies.

The SAFTA entered into force from the beginning of 2006. Apart from the agreement
to follow tariff reduction to products covered by Trade Liberalization Programme
(TLP)7 the members have also agreed to eliminate all quantitative restrictions in
respect of such products except otherwise permitted under the GATT 1994. SAFTA
does not preclude Nepal from receiving and giving tariff preferences under the
existing bilateral agreements (Article 13).

Trade Liberalization Programme (TLP) - It has been agreed to bring down the tariffs
to 0 to 5 % (a) within a period of 7 years by non-least developed contracting states
(to 20% within the first two years) and (b) within a period of 10 years by least
developed contracting states (to 30% within the first two years).

The countries were classified as LDC’s (least developed countries: Maldives,

Bangladesh, Bhutan, Nepal) and non-LDC’s - Sri Lanka, Pakistan and India. Two
lists of products were drawn up – Sensitive list with no tariff reductions and non
sensitive list where gradual reduction in tariffs at the initial stages leading to zero
tariff was agreed on.

3.4 Pertinent provisions under the WTO agreements

Nepal is a recent member of WTO and acceded on 23 April 2004. It has thereby
taken an important step to be integrated with the global economy through the
multilateral trading system. It is expected that WTO membership will enhance
Nepal’s capacity and capability to be more competitive in trade through policy and
legislative reforms to attain an overall increase in trade efficiency and effectiveness.
As an LDC, Nepal was allowed a transitional period until 1 January 2007, in order to
bring its foreign trade regime into full consistency with the WTO Agreements on
Customs Valuation, TBT, SPS and TRIPS.

WTO membership gives a country the legal right not to be discriminated against in its
trade with the other members of the organization. The principle of non-discrimination,
which is especially important for a country’s exports, is laid down in the most
favoured nation (MFN) clause and the national treatment clause. In addition, every
WTO member is entitled to seek redress against any impairment of its rights by
another country through the dispute settlement mechanism, such as Germany’s
unilateral ban on the woollen carpets on the basis of perceived use of child labour or
of azo dyes.

Practically all products and markets are affected by one or several of the WTO
Agreements, at least for WTO member countries. Progressive liberalization of trade
through successive negotiations has led to lower (or zero) import duties, and thus
increased export opportunities, especially in developed country markets. It has also
created greater predictability of market access by “binding” reduced (or zero) tariff
rates. Most governments impose technical regulations or standards on (domestic and

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

Page 45
imported) products to protect human, animal or plant life or health, as well as the
environment. The Agreements on Technical Barriers to Trade and on Sanitary and
Phytosanitary Measures ensure that such requirements do not create unnecessary
obstacles to international trade and provide certain rights to exporters. It is up to each
exporter to find out about such requirements in the relevant foreign markets.

Meeting WTO obligations represents a major challenge to Nepal. Its ability to

participate fully in the multilateral trade negotiations and make adjustments to their
trade policies and rules remains weak. As part of its commitments, Nepal would
introduce a WTO-consistent regime with respect to rules of origin and anti-dumping
and countervailing measures.

With reference to the standards regime, Nepal committed to bring the Nepal
Standards (Certification Mark) Act (1980) into full compliance with the WTO
Agreement on Technical Barriers to Trade. The 1980 Act stipulates that national
certification trademarks can be issued by the Nepal Bureau of Standards and
Metrology (NBSM), upon request to any company producing goods for which
technical regulations and standards exist in Nepal. These companies are
consequently allowed to use a distinctive sign in their products, which means that the
product complies with the required regulations or standards. Nepal furthermore
committed to enact a new Industrial Property (Protection) Law consistent with the
TRIPS Agreement. This new law would also include a provision for geographical
indications.

3.5 Implications of these agreements for the sector in Nepal:

Nepal’s tea products benefit from preferential market access under several regional
and bilateral agreements. However, in many important export destinations, such as
the EU, the MFN rate offered to third countries is already zero. The preferential
market access to the EU that Nepal enjoys through its ‘Everything but Arms’
incentive, offers thus no additional benefits for exporters of Nepalese tea. This is
called preference erosion. In case of regional treaties, protective mind-sets of many
member countries backed by lobbies of national private sector are still strong. Each
country is trying to include the most potential export items of the other member
countries within the list of their import sensitive items.

Benefits of regional integration, and preferential market access schemes, tend to

diminish due to stringent systems of Rules of Origin (ROO), subsidies and non-tariff
barriers including Sanitary and Phytosanitary and Technical Barriers to Trade.

Tea has not significantly benefited as yet from these agreements except with
Pakistan who have agreed to allow 6.0m kgs of tea to be imported with zero duty.
This increase has been observed in the increased export figures mainly of CTC type
but the prices realized are low.

It has been observed that Bi-lateral Trade Agreements are not always beneficial for
small countries with limited exports. Whatever agreements and tariff benefit are
available within these treaties, the market forces come into play as in the case of the
Pakistan market, where easier access to the East African markets which offer same
type with much better quality being preferred. Furthermore shipping delays and
longer transit times are also a deterrent.

The bilateral treaty with neighbouring countries, India is usually considered a

temporary and short-term phenomenon, highly dependent on political ties. Although
CTC teas and orthodox teas were allowed across the border, changes in Indian

Page 46
policy and protectionist course of action, safeguarding the indigenous Darjeerling tea,
it’s brand and reputation has had severe repercussions on Nepal tea.

The positive factor for the future is that the SAARC region is highly populated and is
naturally avid tea consumers. With India’s annual increased production unable to
keep abreast with their increasing consumption and the other countries too growing
in their tea drinking habits, lead by Pakistan, it is likely that more quantities will be
absorbed in the region.

Page 47
4. Obstacles and shortcomings for exports

4.1 At the Farmers and Company Level

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

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

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

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

teas into niche markets.

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

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

loss of credibility of Nepal trade

f) Only small parcels of lots are available to be offered out. No blending or

mixing facilities available to cater to the demands of buyers who require
bigger consignments. Inconsistent quality and non-uniformity of products with
no supportive certificates causing difficulties to make good blend mixes.

g) Overseas buyers are not able to get supplies with consistent quality, face
delays in deliveries and apprehensive of getting tea with high residue levels.

h) Lack of professionally qualified and experienced marketing personnel to

promote sales.

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

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

4.2 The enabling environment, both public and private

a) Cost of inputs and mainly electricity with interruptions to supply, affect

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

Page 48
b) Bank loans are difficult to obtain and interest rates are high. Export prices
can be higher by 1-2 USCts per kg, which is sometimes the difference
between a contract or refusal mainly to the bottom level of tea.

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

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

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

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

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

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

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

laboratories/authorities are not available.

g) Insufficient Government support for active participation in international

trade fairs to showcase Nepal tea

h) No central marketing facility, such as an auction to attract sellers and

buyers to one location.

i) No market information system available to give guidance to exporters on

current trends, price movements in other auction centers, changes in
consumption habits etc

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

k) Although bilateral and multilateral trade agreements have been entered

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

l) The bigger international buyers usually wish to base their purchases on “just
in time” deliveries at their doorstep to reduce financial costs and also buy
large consignments. Nepal tea industry does not have the facilities to offer
such large consignment as a central warehousing and blending complex
is not available. On both counts Nepal is at a distinct disadvantage.

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

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

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

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5. Export Services in Nepal

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

5.1 The Government Institutional Supports

Ministry of Agriculture

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

National Tea and Coffee Development Board

The NTCDB assists in promotional work and is willing to provide some funding in the
participation at exhibitions overseas in meeting part financing of the infrastructure
with the participation of the Embassies. It also provides market information by
gathering news in the tea scene globally. In the near future, it hopes to develop a
website incorporating all the information useful to the trade which can be accessed
by all within and outside Nepal. Furthermore, the NTCDB arranges seminars
overseas and workshops to advice and train on tasting and marketing.

Although above programs are set out on paper as programs, no assistance in any of
the areas, as far as the exporters are concerned, has been forthcoming. There is a
perceived lack of commitment and with the absence of sector specific
representatives in key positions, subjects of relevance are not taken up/solved.

The need to put Nepal’s tea image in the global map is very important, at this
juncture, with policy changes in the Indian Darjeerling scenario and rapidly evolving
variations in the consumption habits, with health aspects being a primary reason for
this shift. Unless substantial assistance in the form of finances and committed
participation of the Nepal trade people based overseas is made available by the
Government through the Ministries of Trade, Foreign Affairs, Planning, Tourism and
Agriculture in a coordinated manner with NTCDB playing a pivotal role, this goal will
be difficult to achieve.

Financial constraints have been cited as the drawback for the overseas trade officials
to gather relevant information and report back to reach the trade export sector. There
are over 20 important food fairs overseas held at important consumer countries some
of which are sector specific. At this initial stage there should be aggressive
participation in selected areas with Government’s official backing to give the
necessary credibility.

There is a dearth of trained and experienced people to promote marketing globally. A

promotion division of the NTCDB must be set as a priority and selected young
persons with a marketing academic background should be recruited and given a

Page 50
training in Nepal and overseas, some of whom can be chosen to function as Tea
Promoters/Marketers who can be placed in selected overseas embassies whilst
others can be absorbed by the private exporters.

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

Government assistance by way of subsidized finances to defray part capital outlay,

duty waivers on machinery and vehicles, must be provided to the exporters so that
they are encouraged to invest in sophisticated packaging machinery and suitable
factory premises, conforming to the high standards of ISO 22000, HACCP and all
other parameters that are essential requirements in the food industry.

Trade and Export Promotion Centre

This Government body is tasked with the function of providing support to the
overseas export trade of all Nepal goods. There is no sector specific specialist in
their team who is able to assist in the promotion of tea. In order to contribute more to
this commodity, which now has been identified as a primary export potential item, a
member should be recruited to the staff, with the knowledge, and expertise following
a training program as outlined below, from the same group. The selected person can
be the one who should be given overseas exposure to service the department.

5.2 The Private Agencies and NGOs

Federation of Nepalese Chambers of Commerce and Industries

Trade chambers such as FNCCI are very important as they have the necessary clout
to lobby with the Government and also with Chambers of other countries at a high
level. There should be representation of a sector specific representative in the main
body who can apprise the board of the needs, shortcomings, problems facing the
industry to enable discussions with government. They should also support overseas
participation on tea related matters as well as be actively involved in seeking and
promoting tea as a primary export at all times during their sojourns overseas for trade
promotion. Any leaflets or brochures should try to include articles and latest work
done by them on tea related information.

The Agro Enterprise Center (AEC)

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

Page 51
National Tea Development Alliance

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

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

This agency can be created by strengthening the Department of Food Technology

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

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

The ethical tea partnership alliance created by a group of big packers in EU – 26 in

all, is one of them and the Nepal tea industry should work in close cooperation with
them as the alliance appoints a representative to look into all the aspects they require
to being a supplier to them.

There are other smaller groups in many developed countries, operating in a way that
they are suppliers to shops and outlets having consumers that seek and buy items
produced from poor countries to uplift their living standards.

Nepal Tea Planters Association

This association, started in 1987/8 is concerned with the welfare of producers and
processors, mainly of CTC tea. Their contribution would be to ensure a quality leaf is
supplied to the processors to enable processing a good tea free of pollutants to
assist the exporters to find markets without the difficulties of their contracts being
rejected, thereby building credibility so that long term relationships can be built
beneficial to all stakeholders. They have created a marketing section referred to as
Planters Himalayan Tea Plantations Limited (PLANTEA) and are credited with
introducing the Nepal CTC tea to international markets.

Nepal Tea Association

This body of people involved in production and processing should assist in the same
manner as outlined above for the NTPA.

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Himalayan Organic Tea Planters Association

This was established in 1993 to look after the producers and processors of Nepal
orthodox tea. Currently they have a membership of 22, 11 having gardens only and
4 with gardens and factory. The rest have only a processing facility. In 2003 the
marketing arm under the name of HIMCOOP was created to find export markets. A
code of conduct was drawn up with international assistance with the aim of achieving
the production of a quality tea. This was made official and implementation process
commenced in 2006. A good measure of success has been achieved so far with the
participation and cooperation of NGO’s and INGO’s with donor funding arranged by
USAID and JICA. In 2004 an international event under the style of “ Nepal Tea & the
World” was conducted to make known the commodity to international buyers.

The marketing arm assists the producers in finding buyers overseas and effects
shipments on their behalf for an agreed fee. A drawback they seem to be confronted
with is the inability to offer larger parcels of selected types, as the invoices processed
are small.

There are two aspects that have to be sorted out to meet the requirements
demanded by the buyers:

a) Ensuring that the components of a blend mix as required based on a

standard sample that has been approved by the buyer/s are all of a similar
nature and has no pollutants. The factories have to make certain of
adherence to residue levels, heavy metal, chemical and fungal presence
and ensure either absence or within the accepted parameters specified by
the importing countries;
b) The facilities are available for the blend mix to be done to ensure proper
mixing under hygienically accepted conditions in premises that have the
ISO/HACCP systems in place.

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

Point (2) of establishing a facility will require financial assistance and subsidies or
duty waivers from Government. Financial aid from donor agencies is also a possibility
in order to defray some of the expenses.

Besides, there are Mechi Hill Tea Producers Association, Illam and Himalayan Tea
Producers Cooperative Ltd, both addressing the issues of orthodox tea only.

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6. Recommendations and Action Plan

6.1 Recommendations for farmers, producers and exporters

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

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

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

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

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

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

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

e) Quality Controls: Whilst the farmers should ensure that their pluckers follow
the practice of selective plucking, the factories should be very strict in their
controls of leaf intake to reject all unsuitable and damaged leaf at factory
door.

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

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

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

h) Health Hazards: Some factories and packaging plants are unsuitable for tea
processing and are a health hazard. A scheme must be evolved by the
NTCDB to register all tea farmers, packers/blenders and processors, however
small their operation. Regular inspections of their premises should be

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

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

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

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

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

k) The traditional plywood chests, which were discarded from use some time
ago, are still being used for exports into India. These items are imported and
re-exported. Duty concessions should be available for such transactions. As it
is not an environmentally friendly form of packaging material, its use should
be discouraged and the use of rigid paper sack should be promoted.

l) The made tea is packed into PE/PP bags and are stored till they are ready for
use. This form of packaging, particularly in the Terai areas where
temperatures and humidity can be very high will speed up the deterioration of
the product. In such instances dispatch of the made, packed and ready
product to more suitable storage facilities should be done without delays.

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

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

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

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

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

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

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

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

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

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

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

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

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

t) Research and Training: Like all other areas of the industry this too lags
behind. Research has been generally neglected. Due to the vicinity of India
and easy access, progress at field level and development of new plant
varieties, usage of inputs, and technology have all been directly or indirectly
brought into Nepal. All the machinery is of Indian origin except those in the
older factories some of which are from UK. Therefore the tea
produced/processed bear a very close similarity to the Indian Darjeerlings and
CTC’s.

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

There is a need to establish a tea training centre or tea school to develop

human resources required for the tea sector.

6.2 Recommendations for the business environment

a) Business Environment and Export Services: With the privatization of the

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

Page 57
 assistance from the Government must be treated as priority. The industry
must be willing to contribute their share to the common cause, as it has been
handed over to them to develop the industry. Therefore it is essential that
their attitude towards the Government authorities and statutory bodies change
and work in a combined manner in a cohesive way so that all stakeholders
become willing partners to get moving forward. It is also essential that a
scheme should be drawn to bring in finances by way of a Cess payment,
membership payment, contribution towards advertising and promotion etc
from the now private industry to swell the coffers of the NTCDB for their use
in extension, expansion, research, training, information and marketing which
can be developed to benefit all.

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

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

c) Export services at present are lacking and this aspect too has to be drastically
improved not only on the state side but also with the private sector’s
participation.

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

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

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

6.3 Micro-level action plan

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

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The company is able to get export orders for black made tea of both CTC and
orthodox varieties and orders have to be executed under their supervision and
guarantee on quality. They will have to first visit their bank, show the contract and
ascertain as to what export finance facilities they would be given. If they are able to
raise the finances, what interest they will be charged and whether they can cover
themselves with an insurance policy against any risks that may arise due to non-
payment by buyer.

The company has to select two or three reliable factories in both tea-growing areas,
which they have to visit to see to the cleanliness and facilities. They have to ascertain
by interviews that the farmers who provide the green leaf are reliable and have the
know-how to see that their use of agri-inputs are of the correct type, and applications
are done at the post harvest period time. Once they are satisfied, final product and
the quantity that they have contracted will have to be purchased from the factory.
They could negotiate with the factory for a credit period satisfactory to both parties
and take charge of the goods. A representative sample of the goods has to be tasted
by them to see if there are any undesirable characteristics in the leaf and cup quality.
If this is found to be ok, the sample, if required by the buyer, may have to be sent to
the laboratory in another country by courier for testing and obtain a report for residue
levels etc. Cargo vessel will then have to be arranged and the goods will have to
transported by truck with the assistance of a freight forwarder via the border at
Kakabhitta in Birtamore for carriage of cargo from the port of Kolkata to final
destination. Due to the prevailing conditions in the industry, precautions as to the
quality of goods at all levels have to be monitored by the exporter to be certain of the
satisfactory execution of the export order. Execution of the export order will be
difficult due to obtaining finances at high costs from the existing banking system and
inability to cover the export risks. As only one foreign bank and few under
collaborations are operating in Nepal, the banking charges that either the buyer or
exporter has to incur will be high which all add up making the buyer to beat down the
contract price in including all the ancillary costs. The costs cannot be quantified but
the difficulties and risks are evident in the execution of export orders.

6.4 Meso-level action plan

There are many statutory bodies, associations and cooperative groups all working
within the industry. One important aspect is for all of them to come together in a
common forum and decide on a common goal for the betterment of the Nepal Tea
Industry instead of working at tandem to only solve or achieve their own stated
objectives. First would be to present a common front to the highest persons in
government and prove that a strong private sector driven NTCDB, with the correctly
structured directorate with participation from all sectors, will be able to look after the
affairs of the Industry with Government support in specific areas of regulations and
guidance.

Once the apex body is re-organized, the program of action that is already in place
should commence to implement them with adjustments/amendments to suit the
present time and needs of all stakeholders. The national tea policy of 2000, with
appropriate amendments to suit the current scenario, should be pushed through so
that proposals, which are beneficial to the industry, should be addressed and
implemented.

Set up a monitoring unit with experienced professional staff to regularly check on

quality of tea available for export and domestic markets. This can be a unit within an
existing monitoring body.

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Food Fairs are held in many countries. The Fairs of interest to market Nepal tea
should be carefully selected and private sector export companies must be
encouraged and assisted to participate.

It is furthermore essential to select target countries, which have the potential to

absorb Nepal tea, and try to penetrate them. Countries concerned must be visited by
a selected group from Nepal, comprising of small number of delegates mainly of
private sector including a strong but small Government contingent to participate with
support. These visits are to be arranged by the Embassies overseas so that matters
pertaining to tariffs, transport, etc., also can be discussed at Government level.

It is also advised to open outlets with assistance of, and in agreements with,
overseas resident Nepalese, to market tea amongst a variety of indigenous products,
in the ambience of a Nepal Tea Shops. This could be done together with the Ministry
of Tourism and Nepal Airlines.

6.5 Macro-level action plan

At the macro level the Government and the Ministries that overlook the various
aspects of the tea industry should provide the necessary impetus and correct any
shortcomings that would be brought up at the different meetings with different sector
representatives and looked at in a manner that will address the grievances of the
entire industry.

At present the CTC and orthodox sectors look at themselves as being totally different
entities. This does not help a national image-building program. Guidance must be
provided by the state towards the formation of a truly representative private sector
driven NTCDB by reconstituting the board with minimal but important government
position to convey the thinking and decisions to be followed by the industry.

Assistance should be provided and funding sought, with the active participation of the
newly constituted NTCDB and relevant Ministries, to set up a new sector specific
research facility. This facility will need to look at all aspects of the industry from plant
material breeding to market intelligence and new product development.

As a priority, it is essential to improve the laboratory facilities of the Department of

Food Technology and Quality Control to meet the needs of the agriculture sector and
organize it to function as a commercially viable entity.

Trade should be facilitated by establishing two blending, packing and warehousing

facilities in the orthodox and CTC tea areas so that this new private commercial
company can provide the necessary facilities for exporters to use, based on an
agreed fee, in the preparation of their export orders.

It is furthermore recommended that the Government provide duty free entry for
packing material used for export cargo and for inputs necessary for the industry to
expand and develop such as machinery, tools and implements, commercial trucks,
etc.

It is recommended to establish, through the Ministry of Finance, schemes to facilitate

exports with the provision of loans at favourable interest rates, insurance cover for
risks in trade.

Look into making amendments to the customs procedures to minimize delays at the
borders and in Indian territory by negotiating changes to benefit Nepal.

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Through the Ministry of Trade, speed up the implementation of the trade protocols of
the treaties entered on bilateral and multilateral basis with the various countries to
make optimum use of the agreements to promote sales of tea and transit/transport
facilities.

Through the Ministry Foreign Affairs, either appoint special trade people with some
training in the sales and marketing of tea and place them in key consumer countries
or provide a short term training to the existing trade counsellors in commodity
marketing with emphasis on tea to enable them to give a feed back of market, buyers
contacts and other information to filter down to the exporters.

Make full use of the tourist potential of the country through the Ministry of Tourism to
promote the Nepal Tea logo, brand and image.

6.6 Prioritization of action plan – If we have a million …

1) Strengthening of the Nepal Tea and Coffee Development Board

There is a regional station in Bhadrapur and 2 main stations in Jhapa and Fikkel.
There are further smaller extension offices in these areas. Their work programme in
terms of training and extension work cannot be carried out satisfactorily due to lack of
infrastructure and facilities.

Necessary inputs Estimate of costs8

- Suitable equipment used for conducting of presentations such as
US$ 300
Portable magi boards and ancillary items
- Basic laboratory equipment to test soil composition and a
US$ 1,000
microscope
- Training program for 4 technical officers in a University or Food
Technology Laboratory for one month on basic tests suitable for US$ 1,500
plants and specifically to tea
- Conducting of monthly workshops in the specific area in both CTC
US$ 1,000
and Orthodox areas on field techniques and plucking standards.
- Providing motorcycles, one each to the regional office and 2 main
US$ 2,300
stations
- Equipping the regional office with a printing machine (Roneo
duplicating type) for printing of the monthly leaflet with relevant US$ 1,000
updated information to the farmers
- Arranging a 15 minute slot in the Radio station specifically
designed to the tea sector covering a wide range from field to
US$ 13,000
market information to be aired monthly to reach farmers and all
interested parties.
Total costs initial involvement US$ 19,100
Total annual costs US$ 26,600
Initial + 3 years operational Grand Total US$ 45,700

Above needs to be addressed immediately as a priority.

2) Equipping the Food Technology and Quality Control Laboratory

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

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

Estimate of costs
- Approximate estimated cost of equipping laboratory with 2 nos GC,
1 no each GCMS, Graphite Furnace, Atomic Absorption US$ 500,000
Photometer, and items for Microbiological testing
- Laboratory chemicals for 2 years US$ 100.000
- Local training program fore 25 science recruits US$ 150,000
- Training program for 2 overseas for 3 months US$ 40,000
- Staff salaries for 1 year US$ 70,000
- Maintenance & services for 2 years US$ 15,000
Initial investment & 2 years operational cost US$ 875,000

Assistance in setting up of such a laboratory will benefit the entire agricultural export
sector including the five identified commodities for development in Nepal. Such a
well-equipped laboratory should be assisted by the international agencies to gain
accreditation by world bodies. Financial assistance should be made available by
donor/s to meet the operational costs of the facility for one year till they can get fully
independent and commercially viable.

Such a facility should be able to offer their services to the entire agri-export sector,
on a commercially viable basis by conducting tests and issuance of reports to an
estimated 100 requests per month at an average of US$ 100 per certificate and be
able to generate an income of about US$ 120,000 per annum.

In addition, such a facility will be beneficial for research work by Universities,

Agriculture Institutions, etc. It is likely that the potential users in close proximity such
as India, Bangladesh and other neighbours may also make use of the laboratory.

Although the cost is high for one party to bear, a suitable section of above can be
selected to assist or work in combination with one or more other donors to have a
completed facility. This is a requirement for the country and should be done on a
two-year program commencing soon.

3) Setting up a bulk blending plant for orthodox tea

In order to meet the requirements of overseas buyers who are in need of quantities in
excess of the normal invoices, a facility has to be provided where several invoices of
varying small quantities of a similar appearance and cup quality can be mixed or
blended together to give a composite bulk conforming to a standard sample that has
been accepted by an overseas buyer/s as being suitable for their needs. Many
buyers request for such bigger volumes to feed their packing machines and the
shipment has to comply with the density, leaf size as well as a standard cup quality to
ensure that all batches thus prepared are similar every time deliveries are made.

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One of the setbacks observed is that no two batches of the same grade seem to be
similar in leaf or cup quality.

Whilst the processing at the factories will have to improve to ensure invoices of the
same grade are very close to each other, the blending plant is to be constructed and
machinery installed so that the premises and systems introduced will conform to the
internationally accepted ISO 22000 and HACCP standards. This plant is to be set up
and operated with the marketing arm of the cooperative of the tea associations.

Capital outlay for plant: Estimate of costs

- Floor area for blending and office area for administration
US$ 50,000
- = 400 + 100 Sq M
- Conveyor Belts Roller and Belt type US$ 2,500
- Blending Drum of Capacity 6 MT US$ 40,000
- Vibrator and Packing Equipment US$ 3,750
Total US$ 96,250

Operational expenses for one year:

- Staff (Manager, Supervisor + 2 assistant Supervisors) salaries per
US$ 4,800
annum
- Labour on contract basis – 10 workers X 20 days X 8 months US$ 4,000
- Electricity/water and services US$ 5,000
Total US$ 13,800

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

The exporter who uses this facility will have to ensure:

a) Blend components are of good quality and uniform

b) All packing material to be supplied
c) Transport to and from to be undertaken by them
d) Nominate a person of theirs or a survey company, if required to be present
during operations.

Training for staff: The staff that is put in charge of blending will have to be trained in
their respective fields, including grading and tasting to familiarize them with the
commodity. A two weeks training in a similar facility in India will be satisfactory. This
would cost approximately US$ 750.

This project too should be undertaken soon and completed within a period of 6-8
months.

4) Packing plant for value addition of CTC tea

This facility must be made available to both the CTC and Orthodox sectors as they
both represent the Nepal Tea Industry. This facility is to be managed by the
marketing division of Nepal Tea Planters Association PLANTEA. This would enable
the value addition at origin as well as afford the opportunities to exporters to develop
their own brand for international markets using the Nepal Tea logo as a quality
standard. The value addition will be in excess of 200% for a kilogram of tea.

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CTC packing plant

Capital outlay for plant: Estimate of costs

- Building including office 400 sq m US$ 40,000
- Conveyor roller and belt systems US$ 2,500
- High Speed double chambered string & tag bagging machine with
US$ 75,000
envelope making attachment 400 bags/minute
- Equipment for packing section US$ 4,500
- Training of technician at manufacturer’s factory US$ 6,000
Total US$ 128,000

Operational expenses

Basis for calculation:

- 480 kgs per 8 hrs shift working to process 3,000 kgs of tea packed into 2g
size of teabags packed into inner boxes and outer master cartons.
- 6 working days to prepare 1 x 20 ft fcl
- 4 X 20 ft fcl’s per month and 48 fcl’s per year.
- Usually such packing plants work two shifts and sometimes all 3 shifts in rush
times. For our basic calculation purposes one 8 hr shift day is taken.

Estimate of costs
- Cost of filter paper and string US$ 53,000
- Cost of cellophane + adhesive tape US$ 100
- Cost of electricity and other services US$ 18,000
- Staff (1 no ea manager + technician + supervisor + 5 nos packing
US$ 7,325
staff)
Total US$ 78,425

Income

Basis for calculation:

- Cost of preparation of string & tag only bags @ USC 0.0030 per bag X 500:
US$ 1.50 per kg
- Cost of preparation of string & tag with envelope at USCts 0.0040 per bag X
500: US$ 2.00 per kg

Based on 70% with string & tag only and 30% with string & tag with envelope over-
wrap, the income would amount to:

- 70% of per annum quantity of 144,000 kgs working single shift for 12 months
=100,800 kgs X US$ 1.50 per kg: US$ 151,200
- 30% quantity = 43200 kgs packed into 2g bags with string & tag with envelop
over-wrap @ 0.004 per bag X 500 = US$ 2.00 per kg: US$ 86,400/-

Total yearly income generated: US$ 237,600

The exporter must supply:

a) required standard of tea

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

Page 64
Financial support for the capital outlay and one years operation should be provided to
set the facility and their operation going. Again, this project needs early attention if
export earnings are to be increased.

5) Packing plant for value addition for orthodox tea

Similar to the packing plant outlined in (4) above for the CTC teas, a facility for value
addition must be set up as an incentive for the orthodox export companies to seek
orders from overseas buyer who will require value addition into teabags of a special
kind, preserving the big leaf size to be processed in Nepal under conditions
acceptable to them in premises that comply to ISO 22000 and HACCP standards.
The added value will be in excess of 300%.

Capital outlay Estimate of costs

- Building premises with office – 300 sq m US$ 30,000
- Conveyor system roller and belt types US$ 2,500
- Pyramid bagging machine with attachments US$ 180,000
- Equipment for packing section US$ 4,500
- Training of technician US$ 6,000
Total US$ 223,000

Operational expenses

Basis for calculation:

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

Estimate of costs
- Cost of filter paper and string US$ 40,000
- Cost of cellophane and adhesive tape US$ 150
- Cost of electricity and other services US$ 14,000
- Staff of 1 ea manager + technician + supervisor + 5 nos packing
US$ 5,000
staff
Total US$ 59,150

Income; based on preparation of 34,560 kgs per 8 month season of pyramid tea
bags preserving the flavor, packed using see-through material to display leaf, @
.0.0050 usc per bag X 2.0 g per bag = US$ 2.50 /kg

Total yearly income generated: 34,560 kgs per annum: US$ 86,400.

The exporter must supply:

a) required standard of tea

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

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

Page 65
6) Setting up of a full-fledged sector specific research station and training
school

Although the targets have still not been achieved according to the tea policy of 2000,
the program was to increase land area to 40,875 ha and employment in the sector to
79,310 persons. The Government has ambitious plans for the tea industry and the
need for a fully-fledged Tea Research Station and a Tea Training Centre or Tea
School will be a necessity for the future. This would be a new venture, which would
incur a very high cost. An area in a tea-growing district such as Dhankuta would be
very appropriate for this purpose.

The Pakribas Agriculture Centre (PAC) under NARC (Nepal Agriculture Research
Council) is already undertaking some very basic research works on tea. It already
has most of the infrastructures required like one or more large buildings to house the
various divisions associated with such research, residential quarters for the various
grades of staff, different laboratories and staff for Agronomy, Physiology, Pathology,
Chemistry, Extension Services, Nursery development and Botany and other physical
facilities. This Centre could be strengthened with additional staff and devoting full
time on tea research and extension activities in collaboration with NTCDB.

A Tea Training Centre or Tea School could be established at Dhankuta by utilising

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

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

7) Establishing an information system for the tea industry.

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

a) Field information of plant types, areas under cultivation, yields and such
detailed statistical information.
b) All types of information required to the farmers such as clones, seed stock
varieties, their usefulness, which areas are best suited etc. A scientific
information base.
c) Information regarding uses of agricultural inputs, approved lists, banned
items, and results of work done in this aspect.
d) Details of correct processing, new developments in machinery and
methods. Packing requirements in different countries, new types of
packaging.
e) Financial news for all concerned with focus on exporters on insurance risk
covers in the event of defaults, facilities available globally for export
assistance.

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f) Full details of overseas buyers in various countries with addresses and
contact details to enable exporters to access and get into direct contact.
g) Incorporate the details of Nepali exporters for an annual fee on the site.

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

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

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

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

Programme for Information System

Event/Medium Contents Units p/a Frequency Est Cost

Promotional/educational Policies, logo, marketing, 02 bi-annual US$ 3,500
seminars at national level currenet position
Educational workshops at Policies/technical 03 every 4 US$ 3,500
district level information, production, months
processing
Education workshops at Policies, technical and 05 once every US$ 2,000
commune level practical information, 2 months
production and
processing
Training programs at field Technical and practical 12 monthly US$ 3,500
and workshops information on production
and processing
District competitions GAP, GMP, CoC, 02 bi-annually US$ 1,000
selection of best
nurseries, fields, factories
and extension services
National competition and Recognize winners of 01 annually US$ 4,000
award ceremony production, processing,
marketing, exports, value
addition, and special
contributions to the
industry
Technical manual Scientific and practical 30,000 sold at US$ 33,000
approximate 200 pages information, on subsidized
production, processing, rate
nursery management,
Handbooks Illustrated information on 50,000 sold at US$ 22,000
production, processing, subsidized
nursery practices rates
Leaflets Simplified, illustrated 50,000 distributed US$ 4,000
information on a few free by

Page 67
 aspects of tea industry at hand/post
a time
Posters/Calendars Illustrated with tea news 30,000 free US$ 3,000
distribution
Newsletters Information on current 30,000 monthly US$ 3,000
trends, developments, distributed
market information by
hand/post
Bulletins Global market trends, 1,000 free US$ 1,000
current affairs, new distribution
developments
Radio Farmer outreach 12 monthly US$ 12,000
programs, with monthly
competitions of practical
value
Television Farmer/factory outreach 12 monthly US$ 25,000
program, Exporters
Website through internet A complete set of relevant accessible daily US$ 15,000
data on industry, nationally updates
statistics, current market and at
information, prices etc districts

6.7 Conclusion

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

Page 68
Annex I: Timetable of Meetings and Activities:

The following activities were carried out between 16/06/2007 to 31/07/2007

Date and Time Activity Justification
th
June 16 -1600 hrs Arrive Kathmandu – Meeting with Chief Officer – Introduction and background
Bimal Nepal and Officiating Executive Director – information on Nepal Tea Industry
Narayan Prasad Shrestha and work schedule
th
June 17 - 1030 hrs Meeting with Executive Director – Binoy Kumar Gather preliminary information and
Mishra of the Nepal Tea and Coffee Development discuss the program of activity and
Board together with Ishu Shrestha –acting Regional the tea policy 2000
Chief /Tea Expert. Activities, future programs and
funding
June 17 -1500 hrs Meeting with HOTPA/HIMCOOP Ascertain information on the
Representative body of the orthodox tea producers orthodox tea production, processing
and their marketing cooperative and exports, Bottlenecks, MRL
Present: problems, Blending plant, value
U K Chapgain- Chairman addition, brand image
K M Mainali –Board
B P Neupane
S K Rai
Nirota –Farmers rep
Gyendra Gurung _ M M
th
June 18 - 1400 hrs Dept of Food Technology and Quality Control Current work, State of Laboratory,
U K Bhattari – Executive Director need for improvement, limitations in
J P Lama – Deputy Director conducting tests and research. Need
for donor funding.
th
June 18 -1630 hrs Tea and Coffee Department of the Ministry of Work related to Tea, Nursery
Agriculture development, and training of farmers
D K Saraf –CEO under the Tea Commercial
Surendra Rijal Development Program,
June 19 - 1100 hrs Dr Ramesh Munankami –National Expert of ITC Discussions on data obtained.
Rescheduling of the activity program
due to unexpected unrest in planting
areas
th
June 20 -1130 hrs Meeting with Jhapa Chamber of Commerce and Activities and problems relating to
Industries CTC tea farmers, factories and
R Gimre – President and about 15 representatives exporters.
from the small, medium and large farmer and
factory associations.
th
June 20 -1300 hrs Nepal Tea Planters Association Problems of farmers, pesticide levels,
B Shrestha Need for research work, shipping
O Sarawagi difficulties at border, availability of
D Towdel finances
H Patel
S Rijal –Chamber of Industries Morang
th
June 20 -1500 hrs Visit to 2 new and one old CTC factories and a Observation of premises, cleanliness,
blending and packing plant. Tasting of samples. machinery, work in progress, product
G P Pokharel- Director – Danfey Tea Processing quality and ethics.
Company
A Parajuli – Director –Parajuli Tea Industries
st
June 21 -0830 hrs Visiting 03 farmers and observing their field Inspect bushes to gather information
practices including plucking. of their population, insect, pest,
fungal, and other root diseases and
controls. Usage pattern of inputs.
Financial difficulties, transport of
green leaf
st
June 21 -1030 hrs Buttabari Tea Processing Factory – K Giri – Adherence to HACCP standards and
Managing Director ensuring the product is within the
Observe the work in progress at factory which is accepted parameters of MRL. How
HACCP certified. green leaf inyake is controlled.
Export orders and pricing. Tasted
samples.
st
June 21 -1200 hrs Food Quarantine Office – Kakarbhitta Discuss shipment routes, delays, the
K Dhittal – Food Research Officer laboratory was inspected and work
conducted at this border area
discussed.
st
June 21 -1300 hrs Plant Quarantine Office – Kakkabhitta – Discussed the shortcomings in their
S D Mainali – Plant Quarantine Officer division, work being done on various
Inspected laboratory and observed work done agricultural export products.
st
June 21 -1430 hrs Tokla Tea Estate and Factory of the National Tea Working of the privately managed
Development Corporation in Jhapa. entity which was earlier under state
Manager and Senior Factory Staff ownership. Technical expertise from

Page 69
 India .Work in progress. Labor
problems, marketing
st
June 21 -1600 hrs Small Tea Growers Association -Jhapa Setbacks and problems faced by
M Kharel small tea growers. Difficulty in access
C Jhapa to finances. Green leaf prices low
M P Regmi and not related to market of a
formula. Factories taking 06 months
to pay.
nd
June 22 930 hrs NTCDB –Tea Extension Program Office in Fikkel. Observed the workings and studied
05 demonstration plots maintained. Different the extensions work being done
varieties of clones and seed stocks. Mother bushes. within very limited facilities and
Execute field programs. Diseases encountered in finances. Leaflets distributed.
the area and controls Seminars and field advice
conducted.
nd
June 22 -1000 hrs Nepal Small Tea Producers Factory To observe the activities and controls
D Rai – Chairman in a cooperative establishment. Very
P Rai – Manager strict controls on cleanliness and leaf
In the process of obtaining HACCP certification. intake. Tasted their full range of teas.
Manufacture tea product by separating the leaf from
COC and non COC farmers to control MRL levels.
Have had problems on this earlier. Markets to
Germany
nd
June 22 -1200 hrs Himalayan Shangrila Tea Producers (P) Ltd Factory Observed processing procedure,
Member HOTPA and HIMCOOP tasted their full range of products,
K R Mainali- Director
150MT capacity but under utilized
nd
June 22 -1300 hrs Winrock/SNV project for Training of Technical Work on the farmer trainer program
people to advise Farmer groups under the Tea and continuation of this work once
Services Development Sector by “Agritec” – A the above project is completed in
Dutch INGO. December. Inspected their laboratory
A T Tamang –Advisor Bio Development and F to conduct basic soil tests.
Sharma
nd
June 22 - 1400 Visit to a Private Trader for agricultural inputs To observe how the private trade and
hrs .Provides technical advice and distributes leaflets farmer community develop a
on usage instructions. Also on Bio- Fertilizer relationship in getting good quality
inputs
nd
June 22 -1600 hrs Visit to a tea field of 07 ha tended to by an Discuss the commencement of his
experienced farmer in the area. He also operated a farm, the assistance he has obtained
small factory turning out hand made tea of about 10 from the extension services,
kgs per days sold in the local market. marketing and interaction with the
M N Lapcha of Ilam. private traders .His premises also is
a green leaf collection center for a
factory and observed the transaction
and leaf selection.
rd
June 23 -0930 hrs Ilam Chamber of Commerce and Industry Collect information regarding the
st
T P Baidya –1 VP problems of the farmer community.
P Siwakoti –President District Tea Producers The difficulties faced with factories .
Association The Indian stoppage of leaf
P Gyamar –Head of Tea Extension Project –Mangal movement across border compelling
Bare them to sell very low or destroy leaf.
R Shah-Ilam Municipal Council The lack of processing capacity and
B Shrestha- Ilam Chamber need for new factories.
D Sigu- Head of Tea Extension Office - Jasbire
rd
June 23 -1500 hrs Kanyam Tea Factory This company operates 3 out of 4
PP Dhakal – Manager factories (1 non functional) 2 CTC
N Chhetri –Dep Manager and 1 orthodox. Not running at
Processor of orthodox tea tasted full range of capacity. Adopt strict control methods
grades and invoices prepared that day and before. to ensure MRL within accepted
Leaf control methods adopted parameters. Work with COC farmers
and supervise their activities.
rd
June 23 -1700 hrs Regional Office of NTCDB in Bhadrapur Discussed the overall activities
Ishu Shrestra – Chief Regional Officer covered by them. Collection of data
Overlook work in the regional office and substations to feed head office. Distribution of
in Ilam (3), Panchthar (2), and 1 each in Terathum, instructions and information on field
Dhankuta and Jhapa. practices to farmers. Encourage the
work of the “Agro Import Association’
–the only one in Nepal based in
Jhapa to help farmers in obtaining
good quality inputs
th
June 25 -1000 hrs Nepal Tea House Observed the full range of retail sales
K J Mainali – Director- Sales and Marketing products available at this exclusive
tea shop.
th
June 25 -1100 hrs Visited a large supermarket and interviewed the Observed the pricing structure, sales
manager regarding their tea displayed on the shelf, in progress. Imported and high priced

Page 70
 pricing and movement of goods. special Nepal orthodox tea not
selling fast now due to dearth of
foreigners who are the main buyers.
th -
June 26 0930 hrs Meeting with private exporter Discussed the problems in the
A Agrawal- industry, lack of government support,
President-Nepal Tea Association participation in trade fairs and
CEO –Shakun Tea Industries promotional work, Financial support,
cost of finance, shipping difficulties
th
June 26 -1100 hrs Agro Enterprise center Discussed the current situation,
Dr D Shakya – Executive Director future programs for Research and
K R Pandey – Director- Agri-business Policy Development. The need for a sector
specific research Station
th
June 26 -1200 hrs Ministry of Agriculture and cooperatives Discussed macro level policies of the
S K Verma – Joint Secretary government . Work being done with
M Karki- Senior Agriculture Economist – Chief of international agencies Apprised them
Foreign Aid Coordination Section- Planning Division of the drawbacks facing the industry
S K Adhikary – Agriculture economist - as observed during the filed visits
and interviews. Discussed World
Bank project on Agricultural
Commercialization and Trade now in
the pipeline.
th
June 26 -1400 hrs National Cooperative Federation of Nepal Discussed the historical development
Member of the International Cooperation Alliance in of the industry and current problems.
Geneva Reasons for the formation of
D P Baskota – Executive Chairman and former HIMCOOP under HOTPA. The tea
State Minister for Home Affiars. policy of 2000 and future
Owner of Khanchanjanga Tea Estate which is development program.
certified for organic tea under USDP/JAS/Fair Trade
th
June 26 -1600 hrs Interview with WINROCK International –an INGO Discussed current work. The need for
C B Subba – Team leader- Global Development all tea growing countries to reach a
Alliance (TCDGA-SMIG) consensus on how to approach and
Working actively in the industry pushing the concept develop a common program to
of CoC and it’s implementation to gain global achieve the improvement ion quality
recognition of a good brand image for Nepal tea. as expected in the international
markets in the future.
th
June 26 -1800 hrs Leave Kathmandu to Sri Lanka
th
June 29 -1000 hrs Visit SGS Office and Laboratory in Colombo to To ascertain information on the types
obtain information on the equipment available and of equipment needed to operate a
the ability to provide the necessary reports on tests laboratory to meet the requirements
conducted for agricultural export products from Sri as set down by international food
Lanka with particular emphasis on tea which is their quality standards.
main user. Inspected the laboratory with their full
range of equipment and their plans to expand to
meet the anticipated future requirements. Staff of 32
qualified and trained scientists and technicians who
are highly skilled
nd
July 2 -0900 to Meet with Sri Lanka Tea Board, Tea Association of To be updated on the Sri Lanka tea
1200 hrs Sri Lanka and the Ceylon Chamber of Commerce industry and current developments
th th
July 5 to 30 July Analysis of data collected. Report Writing

Page 71
Annex II: geographical distribution of tea cultivation

Page 72
Annex III: Potential grade-wise export markets for Nepal Tea

Grade preferences
Kg CTC
Total Per SFTG TGF GF F GF G F G CTC CTC BP CTC
Country Consump Capita FOP OP OP OP BOP BOP BOP OF Dust BOP 1 PF1
Uzbekistan 2000 MT 1.25 X X X
Azerbaijan 10000 1.4 X X
Kazakhstan 22000 1.46 X X
Krygistan 4200 0.86
Turkey 180000 2.86
Russia 180000 1.06 X X X X
Ukraine 20000 0.4
Belarus 8000 0.8
Moldova 1500 0.4 X X X X X
Latvia 1400 0.5 X X X
Estonia 600 0.4 X X X
Lithuania 1600 0.4 X X X
Syria 29000 1
Iran 100000 1.8 X X
Jordan 14800 2.5

UAE 50000 11.4 X X

Saudi 15000 0.6

Gt Britain 128000 2.1 X X X X X X X X

Kuwait 5000 1.8

Libya 18000 2.9

Iraq 50000 1.7

Yemen 10400 0.5 X X

Egypt 77000 1.0 X X
Pakistan 140000 0.9 X X X
Tunisia 9300 0.9

India 757000 0.6 X X X X X X X X X X X X

Afghanistan 35000 1.3 X X X X
Holland 7500 0.5 X X X X X
Europe 82000 X X X X X X
Germany 21000 0.3 X X X X X X X X
Australia 13500 0.6 X
N Zealand 4000 1.0 X
Chile 20100 1.2 X
Israel 3000 0.4 X X X
Kenya 10600 0.3 X X
USA 100000 0.3 X X X X X X X X
France 14055 0.2 X X X
Finland 1322 0.2 X X X
Lebanon 1800 0.4

Sri Lanka 28000 1.5 X X X X X

Malaysia 14940 0.5

Czech Rep 2450 0.2 X X X X X

Singapore 860 0.2 X X X
China 651000 0.0

Poland 31000 0.8 X X X

Hong Kong 9740 1.4

Austria 1360 0.2 X X X X

Portugal 650 0.1 X X X

Page 73
Belgium 2150 0.2 X X X
Canada 18000 0.5 X X X X X X
Japan 150000 1.2 X X X X
X X

Note 1:¨ Quantities shown against UAE, Netherlands and Hong Kong include re-exports
Note 2: Refer to page19 under leaf grade nomenclature for descriptive details of grades.

Page 74
Annex IV: List of contacts in main two potential markets
Pakistan
Bantuwalla (P) Ltd-.
Mr Haji Abdul Razak
International Tea Traders
Mr H Saeed Khawaja
Mr Rafiq Kudia
Abdul Sattar Shakoor Kudia
Mr faiz Mohomed Khan,
Faiz Mohd Khan & Co
Mr Saleem Pervaiz,
Abdul Rehman Peracha & Co
Mr Idrees Janoo
Idrees Corporation
Mr Abdul Basit Razak,
A B Corporation
Mr Ghaffar Usman,
A G Usman & Co
Mr Abdul Jabbar,
A Jabbar Traders
Mr Quayyum Peracha
A Quayyum & Sons
Mr Iqbal Kakhu,
Abbas Tea Traders
Mr A Mannan Peracha,
Abdul Mannan Peracha & Co
Mr A Rehman Peracha,
Abdul Rehman Peracha & Co,
Mr Zahid Samad Peracha
Abdul Samad & Sons
Mr Ali Akber
Mr Ali Mohomed Peracha
Germany
Mr Kolthoff
J Bunting Teehandelhaus
GmBH & Co
Mr H O Grelk
Castle Tea Co GmBH
Mr R Krapf ***
Alois Dallmeyer KG
Mr D Reinecke
Douwe Egberts Agio
M Schmidt ***
J Eilles & Co
Mr A Gschwendner, ***
Der Tee Laarden Gebr
Geschwendner
Address
MR 5/136,Thani Lane, Virji
Street, Jodia Bazaar Karachi
74000
Flat ½, MR 1/34, Ist Floor,
Haribhai Paragjee Bldg
Jodia Bazaar, Karachi
Thanai lane, Virje Street,
Jodia Bazaar, Karachi
7/12, Aisha Noor Mohd Bldg,
Jodia Bazaar, Karachi
1st Floor, Saya Bldg
Mohd ferz Str
Jodia bazaar, Karachi
MR 5/136, Thanai Lane, Jodia
Bazaar, Karachi
MR 6/19, Selani Chambers
M Feroze Street, Jodia Bazaar,
Karachi
3rd Floor, Noorani Center,
Adamjee Road, Karachi
Shop no 09, Dada Mansion,
Virjee Street,
Jodia Bazaar, Karachi
MR 6/26, M Feroze Street, Jodia
Bazaar, Karachi.
7/12, Aisha Noor Mohd Bldg,
Jodia Bazaar, Karachi
MR 6/40, Mohd Feroze Street,
Jodia Bazaar, Karachi
22, F 11, 5th Gizri Street,
Gizri Avenue, D H A,
Karachi
Sharif Manzil,
AA Rahman Street,
Jodia Bazaar, Karachi
Brunnenstr, 37,
26789. Leer
Brandstocken 16
22549, Hamburg
AschauerStr 18,
80331, Munchen
Zurn Schurmannsgraben 24
47411, Moers
Rudolf Diesel-Ring 21
82054, Sauerlach b, Munchen
Heidstr 26, 53340, Meckheim
Page 75
Tel/Fax Nos
Tel:244223,244262,
Fax: 2426656,4945644
EM: bpl@cyber.net.pk
Tel: 2432411/2
Fax: 2419501
EM: hashem@cyber.net.pk
Tel: 2442025/2442077
Fax: 2410971
EM: ababil@cyber.net.pk
Tel: 2412453
Tel 2417996
Tel: 2442655, 2430874
Fax: 2415747
Tel: 2442235,2442262
2426656
2411010,2436552
Tel: 2413952
Tel: 2411083,2413442
EM: map@cyber.net.pk
Tel: 2441979,2414939
Tel: 2417230,2414876
Tel: 2417996,2417319
Tel: 2418653,2417546
EM: assons@digicon.net.pk
Tel; 5820909,5874757
Tel: 21411956,2436301
Tel/fax: 0491-80-80
808-109
Tel/Fax: 040-8078790,80787915
Tel: 089-21350,
Fax: 2135167
Tel/Fax: 02841-18030
180359
Tel/Fax: 081 048050, 80540
Tel/Fax: 0225-921422,921420
Mr D Scheffler Pickhuben 9, Tel/Fax: 040-361430,36143245
Haelson & Lyon GmBH 20457,Hamburg
Mr R Roth, *** Neuer Wall 10, 20354, Tel/Fax: 040-343680,346833
Haus des Ostens Fr Niebuhr Hamburg
Mr Michelssen Langstrasse 68, Tel/Fax: 0421-171500,171270
WB Michelssen & Co 28195, Bremen
Mr F J Grenzebach, **** 82549,Konigsdorf Tel/Fax: 08179-5368,8211
Nur Nature Stillen-
Mooseeuracher
Mr H Michelssen Arn Bauhof, 13-15, Tel/Fax: 04105-5040,504499
Ostifriesische Teegesselshaft 21218, Seevetal
Laurens Spethmann
Mr C Moll Holtzbachstr 2 Tel/Fax: 0821-501030,5010320
Quieta-Werke GmBH 86012, Ausburg
Mr H Scheibler Trotskbrucke 4 Tel/Fax: 040-365447,362886
J Fr Scheibler & Co 20457, Hamburg

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

Page 76
Annex V: Flow chart

Page 77
Annex VI: Guidelines for good leaf standards and processing

Leaf Quality Result

Poor Leaf Uneven wither
Coarse leaf Low dhool outturn
Bad leaf Dull infusion, low liquor, poor leaf appearance

Stage Contaminant Prevention

Withering Smoke Load leaf without switching
on fan
Full height chimney
discharging smoke above
roof eaves
Sand Withered leaf sifter
Microbial Prevent birds/insects from
entering chamber
Rollers Iron filings Stainless steel breaker
chutes
Microbial Daily cleaning of rollers
Prevent dhools from falling to
ground
Chemical/oil contaminants Steam cleaning machinery
Wash & dry floor
Gearbox maintenance
Avoid processing soon after
repairs
Fermentation Microbial Prevent dhools from falling to
floor
Sand Clean & dry surface
thoroughly
Use tables/racks
Avoid spreading on floor
Chemical taints If chemicals used, wash
thoroughly with clean water
Drying Smoke Regular checks for leaks on
furnace
Avoid stacking of coal &
firewood close to furnace
Controls Ensure temp gauges are in
good order
Grading Sand Use clean unbroken tiled
floor
Iron filings Packing machines are in
good order
Use headgear to cover head
Packing Contaminants Use clean, unbroken tiled
floor and headgear
Workers to be trained to pick
out any extraneous matter
from the made tea
Source: Extracted from benchmark study conducted by Sri Lanka tea Board.

Page 78
Annex VII: Composition of a typical tea beverage

Black Tea Green Tea

Chemicals Percentage Percentage

Total Polyphenols 40%
Catechins 9.8 30.5
Theaflavins 4.8 4.8
Simple polyphenols 3.9 2.6
Flavanoids 1.6 2.1
Other polyphenols incl thearubigins 26.4 6.1
Amino Acids
Theanine 3.7 3.8
Other amino acids 3.7 3.8
Proteins/Peptides 7.8 7.8
Organic Acid 2.1 2.1
Carbohydrates
Sugars 7.6 7.5
Other carbohydrates 4.8 4.8
Lipids 3.9 3.9
Methyl Xanthins
Caffeine 3.8 3.8
Other methyl xanthins 0.9 0.9
Minerals
Potassium 5.8 5.8
Sodium .01 .01
Other minerals 5.9 5.9
Volotile aroma compounds trace Trace
Source: Sri Lanka Tea Research Institute

Leaf and liquor properties of tea used as basis for valuation by tea tasters /
buyers
Black Orthodox Leaf Tea CTC Tea
Leaf properties Percentage Percentage
Dry leaf appearance 33% 9%
Dry leaf grade 19% 13%
Dry leaf colour 24% 8%
Total leaf 76% 30%
Infusion particle size 1% 3%
Infusion colour 9% 5%
Liquor colour 9% 12%
Liquor strength 5% 24%
Liquor brightness 8%
Liquor briskness 10%
Liquor flavour 8%
Total liquor 24% 70%
Source: Extracts form tea evaluation manuals and brokers/buyers

Page 79