Tea culture under cost pressure

Sipping tea at their regular roadside chaikhanas, consumers love to complain about the ongoing sugar crisis. Little do they know, however, that their favourite hangout will end being a costly habit soon, as international tea prices are expected to soar due to falling production levels in major tea producing countries.
With 7 percent decrease in production, tea prices have already jumped by 16 percent so far this year - a trend that began last year when global tea consumption sharply outpaced its supply. According to FAO estimates, tea consumption grew by 5.1 percent world-wide but production managed to rise only 2.1 percent in year 2008. Continuing with this trend, tea prices are expected to increase by more than 20 percent next year as world tea output is seen falling by 10 percent owing to drought in India, Sri Lanka and Kenya, which account for half of world tea exports.
As a consequence, tea consumers in Pakistan will face a major brunt, as the country is worlds third largest tea importer relying entirely on overseas leaves. And considering that domestic consumers are quite literally addicted to tea, the countrys tea import bill, albeit small, isn likely to taper off because of rising price.
On an average, Pakistans tea import bill stands at $200 million, which reflects only 55 percent of total tea bill, while the other 45 percent, according to Pakistan Tea Association, is smuggled in. Here, the worrisome part is that higher prices would shift consumers to smuggled unbranded leaves which are relatively cheaper, thereby increasing the rate of smuggling.
Firms in tea business are paying an average Rs 70 per kg to the government in the form of taxes and custom duty, whereas illegal importers incur just about Rs 15 to Rs 20 per kg cost in bringing tea to local market, thus, making branded tea products expensive, compared to unbranded loose tea.
So, what should the government do? First, a more immediate step: curb smuggling. The government is reportedly incurring annual losses of more than Rs 5 billion due to illegal tea imports - a number which can rise if illegal tea trade is not stopped in the wake of rising global tea prices. In addition, if illegal trade isn arrested it can also push formal businesses out gradually.
The second and more long-term measure is to ensure that prospects of tea cultivation in Pakistan are adequately tapped. According to a research conducted by the government with the help of Chinese consultants, almost 60,000 hectare of land is suitable for tea growing in Mansehra and Swat districts where net income from tea crop is estimated to be much higher than that from any other traditional crop.
Luckily, a certain pilot project named Tea Research and Development Programme is already in the works in Mansehra, which will start producing tea after 2011. All the stakeholders have to do now, is to plan for the expansion of its scope and step up the process. Otherwise, a more literal storm in a tea cup might be brewing in a not so distant future.
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