tea industry in india and geographical integration issues

8/2/2019 Tea Industry in India and Geographical Integration Issues

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TEA INDUSTRY IN INDIA AND GEOGRAPHICAL INTEGRATION ISSUES

Tea is indigenous to India and is an area where the country can take a lot of pride. Thisis mainly because of its pre-eminence as a foreign exchange earner and itscontributions to the country's GNP. In all aspects of tea production, consumption andexport, India has emerged to be the world leader, mainly because it accounts for 31%of global production. It is perhaps the only industry where India has retained itsleadership over the last 150 years. From its largest producer status, over 70% of the teais consumed within India itself. However, the per capita consumption of tea in Indiaremains a modest 750 grams per person every year due to the large population base andhigh poverty levels.

The range of tea offered by India - from the original Orthodox to CTC and Green Tea,from the aroma and flavour of Darjeeling Tea to the strong Assam and Nilgiri Tea-remains unparalleled in the world. The Indian tea industry has grown to own manyglobal tea brands, and has evolved to one of the most technologically equipped teaindustries in the world. Tea production, certification, exportation, and all other facetsof the tea trade in India is controlled by the Tea Board of India.

India was the top producer of tea for nearly a century, but recently China has overtakenIndia as the top tea producer due to increased land availability. Indian tea companieshave acquired a number of iconic foreign tea enterprises including Britishbrands Tetley and Typhoo.

Here are some statistical facts about the Indian Tea Industry:

The total turnover of the tea industry is around Rs. 10,000 crores. Since independence tea production has grown over 250%, while land

area has just grown by 40%.

There has been a considerable increase in export too in the past fewyears. Total net foreign exchange earned per annum is around Rs.1847 crores.

The labour intensive tea industry directly employs over 1.1 millionworkers and generates income for another 10 million peopleapproximately. Women constitute 50% of the workforce.

TRADE SCENARIO


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WORLDs TOTAL TEA PRODUCTION

Country Jan to 2011 2010 +/- %

India Oct 847.16 813.73 33.428 4.11

Bangladesh Oct 48.8 47.5 1.3 2.7Kenya Oct 299.8 323.61 -23.81 -7.4

Rwanda Mar 6.2 7.1 -0.9 -12.7

Indonesia Sep 46.28 55.44 -9.16 -16.5

Malawi Sep 37.14 42.14 -5 -11.9

Sri Lanka Oct 269.8 276.1 -6.3 -2.3

Uganda Sep 36.51 41.74 -5.23 -12.5

Tanzania Sep 23.44 23.48 -0.04 -0.2

Zimbabwe Sep 10.28 10.54 -0.26 -2.5

Total 1625.41 1641.38 -16.0 -1.0

China (GreenTea)

Sep 1094 1004 90.0 9.0

Indias contribution to worlds production: 31.152%

WORLDs TEA EXPORT

Country Jan to 2011 2010 +/- %

India Oct 150.0 163.1 -13.2 -8.1

Kenya Sept 315.4 336.7 -21.3 -6.3

Sri Lanka Aug 193.6 189.3 4.3 2.3

Zimbabwe Jun 4.2 5.7 -1.4 -25.2Argentina Jun 41.7 48.0 -6.3 -13.1

China Sept 245.1 220.8 24.3 11.0

Tanzania Jul 18.2 18.2 0.0 -0.3

Uganda Sept 32.3 34.9 -2.6 -7.4

Indonesia Jul 45.5 51.3 -5.8 -11.2

Malwai Jun 27.7 28.6 -0.9 -3.1

Total 1073.6 1096.5 -22.9 -2.1

DESTINATION WISE TEA EXPORTS FROM INDIA

Country January to July

2011 2010 +/- +/-

Mkg Rs Crs Rs/Kg Mkg Rs Crs Rs/Kg Mkg Rs/Kg

Russia 20.20 244.34 120.96 22.86 266.54 116.60 -2.66 4.36

Kazakistan 6.14 97.10 158.14 6.45 100.18 155.32 -0.31 2.83


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TOTAL CIS 27.69 358.61 129.51 30.68 383.07 124.86 -2.99 4.65

UK 4.98 72.72 146.02 6.76 93.24 137.93 -1.78 8.10

Netherlands 1.25 31.66 253.28 1.37 29.65 216.42 -0.12 36.86

Germany 2.34 53.41 228.25 2.03 46.46 228.87 0.31 -0.62

Australia 2.21 61.21 276.97 2.51 62.41 248.65 -0.30 28.32

Ireland 0.43 18.89 439.30 0.59 25.32 429.15 -0.16 10.15Poland 1.70 23.12 136.00 1.92 26.19 136.41 -0.22 -0.41

USA 5.87 109.79 187.04 5.35 100.46 187.78 0.52 -0.74

UAE 7.08 114.01 161.03 12.40 186.83 150.67 -5.32 10.36

Iran 7.23 136.60 188.93 6.98 108.62 155.62 0.25 33.32

Canada 0.60 11.00 183.33 0.96 16.75 174.48 -0.36 8.85

Iraq 0.16 1.23 76.88 4.97 42.39 85.29 -4.81 -8.42

Saudi Arabia 1.09 14.16 129.91 1.02 14.81 145.20 0.07 -15.29

ARE 2.10 15.93 75.86 2.90 28.81 99.34 -0.80 -23.49

Turkey 0.06 0.93 155.00 0.02 0.66 330.00 0.04 -175.00

Afghanistan 0.22 2.13 96.82 6.41 41.38 64.56 -6.19 32.26

Kenya 1.33 8.11 60.98 3.53 21.59 61.16 -2.20 -0.18Japan 0.99 30.13 304.34 1.35 39.80 294.81 -0.36 9.53

Sri Lanka 4.01 54.79 136.63 4.03 53.59 132.98 -0.02 3.66

Pakistan 10.57 67.63 63.98 9.53 63.05 66.16 1.04 -2.18

Others 7.91 123.21 1.99 8.91 5.92 0.00

TotalExports

89.82 1309.27 145.77 107.30 1393.99 129.92 -17.48 15.85

Value (RsCr)

1309 1394 -85

GOVERNMENT AND THE INDIA TEA INDUSTRY

The Indian tea industry as the second largest employer in the country has enjoyed the attention of

the Indian government. When export sales went down, the government has been sympathetic to

the demand of the industry and its cultivators. It has passed resolutions supporting the industry

domestically and has also lobbied extensively with organizations like the WTO internationally.

The Indian administration along with the European Union and six other countries

(Brazil, Chile, Japan, South Korea and Mexico) filed a complaint with the WTO against the ByrdAmendment which was formally known as the Continued Dumping and Subsidy Offset Act of

2000 legislated by the US. The essence of this act was that non-US firms which sell below cost

price in the US could be fined and the money given to the US companies who made thecomplaint in the first place. The act adversely affected the commodities business of the

complainant states and has since been repealed after WTO ruled the act to be illegal.

Furthermore, the Indian government took cognizance of the changed tea and coffee market and

set up an Inter-Ministerial Committee (IMC) to look into their problems in late 2003. The IMC
http://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Chilehttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/Mexicohttp://en.wikipedia.org/wiki/Byrd_Amendmenthttp://en.wikipedia.org/wiki/Byrd_Amendmenthttp://en.wikipedia.org/wiki/Byrd_Amendmenthttp://en.wikipedia.org/wiki/Byrd_Amendmenthttp://en.wikipedia.org/wiki/Mexicohttp://en.wikipedia.org/wiki/South_Koreahttp://en.wikipedia.org/wiki/Japanhttp://en.wikipedia.org/wiki/Chilehttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/European_Union


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has recommended that the government share the financial burden of plantation industry on

account of welfare measures envisaged for plantation workers mandated under the Plantation

Labour Act 1951. Moreover, IMC has recommended to introduce means so that theagricultural income tax levied by the state governments can be slashed and the tea industry be

made competitive. It has recommended that sick or bankrupt plantation estates should be

provided with analogous level of relaxation for similarly placed enterprises/estates as areavailable to industries referred to BIFR.

A Special Tea Term Loan (STTL) for the tea sector was announced by the Indian government in

2004. It envisaged restructuring of irregular portions of the outstanding term/working

capital loans in the tea sector with repayment over five to seven years and a moratorium of one

year, which was to be on a case to case basis for large growers. The STTL also provides for

working capital up to Rs. 2 lakhs at a rate not exceeding 9% to small growers.

In addition to these measures, the Tea Board plans to launch a new marketing initiative, which

will include foray into new markets such as Iran, Pakistan, Vietnam and Egypt. It also plans torenew its efforts in traditional markets like Russia, the UK, Iraq and UAE. Noteworthy is its

intent to double tea exports to Pakistan within a year.

The Cabinet Committee on Economic Affairs set up the Special Purpose Tea Fund (SPTF) under

the tea Board on December 29, 2006. The aim is to fund replantation and rejuvenation (R&R)programme. In the same year, Tata Tea entered into an agreement to take over Jemca, which

controls a 26 percent market share in the Czech Republic.

The CCEA gave its approval for pegging the subsidy at 25 per cent and adoption of a funding

pattern of 25 per cent promoter's contribution, 25 per cent subsidy from the government and 50per cent loan from the SPTF. Banks have also been instructed to increase the lending period to

over 13 years.

GEOGRAPHICAL INTEGRITY

Assam Orthodox Tea is set to receive the Geographical Indications (GI) exclusivity. A GI stamp

identifies a certain product as emanating from the territory of a WTO member or region or

locality in that territory, where a given quality, reputation or other characteristic of the good is

essentially attributable to its geographic origin.

Protection of Geographical Integrity for Darjeeling Tea

The case relates to the geographical indication (GI) protection of Darjeeling tea. It is about theunauthorized use and registration of Darjeeling and Darjeeling logo by Japanese companies

already registered in Japan by the Tea Board of India. The study also refers to the unauthorized

use and attempted registration of the words Darjeeling and Darjeeling logo by some other

developed countries.

Context
http://en.wikipedia.org/wiki/Income_taxhttp://en.wikipedia.org/wiki/Working_capitalhttp://en.wikipedia.org/wiki/Working_capitalhttp://en.wikipedia.org/wiki/Iranhttp://en.wikipedia.org/wiki/Pakistanhttp://en.wikipedia.org/wiki/Vietnamhttp://en.wikipedia.org/wiki/Egypthttp://en.wikipedia.org/wiki/Iraqhttp://en.wikipedia.org/wiki/UAEhttp://en.wikipedia.org/wiki/Subsidyhttp://en.wikipedia.org/wiki/Assamhttp://en.wikipedia.org/wiki/Geographical_Indicationshttp://en.wikipedia.org/wiki/Geographical_Indicationshttp://en.wikipedia.org/wiki/Assamhttp://en.wikipedia.org/wiki/Subsidyhttp://en.wikipedia.org/wiki/UAEhttp://en.wikipedia.org/wiki/Iraqhttp://en.wikipedia.org/wiki/Egypthttp://en.wikipedia.org/wiki/Vietnamhttp://en.wikipedia.org/wiki/Pakistanhttp://en.wikipedia.org/wiki/Iranhttp://en.wikipedia.org/wiki/Working_capitalhttp://en.wikipedia.org/wiki/Working_capitalhttp://en.wikipedia.org/wiki/Income_tax


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Among the teas grown in India, Darjeeling tea offers distinctive characteristics of quality and

flavour, and also a global reputation for more than a century. Broadly speaking there are two

factors which have contributed to such an exceptional and distinctive taste, namely geographical

origin and processing. Thus Darjeeling tea has been cultivated, grown and produced in tea

gardens in a well-known geographical area, the Darjeeling district in the Indian state of West

Bengal , for over one and a half centuries. The tea gardens are located at elevations of over 2000

metres above sea level.

Even though the tea industry in India lies in the private sector, it has been statutorily regulated

and controlled by the Ministry of Commerce since 1933 under various enactments culminating in

the Tea Act, 1953. The Tea Board was set up under this Act. A major portion of the annual

production of Darjeeling tea is exported, the key buyers being Japan, Russia, the United States,

and the United Kingdom and other European Union (EU) countries such as France, Germany and

the Netherlands.

Legal protection at domestic level

CTM Registration

In order to provide legal protection in India the Tea Board of India registered the Darjeeling

logo and also the word Darjeeling as certification trade marks (CTMs) under the (Indian)

Trade and Merchandise Marks Act, 1958 (now the Trade Marks Act, 1999).

GI registration

The Tea Board of India has also applied for the registration of the words Darjeeling and

Darjeeling logo under the Geographical Indications of Goods (Registration and Protection) Act,1999 (the Act) which came into force with effect from 15 September 2003, in addition to the

CTMs mentioned above.

Status of registration of GI

The registration of the marks applied for by the Tea Board of India has not yet been granted. The

Registrar has, however, after examining the application for registration filed by the Tea Board of

India advertised for any expression of opposition. It is only after considering opposition, if any,

that the Registrar may decide to register the GI of the Tea Board.

Advantages of GI protection at domestic level and export markets

The reason for the need for additional protection for GI over and above the CTM has been set out

by the chair of the Tea Board of India as follows.

When CTM registration is not accepted in a jurisdiction where protection is sought, forexample, France for Darjeeling;


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Registration gives clear status to a GI, indicating a direct link with geographical origin.Quite apart from the aforesaid reasons the GI Act in India has also been enacted in order to

comply with its obligation under the Agreement on Trade-Related Aspects of Intellectual

Property Rights (TRIPS), which requires WTO members to enact appropriate implementation

legislation for GI.

Steps taken at international level

Registration of Darjeeling tea and logo

In order to protect Darjeeling and Darjeeling logo as GI, the Tea Board of India registered the

marks in various countries, including the United States, Canada, Japan, Egypt, and the United

Kingdom and some other European countries, as a trade mark/CTM. In this context it is relevant

to note that on 3 August 2001 the UK Trade Registry granted registration of the wordDarjeeling as of 30 March 1998 under the UK Trade Marks Act 1994. The United States has

also accepted the application of the Tea Board for the registration of Darjeeling as a CTM in

October 2002.

The appointment of the International Watch Agency

In order to prevent the misuse of Darjeeling and the logo, the Tea Board has since 1998 hired

the services of Compumark, a World Wide Watch agency. Compumark is required to monitor

and report to the Tea Board all cases of unauthorized use and attempted registration. Pursuant to

Compumarks appointment, several cases of attempted registrations and unauthorized use of

Darjeeling and Darjeeling Logo have been reported.

The assistance of overseas buyers

In order to ensure the supply of genuine Darjeeling tea, the Tea Board has sought the help of all

overseas buyers, sellers and Tea Council and Associations in so far as they should insist on

certificates of origin to accompany all export consignments of Darjeeling tea.

Challenges faced and the outcome

The Tea Board of India has faced a series of hurdles, challenges and difficulties in the protection

and enforcement of the word Darjeeling and of the Darjeeling logo. Some of the major

challenges faced by the Tea Boards effort to protect Darjeeling and the Darjeeling logo in

Japan, France, Russia, the United States and other countries are given below.


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Costs of protection and enforcement for the industry and the government

Another major challenge faced by the Tea Board of India relates to legal and registration

expenses, costs of hiring an international watch agency and fighting infringements in overseas

jurisdictions. Thus during the last four years the Tea Board of India has spent approximately

US$200, 000 for these purposes. This amount does not include administrative expenses includingthe relevant personnel working for the Tea Board, the cost of setting up monitoring mechanisms,

software development costs and so forth. It is not possible for every geographical indication right

holder to incur such expenses for protection. Further, like overseeing, monitoring and

implementing GI protection, the high cost of taking legal action can prevent a country from

engaging a lawyer to contest the case, however genuine and strong the case may be. Moreover, a

lack of expertise in the proper handling of highly complex legal language is another challenge to

be met.

Concluding Observations:

Competition and Competitiveness

The Indian exports of tea have been sharply declining in most of the key markets. While

many individual firms seem to be doing well having created niche markets for their

products, their number is definitely not increasing and could even be declining. Even in

the face of major crisis during the last five years, some corporates involved in plantations

have done well because of a strong relationship with their principals sitting in London

and unflinching respect for quality. The Indian firms are also doing well in Kyrgyzstan,

perhaps the last bastion of the Indian Tea Leaf.

The firm level competitiveness reduces as the market changes and consumers armed with

increased purchasing power demand better and different options. Increasing shift towards

tea bags is an example of that. The Indian firms, having made only small investments for

value addition, can do well only in commodity markets. Whatever new investments in

value additions, such as machineries for tea bags now coming through, are not

comparable with Sri Lanka that had already invested heavily during the last decade

thereby cornering a large share in the world market. Sri Lanka is of course an orthodox

tea supplier and does not directly compete with India so much.


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Recommendations

1. There is a great deal of dissension among corporate leaders in the Indian tea

industry. All kinds of prescriptions are being advanced and most of them

depend on the Government action and support. On the other hand, this is the

time for the Government to play only a supporting role and withdraw from all

other activities as they affect the tea industry except in as much as they relate

to small farmers.

2. Investments in plantations and manufacturing machines must come from the

industry without any subsidy from the Government. Subsidies have been a stumbling block for

competitiveness in the industry.

3. The reforms in lending policies of the banks are as urgent as reforms

elsewhere in the economy. The tea plantation sector needs huge infusion of

capital. The banks can not shy away from their responsibility to bear the risk

involved. The cost of capital has to be globally compatible.

4. The Government will have to hold the hands of the small scale tea producers

until they can be organized on efficient lines. A beginning is yet to be made in

that direction. On the whole, the small scale tea producer has been benignly

neglected thus far.

5. The global competitiveness is rooted in quality at an affordable cost. This is an

issue which involves and directly affects the industry. The industry will have

to tackle this at their level as well as at the level of the individual firms. It is

easier to say make good quality but there have to be buyers to pay for that.

These are commercial decisions which only the individual firms can make.

The government has no role in that.

6. Every firm will have to build and control its supply chain that is cost effective


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and manageable.

7. The market for value added teas is already crowded and it is a bit late for India

to hope to make big impact on that. Nevertheless, efforts should be made in

that direction in the hope that some dent can be made.

8. The bilateral agreements are mostly ending, the markets for tea in commodity

forms are shrinking, countries are exercising their option to purchase tea from

wherever it suits them best in terms of quality and pricing, and the other global

producers are keenly eying the Indian market. The writing on the wall is very clear.

References

1. http://www.wto.org2. http://en.wikipedia.org3. www.teauction.com4. http://www.indiatea.org/
http://www.wto.org/http://www.wto.org/http://en.wikipedia.org/http://en.wikipedia.org/http://www.teauction.com/http://www.indiatea.org/http://www.indiatea.org/http://www.indiatea.org/http://www.teauction.com/http://en.wikipedia.org/http://www.wto.org/

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