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1990 - outlook for Indian tea & coffee.

1990-Outlook for Indian tea & coffee

With slightly higher production in North India, the shortage in India tea production for 1989 is finally estimated at 17 M kg. less than last season's production which was 701 M kg. This being marginal, there are no signs of severe reaction in the domestic or export markets. Sharp rise in tea prices since July 1989 has been checked. Due to strong Government pressure before general elections, tea prices in auction centres had dropped substantially. Pressure was created by the Government in order to reduce tea prices for the benefit of the general consumers. Despite reduced prices in auction centres, retail prices however at consumer level have not reflected such a drop in price.

At the insistance of the Government, the industry made available 10 to 16 M kg. tea at reduced prices which are being sold through selected retail outlets at Rs.40/-a kg., in polypacks containing 250 grs. at Rs.10/-. It has failed to create any strong impact in the retail trade. In fact, 15 M kg. is barely 15 days consumption for the country. Such packs are being picked up by small restaurants, roadside tea shops and some homeowners close to such outlets. The venture cannot be said to have made a dent in the tea trade to fulfill the objective of passing on the benefit of reduced auction prices to the actual consumer.

Congress (1) Govt. of Rajiv Gandhi, which put this pressure on the Indian tea industry and succeeded in reducing price in the wholesale Tea Auctions, is no longer in power. After the November '89 general elections, Janata Dal has come to power with VP Singh as the Prime Minister. VP is a well known person in the Indian political scene. He served as the Finance Minister in Rajiv Gandhi Government from which post he resigned. As Finance Minister, VP initiated the process of commercial liberalization. So the nation and particularly the tea and coffee industry with various problems, is looking forward to the policies the new Government adopts.

About 43 percent of last year's tea exports of 221 M kg. went to the USSR. Due to the sharp devaluation of the rouble and political activities in correction with `Perestroika,' how the Russian purchase will behave in 1990 must be closely watched. Although the Indian Tea Board has taken fresh moves to promote Indian tea in international markets, a sharp drop in Russian purchases cannot be supplemented by pushing into other markets as yet. Moreover, India is striving for a higher export to reach a target of 250M kg. Continuous expansion of the internal market at the rate of three to five percent and a national need to enhance exports, calls for higher production. A target of 1,100 M kg. has been set for the year 2000 AD. In order to reach this target additional land will have to be assigned for tea cultivation besides research and development activities. Tea planters have been clamoring for a reduction of agricultural tax on tea which is said to be the highest among all agricultural crops. VP Singh will have to look into these aspects as well. In the area of marketing, various proposals were discussed keeping two objectives in view: reduce tea price at consumer level in the internal market; make available adequate quantity of tea for fulfilling need for internal market and enhancement of export trade for earning more foreign exchange. Even the possibility of importing certain grades of tea to meet both ends was discussed as well as separating domestic auction and export auctions.

Production of the order of 750M kg. and exports of 250M kg. in U.S. 1990 will be a challenging task. In addition to reducing tea prices for domestic use, consumers will remain in the agenda. It will largely depend upon the view taken by the new Government and reaction of the industry.

Quota Suspension

Indian coffee, however, is facing a tougher problem largely created by the suspension of quotas. In the absence of any central mechanism to check falling international prices, coffee is being sold at unremunerative prices for Indian producers. Despite low prices, coffee consumption does not seem to be improving. While the quota system was operating, the total quantity available for export would be much more than quota available. Therefore the balance quantity used to be sold to non-quota countries, mainly to Russia, with a huge rebate. After the political changes in Eastern European Countries in the wake of `Perestroika' it appears that those countries might become good buyers for Indian coffee. A new coffee accord must be brought about in order to revitalize global coffee market which should include the Eastern European countries. Moreover, there is a large potential home market which consumes about 55,000 tons of coffee. With little pressure in a positive direction, it has the possibilities to develop immensely. The Indian Coffee Board has to take sustained promotional action to cultivate the domestic market.

There are nagging problems like reasonable return to growers. Unlike tea, a substantial part of the production is contributed by small growers. Economy of small growers, and their investment structure is very much different from large growers. This is another challenging area for the Government has to carefully examine the problems of coffee growers and exporters and take prompt action to set the industry on a strong foot. India is a small exporter of coffee. Moreover, contribution of coffee in India's total foreign trade scene is rather minor. If the Government takes a positive view to set the Indian Coffee Industry on a strong footing, it should not be an insurmountable problem. The vast internal market can absorb surplus shocks. That is needed is a determination to explore the vast internal market. The World Bank's listing of India as one of the `have nots' in coffee along with El Salvador, Ethiopia and Ivory Coast need not create panic in spite of low international prices.

The problems of tea and coffee in India, though different, are critical. A hopeful sign is that the tea and coffee industry in India is understanding and devoted. A helpful hand of the new Government is surely capable of meeting the challenge of 1990.
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Author:Bose, Bimal
Publication:Tea & Coffee Trade Journal
Date:Jan 1, 1990
Words:1038
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