Tea Board considering new export cess to fund promotion and marketing

While the rate of the cess is yet to be finalised, sources say it could be around Rs 2 per kg of export

The Tea Board of India is toying the idea of introducing a cess on tea exports, the proceeds of which will be used to fund the promotion of Indian tea both, within the country and abroad.

While the rate of the cess is yet to be finalised, sources suggested it can be around Rs 2 per kilogramme of export. India has exported 206.69 million kg (mkg) of tea do far this year. This compares to the current cess of Rs 3.5 per kilo which the Sri Lankan Tea Board charges exporters to promote Ceylonese varieties.

The Tea Board is currently in talks with industry bodies such as the Indian Tea Association to chalk out the modus operandi and rate.

However, it is suggested that this tax or cess will not be levied on all exporters or planters who directly export their harvest. However, tea firms interested in promotions in India or abroad can be approached with the new tax mechanism.

“We are yet to finalise the fine print on funding the promotional activities but we need money to promote Indian tea if we are to hold on to our market share and gain in key markets,” A.K. Ray, deputy chairman at the Tea Board told Business Standard.

A final call on this proposed tax will be taken by the end of the ongoing fiscal year.

A study undertaken by the Tea Board, in association with a consultant, has indicated that in order to boost consumption, the Tea Board needs to spend around Rs 80 crore over the next three years on promotion and marketing at home and abroad.

While the Tea Board, with its current fund crunch situation can arrange for half the targeted marketing expenses, it is now banking on the individual tea companies for funds.

Under the proposed marketing and promotion mechanism, individual tea company names can feature in Tea Board stalls and kiosks abroad. The packets used by the Tea Board to promote tea among the influential classes will also bear the names of the tea estates or companies.

Under the current mechanism, tea is sourced by the Board from private companies and is labelled as generic tea like Assam Orthodox, Darjeeling Orthodox, and Nilgiri, among others.

Such promotions are usually undertaken in 47 export destinations and 50 places within India.  

Ray said that Sri Lanka, India’s primary competitor in key export markets, has lined up an investment of Rs. 45 crore in the next three years for promotions and unless India is able to promote its produce in global markets aggressively, which requires a substantial promotion and marketing budget, it stands to lose considerable global market share.

“I am not asking private producers or companies to fund the promotions but to collaborate with us. Tea firms need to be aware of the significant challenges of Ceylonese tea companies. They need to step up their marketing efforts in key export markets as well,” he told Business Standard.

The Tea Board is expected to primarily target Russia and CIS, Taiwan, Japan, Australia and other developed markets such as the UK and US for promotions. These countries, taken together make up for around 40 per cent of total annual export volume and around 35 per cent in terms of export value.

Ray said Indian tea firms also need to focus on packaged teas that can be retailed instead of exporting bulk teas, to increase the value of their exports.

The Board is also discussing the possibility of setting up a world-class tea packaging centre where tea will be packaged and branded according to international standards to compete globally with top-notch brands.

Under the present export mechanism, most of the Indian tea exports are in bulk, where the remuneration is low.

What’s Brewing

• Under the plan under discussion, cess on exports will be levied on companies opting for promotions
• Export cess to be used to fund promotions to boost consumption
• Tea Board is mulling the idea of Rs 2 per kilo as export cess
• Estimated expenses on promotions is Rs 80 crore
• By January, Tea Board needs to revert to Centre with a plan on promotions