Tea Firms May Have To Go For Imports, Says Icra Study

Indian tea corporates may soon have to resort to import of tea. In a study on the tea industry, the Investment & Credit Rating Agency (Icra) has pointed out that with increasing domestic consumption, a continuous insulation of the home market from imports is not feasible in the post-WTO world.

The Icra finding reverses an earlier stand by tea majors against tea imports under any circumstances. The study has suggested import of the commodity in the wake of decreasing exportable surplus.

To keep up with the burgeoning domestic demand for tea and to improve the flow of investment into the industry, import should be considered as a serious option, Saumitra Choudhary, economic advisor of Icra told Business Standard.

 

The industry has to adopt a strategy that maximises its inherent value and the logical discretion would be a combination of reinforcing exports on one hand, with a strong historical brand value as possible, and meeting the resultant shortfall through imports of lower grades of tea on the other hand, said Choudhary.

Import of tea has been a bone of contention between the blender companies and the grower companies. However, the situation demands a clear cut strategy to achieve maximum gains, Choudhary said.

Icra has pointed out that domestic demand has and will most probably grow at a rate significantly faster than what is implicit in the estimates made by the Indian Tea Association (ITA) and it would no longer be possible to meet all of domestic demand and keep exports at a level of 175-200 million kgs.

Moreover, with the WTO coming into force, negative and restrictive import lists will be done away with. Tea at some point of time will be removed from the restricted list. Coffee, a major beverage was put on Open General Licence last year.

According to the Icra recommendations, free import would sharpen the competitive pressures at the lower end of the price spectrum, and close the possibility of auction prices and general sales realisations staying ahead of inflation. The outcome is inevitable whether viewed from the perspective of projected demand and supply or from the inevitable direction of trade policy, said Choudhary.

The ITA in their projections for demand-supply have indicated that domestic demand in 2006 is expected to be 824 million kgs which is significantly below the Icra estimates of 887-916 million kgs. The ITA has projected a domestic supply of 974 million kgs with an optimistic outlook of 1,079 million kgs.