Nepali Tea Exports Face Challenges Amidst Indian Quality Stricter Regulations

Viratanagar. Nepal's tea sector has long been an important part of the export-oriented economy. Orthodox tea produced in eastern Nepal has gained good recognition in the international market. However, various obstacles have been arising from time to time in the trade with India, which is the main market for Nepali tea.

In recent days, Nepali tea entrepreneurs and farmers have fallen into great trouble due to the new quality testing and export restrictions imposed by the Indian Tea Board. In this context, an edited excerpt of a conversation with tea entrepreneur Gopal Dahal, focusing on the policy and practical obstacles in Nepali tea exports, the state of the Indian market, the challenges of exporting to third countries, and solutions, is presented here:

• What is the current state of Nepali tea exports to India? Why did the problem arise suddenly?

The current state of Nepali tea exports has become very challenging. Due to the new rules and quality testing process implemented by India, most entrepreneurs have not been able to send tea. This is not a sudden problem but a result of procedural complexities. After India tightened tea imports, Nepali tea is stuck in warehouses. This has led to tea factories being on the verge of closure.

• Is the obstruction by India in the name of quality testing new, or is it a continuation of an old problem?

This cannot be called a new problem. For the past 10-12 years, the Indian side has been creating similar obstacles in tea exports every year or every other year. In the past, such obstacles were somewhat lenient and informal, where Nepali tea was held for some time citing low quality and then released. This time, the Indian Tea Board has made it stricter by implementing it as a formal standard and rule. Therefore, the current obstruction is more complex than before.

• What is the quality testing process adopted by the Indian side now? How does it put Nepali exporters at greater risk?

The biggest problem now is the process. Our tea does not go directly to the market after passing customs and entering India. It is first kept in various warehouses in India. Then, samples of the tea are taken from there and sent to the laboratory for testing. The report of that test takes 15 days to 30 days to come. This creates two major problems. First, there is a fear of quality degradation if the tea remains in the warehouse for a long time. Second, if the tea is rejected after the test and has to be returned to Nepal, the cost will be high.

• How much loss does an entrepreneur incur if tea has to be rejected and returned?

If the tea sent to India is not approved and has to be returned, it incurs about 40 percent cost and 18 percent Indian Goods and Services Tax. In total, entrepreneurs have to bear an additional burden of about 58 percent. Bringing the tea back after spending so much money makes its economic value almost zero. Due to this great risk, entrepreneurs are afraid to send tea to India.

• What is the quantity of Nepali tea currently held up in warehouses in India and Nepal? What would be its value?

It is estimated that about 2 to 3 lakh kg of Nepali tea is currently stuck in warehouses in India alone. Calculated in Nepali rupees, the average rate is 600 to 700 rupees per kg. By this calculation, tea worth crores of rupees is stranded in Indian warehouses. On the other hand, due to uncertainty in exports, lakhs of kg of processed tea are also stuck in warehouses within Nepal. As there is no market, factories have not been able to produce new tea, which directly affects the farmers who produce green leaves.

• What is the practical solution to this problem? What are the entrepreneurs demanding?

We are not saying that India should not conduct quality testing. The quality of goods sold in the international market must be ensured, which is natural, but our demand is that this testing should be done at the Nepal-India border or at the customs point. The Indian side should take samples and test the tea before it is exported from Nepal customs and allow it to cross the border only after approval. This way, even if the tea is rejected, it will be stopped within Nepal, and entrepreneurs will not have to bear the loss of warehouse rent, transportation, and an additional 58 percent tax in India. We can send that tea to the domestic market or to other countries.

• What immediate steps should the Nepali government take to resolve this crisis in the tea sector?

Firstly, the government should make diplomatic efforts and negotiate with the Indian Tea Board to facilitate the testing procedure. Secondly, as factories are currently closed, farmers are not receiving payment for green leaves. Therefore, the government should provide subsidies or concessional loans to farmers as relief for the time being. If the state can manage a fund to pay farmers through tea entrepreneurs, to be repaid after the tea is sold and the money is received, then this industry can be saved.

• Is there any truth to the claim that the lobbying of Darjeeling tea producers also plays a role in this obstruction?

Darjeeling tea producers' commercial lobbying may have its place. They want to protect their market, which is not unusual from a business perspective, but we should not just blame the lobbying. We need to improve our weaknesses and have a strong diplomatic presence. We must be prepared to meet the standards set by India, and the government should also facilitate accordingly.

• Why are we so dependent on India for tea exports? Why couldn't we expand the market to third countries (China, Europe, America)?

The main reason for this is the open border and geographical convenience. Sending tea to India was technically easy, and there was a certainty of sale no matter how much was produced, but the policy and diplomatic efforts at the state level required to increase exports to third countries have been very weak. In terms of tea exports, our government-level lobbying and branding have not been sufficient. Although the private sector has been sending a small quantity of tea to third countries based on their personal contacts, it has not become institutionalized.

• China itself is a major tea producer and consumer country. What is the potential for Nepali tea exports to China?

Although China is the world's largest tea producer, there is a high demand for Nepali orthodox tea there. There are consumers in the Chinese market who can pay good prices for quality tea, but we lack sufficient infrastructure to increase exports to China. Nepal still lacks systematic branding of tea, modern packaging, organized warehouses, and auction centers.

Without these infrastructures, we cannot compete in the large market of third countries. Therefore, the state needs to increase investment in infrastructure development and market diversification for the sustainable development of the tea sector.