If the trend in first seven months is any indication, India’s tea export to Pakistan is likely to be lower in 2013 than that in 2012 and much lower than 2011. Between January and July this year, the export was 8.32 million kgs (mkgs) as compared to nearly 11 mkgs in the same period of 2012 and close to 12 mkgs in the same period of 2011.

In 2011 (full year), India exported record 25.2 mkgs to Pakistan prompting our exporters to set a target of 50 mkgs by 2015 which, it now appears, is rather ambitious. In 2012, the India exported 21.65 mkgs.

The tea industry sources would attribute the present trend to abundance of cheaper Kenyan tea in Pakistan, thanks to bumper crop in East Africa’s major tea producing country. In first five months of the year, Kenya harvested its biggest crop since 2003. Output surged during the period to 194.9 mkgs, up 52 per cent from the same period in 2012.

Also, political turmoil in Egypt and Syria has aggravated the glut as Kenya is finding it hard to hit the targeted exports to these countries. The crisis in Egypt, the world’s fifth largest tea importer, has dampened demand at a time when production has rebounded after several years of bad crop. Egypt buys from Kenya an estimated six to seven mkgs a month, roughly 25 per cent of its total tea import.

Kenyan tea prices have now plunged more than a third over the past year and traders fear that the prices could fall further if the crisis in West Asian and North African tea drinking nations continue to lower sales.

Kenya therefore is trying to push its produce to other markets, particularly Pakistan, the single largest buyer of Kenyan tea, by quoting lower rates. Kenya has been joined by East Africa’s other tea producing nations, also experiencing bumper crop, as tea exports are critical for these economies.

Reports from Pakistan suggest the price of Kenyan tea dropped by more than Rs 100 per kg in the local market, the two-year low. For example, the whole sale price of BP 1 variety (high grown) has dropped to Rs 450/460 per kg from earlier Rs 570 per kg. Similarly, the price of PF 1 (leaf) has dropped to Rs 425 from Rs 530 per kg.

Interestingly, the improved availability of cheaper tea did not boost Pakistan’s tea import through the official trading channel. Instead, the import of smuggled tea has surged for two reasons. First, the depreciation of the country’s currency vis-à-vis US dollar has rendered official import costlier squeezing the traders’ profit margin which is much higher on tea smuggled through the Afghan Transit Trade. Second, the traders resent the recent hike in the standard rate of sales tax to 16 per cent, indicating that the “undocumented sector will flood the market”.

Even cheap South Indian varieties, which constitute the bulk of India’s tea exports to Pakistan, may find it hard to compete in the present situation.

>santanu.sanyal@thehindu.co.in

Related Topics