A A G G L L O O B B A A L L S S T T U U D D Y Y R R E E P P O O R R T T O O N N ‘ ‘ R R e e v v i i t t a a l l i i z z i i n n g g I I n n d d i i a a n n T T e e a a E E x x p p o o r r t t I I n n R R u u s s s s i i a a ’ ’ Submitted to: Gujarat Technological University IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE AWARD FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION Under the guidance of: Dr. Viral Bhatt Principal SAL Institute of Management, Ahmedabad. Submitted By: S S t t u u d d e e n n t t s s o o f f M M a a r r k k e e t t i i n n g g , , S S E E M M : : I I V V , , M M B B A A : : 2 2 0 0 1 1 0 0 - - 1 1 2 2 , , S S A A L L I I n n s s t t i i t t u u t t e e o o f f M M a a n n a a g g e e m m e e n n t t . . SAL INSTITUTE OF MANAGEMENT MBA PROGRAMME Affiliated to Gujarat Technological University, Ahmedabad. March, 2012.
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Region Jan/Dec'11 Jan/Dec'10 Variance ( +/- )North India 81.31 83.46 -2.15South India 68.66 79.67 -11.01All India 149.97 163.13 -13.16* Provisional & subject to revision.
Revitalizing Indian tea export in Russia
27 GSR-SAL Institute of Management, A’bad.
Lanka have gone ahead of us. Earlier, we were number one in exports, now
we have fallen to fourth position. Unfavourable weather conditions are
another reason for the decline in the tea exports. The fluctuating weather
would also affect the production of tea. India faces stiff competition from
Sri Lanka and Indonesia in the traditional tea market, and in green tea from
China, while Kenya and other African countries struggle for the CTC (crush,
tear, and curl - process) export market.
The concerns which are elevated in our mind about this huge decline in
exports are:
So, while other sources are ever more aggressive in their outputs,
India seems to be lagging. It is no surprise that China has made fast gains on the
rest of the pack, given the increases the country has made in its other industries.
• But why is this happening in tea, specifically? • What is the fundamental reason, if there is one, for India’s slip in tea
supremacy? • Is India unable to understand the international tea market? • Are the business men and traders facing problems in exports? • Do Russians have a different attitude towards the pricing policies? • Are we compromising with the quality, technology, research and
development? • Are we afraid to face global competitiveness? • Can we improve the production of Tea in India? • Why has our export of tea decreased over the past 10 years? • Can we increase the exports of tea to Russia?
Now, it’s the time for India to revitalize the tea exports in
Russia and summon up those glorious past days which harmonized India and
Russia.
Chapter 3
reSearCh
methodology
Revitalizing Indian tea export in Russia
28 GSR-SAL Institute of Management, A’bad.
research MeThodology:
Marketing Research is the systematic design, collection, analysis and
reporting of the data and findings relevant to a specific marketing situation face by
marketers.
What to study?
Project Title: ‘revITalIzIng IndIan Tea exPorT In russIa’
Why to study?
In a descriptive study the first step is to specify the objectives with
sufficient precision to ensure that the data collected are relevant. If this is not done
carefully, the study may not provide the desired level of results.
Primary Objectives:
Secondary objectives:
The primary objective of this study is to understand and analyze how India
can revitalize its tea export in Russia and to know the factors which influence and
affect competitive business environment of tea sector in India and Russia.
• To get familiarized with the Indian Tea Industry and its marketing to
International markets, especially in Russia
• To highlight the present Market Scenario of India Tea Industry
• To examine the prospects of India Tea Industry in the International
Market, especially in Russia
Revitalizing Indian tea export in Russia
29 GSR-SAL Institute of Management, A’bad.
• To identify and analyze the problems of India Tea Industry for Export to
the Russian Market and To recommend some corrective measures to
resolve the problems
• To understand various international tea exporters and to compare &
analyze their position with India
• To find out various measures by which India can improve and enhance the
quality and quantity of tea production
• To examine trade policies of government of India and to find out some
measures for better growth of tea sector
How to study?
Research Design:
A Research design is concerned with turning a research question into a
testing project. The best design depends on the research questions. Every design
has its positive and negative sides. The research design has been considered a
"blueprint" for research, dealing with at least four problems: what questions to
study, what data are relevant, what data to collect, and how to analyze data and
interpret the results.
Descriptive Research studies are those studies which are concerned with
describing the characteristics of a particular individual, or of a group, whereas
diagnostic research studies determine the frequency with which something occur or
its association with something else. The studies concerning whether certain
variables are associated are examples of diagnostic research studies.
The goal of this study is to offer or to describe relevant aspect of tea
industry, such information may be vital before even considering certain corrective
Revitalizing Indian tea export in Russia
30 GSR-SAL Institute of Management, A’bad.
steps to revitalize Indian tea export in Russia. Such a description of the advances
helps tea exporters of India to gauge their progress in keep up with the competitors.
This study revitalizing Indian tea export in Russia is conceptualized and
framed on the basis of secondary data. Data collection, tabulation and analysis of
data, calculations, finding and recommendations are given on the basis of such
data. Therefore, we firmly believe that descriptive and conclusive research design
is appropriate for such study. Even we have considered and applied ex-post facto
research method for this purpose. This is the study in which social-cultural,
economical, political, environmental, technical etc studies of India as well as
Russia is done. We try to understand competitiveness of various tea exporters to
understand and analysis such factors. Descriptive and conclusive research design is
the most suitable one.
•
Data Collection:
•
Data are collected from secondary data sources.
Tools of Data Analysis and Interpretation:
Data are collected through internet websites, Books, News Papers, indexes
other publications etc.
• Regression analysis
• Time series analysis
• Co-relation coefficient
• Bar Chart
• Pie Chart
• Column Chart
Revitalizing Indian tea export in Russia
31 GSR-SAL Institute of Management, A’bad.
Data Analysis Software:
• spss
• excel
Place: Ahmedabad
•
Limitations:
•
The study related with revitalizing Indian tea export in Russia is done on the
basis of secondary data, therefore minor deviations, misprint and
misinterpretations may generate the error in further calculations, analysis and
related implications.
•
The various frame works, data collections, suggestions and recommendations
are strictly restricted and applicable to Russia only.
•
Various policies, annual reports of various boards and other vital information
and some of the data collection part is the biggest challenge, constraint of this
project.
In this exploratory study time duration and cost were also one of the major
limitations.
Chapter 4
IndIan tea
SeCtor
analySIS
Revitalizing Indian tea export in Russia
32 GSR-SAL Institute of Management, A’bad.
IndIa: Tea secTor analysIs:
Introduction:
The cultivation and brewing of tea in India has a long history of
applications in traditional systems of medicine and for consumption. Commercial
production of tea in India did not begin until the arrival of the British East India
Company, at which point large tracts of land were converted for mass tea
production.
Ancient India and the Ramayana
Tea cultivation in India has somewhat vague origins. Some quote that the
first recorded reference to tea in India was in the ancient epic of the Ramayana,
which referenced the "Sanjeevani tea" plant when Hanuman was sent to the
Himalayas to bring it for medicinal use. Though the extent of the popularity of tea
in Ancient India is unknown, it is known that the tea plant was a uncultivated plant
in north east India that was indeed brewed by local inhabitants of the region.
The Singpho and Khamti tribes living in northern Burma and Arunachal
Pradesh have stated that they have been consuming
tea since the 12th century.
East India Company
In the early 1820s, the British East India
Company began large-scale production of tea in
Assam, India, of a tea variety traditionally brewed by
the Singpho tribe. In 1826, the British East India
Unlike most other tea producing and exporting countries, India has dual
manufacturing base. India produces both CTC (Crush, Tear, Curl) and Orthodox
Revitalizing Indian tea export in Russia
39 GSR-SAL Institute of Management, A’bad.
teas in addition to green tea. The weightage lies with the former due to domestic
consumer’s preference. Orthodox tea production is balanced basically with the
export demand. Production of green tea in India is small. The competitors to India
in tea export are Sri Lanka, Kenya, China, Indonesia and Vietnam.
Revitalizing Indian tea export in Russia
40 GSR-SAL Institute of Management, A’bad.
Climatic conditions:
Climatic conditions taking their toll on Tea Industry:
Unfavorable weather conditions for tea plantations coupled with global
slowdown have badly affected tea exports of Assam. Statistics say that India, the
second-largest tea producer in the world experienced a slump by 25 per cent in
January 2009. The tea industry is going through a rough patch for last three years
due to rain shortage. This along with several other problems is the major reason
why the Indian Tea industry is growing at a snail’s place. Let us have a look at the
various problems faced by the Industry in India.
Tea requires a fairly hot and humid climate. Climate influences
crop distribution and quality. Tea grows best on well-drained fertile acid
soil on high lands.
The climatic condition also includes rainfall, temperature, and day
length. The average annual rainfall in North East India ranges from 2000-
4000 mm. The excess rainfall in the monsoon months of June-September
causes drainage problems. Tea plant facing evapotranspiration, it will dry
spell persists for a longer period, tea plants suffer heavily and crop goes
down. Thus, a for the growth of tea the ambient temperature required is
13°C and 28-32°C. Maximum temperature is above 32°C which
unfavorable. The average winter minimum temperature (Dec-Feb) remains
below 12°C. Day length influences growth and dormancy in tea bushes.
When days of less than 11hr 15 min duration last for at least six weeks tea
bushes become inactive. Average rainfall distribution in the North East
India's tea growing regions in mm:
Revitalizing Indian tea export in Russia
41 GSR-SAL Institute of Management, A’bad.
Season UA CA NB BV Dooars Terai Darjeeling
Winter (Dec-Feb) 4 3 3 3 1 1 2
Pre-monsoon (Mar-
May)
24 27 19 28 14 13 15
Monsoon (June-Sep) 66 63 72 62 79 82 77
Post-monsoon(Oct-Nov) 6 7 6 7 6 4 6
Total 2720 2065 2185 3000 3990 2965 2345
(UA: Upper Assam, CA: Central Assam, NB: North Bank, BV: Barak valley)
Geographical condition:
India contributes 30% of world’s tea production and considered as
the largest country across the globe in tea production as well as
consumption. Today, there are more than 13000 tea gardens in India. The
production of tea in India was 255 million kg in 1947 and it rose to 616.81
million kg in 2008-2009. The North East India accounts for about 75% of
the total Indian production of tea. The tea areas of the North-East India lie
between 24O-27O North latitude and 88O-95O East latitude. It has attained
wide spread plantation in North Eastern states of India including 308 major
tea estates and 1232 small tea gardens in the northern West Bengal; and
about 760 gardens in Assam.
Agriculture
India is the one of the country which is known by agriculture land.
There are almost everything produced in India. It is also said that the most
of the revenue generate by agriculture sector. In that one of the major
Revitalizing Indian tea export in Russia
42 GSR-SAL Institute of Management, A’bad.
produced things is Tea. Tea is mainly produced in Assam, Darjeeling,
Nilgiri.
Soil
Tea grows well on high land well drained soils having a good depth,
acidic pH in the range 4.5 to 5.5 and more than 2% organic matter. Shallow
and compacted sub-soils limit root growth. Tea plants growing on such soils
are liable to suffer from draught during dry period and water logging during
the rainy months. There should not be any hard pan or concretions in the
subsoil within 2m depths. The depth of ground water table should not be
less than 90 cm for good growth of tea. Catchment planning is required for
improved soil and water management practices in a tea estate for which land
survey designed to identify all major and minor topographical features needs
to be carried out.
PRESENT MARKET SCENARIO OF INDIAN TEA INDUSTRY:
The tea industry occupies a place of considerable importance in the
Indian economy, producing a fourth of the world’s annual tea output among them
some gardens producing high quality teas - and employing around 1.26 million
people at tea plantations and 10 million persons derive their livelihood from tea. In
Northeast India alone, the tea industry employs around 900,000 persons on
permanent roles.
With domestic demand at an estimated 825 million kg (MKg) as of 2009,
India is one of the largest consumers of tea globally. However, as domestic
demand accounts for over 86% of the country’s tea output and since tea imports
are permitted only for re-export, India’s share of the global tea trade is on the
Revitalizing Indian tea export in Russia
43 GSR-SAL Institute of Management, A’bad.
lower side. Nevertheless, exports have a critical role to play in maintaining the
demand-supply balance in the domestic market. Although tea is produced in 14
States in India, five of them Assam and West Bengal in North India, and Tamil
Nadu, Kerala and Karnataka in South India account for over 98% of India’s tea
production. Within that, North India alone accounts for around75% of India’s total
tea production, of which 85-90% is consumed in the domestic market. The balance,
much of it of high quality, is exported. Tea is among the most labor-intensive of all
plantation crops. On an average, around 65% of the cost of production is incurred
on labor.
The recent optimism in tea prices, which started from 2006, has come as a
relief for bulk tea players, who have had to cope with depressed prices for almost a
decade since 1999. Tea prices, after reaching a peak in 1998, went into a steady
decline thereafter, with average domestic prices decreasing from around Rs.76.43
per kg in 1998 to a low of around Rs. 58.05 per kg in 2005(Refer Chart for trend in
tea prices over the period 1998-2008). Although global tea prices also declined
1999 onwards, driven primarily by oversupply, the decline in average prices was
sharper and of a longer duration for Indian teas vis-à-vis the teas from Kenya and
Sri Lanka, India’s two main rivals in the exports market. This was on account of a
number of factors: lack of marketing initiative by the Indian players to look for
export markets beyond the CIS1countries; increase of small growers and bought-
out leaf factories (which led to a decline in the quality of tea produced), and failure
to check fake varieties of tea from being traded as premium tea (which affected the
image of Indian teas in the export market); higher cost of production of tea in
India (as compared with that in Sri Lanka and Kenya) on account of the higher
social costs here; and existence of certain non-tariff barriers like residual-pesticide
(in tea) specifications imposed by a number of importing countries.
Revitalizing Indian tea export in Russia
44 GSR-SAL Institute of Management, A’bad.
All these factors led to the loss of key export markets, which in turn
increased supplies in the domestic market, thereby bringing a downward pressure
on prices. This apart, tea prices also came to be affected by the quality factor,
which came into play during the early part of the current decade when the delay of
re- plantation activities in the latter half of the 1990s began to tell on quality and
hence on prices. Most players had deferred re-plantation during the latter half of
the 1990s to cash in on the optimism in tea prices during 1997-98, but when the
sharp price decline happened subsequently, their financial position got so
weakened that they were unable to make the required investments in their tea
estates.
Trend in Domestic Tea Prices:
Source: ICRA research
Revitalizing Indian tea export in Russia
45 GSR-SAL Institute of Management, A’bad.
Increasing domestic consumption, and exports to an extent, behind current
optimism in prices
The gradual reduction in pipeline stock since 2003, following a secular
increase in domestic consumption on the one hand and muted increase in
production on the other, has been the main factor supporting the increase in tea
prices from 2006 onwards. According to ICRA’s estimates, while the average
growth in production during the period 2003-08 was just 2.0% or so, domestic
consumption would have increased annually at around 3.5% during the same
period. The steady increase in domestic demand, range-bound export volumes and
low growth in production absorbed the pipeline stock over the years and left
virtually no carry-forward stock at the end of the 2008 season. Chart presents the
trend in India’s production, consumption and export of tea over the period 2003-
08.
Trend in India’s Production, Consumption and Exports of Tea:
Source: ICRA research
Revitalizing Indian tea export in Russia
46 GSR-SAL Institute of Management, A’bad.
INDIA Vs OTHER TOP TEA PRODUCING COUNTRIES:
Major tea exporting countries of the world are Kenya, Sri Lanka, China,
India and Indonesia. However, prior to evaluation of export performance of major
tea exporting countries of the world, it is necessary to analyze the production and
domestic demand of tea in these countries. On the production front India is the
second major producer of the tea in the world .Other major producing countries
include China, Sri Lanka, Kenya and Indonesia. During 1951-60, India
was producing around 40 percent of world production, declined to 26 per cent in
2008.The declining trend can be observed in case of Sri Lanka as well. Only China
and Kenya are able to increase their share in world production considerably. The
share of China and Kenya during 1951-60 was 13.59 per cent and 2.67 per cent
respectively, increased to 31 per cent and 9 per cent in 2008. In recent years China
emerged as major tea producer in the world. Fig-1 shows, during 2004 and 2005,
China became number one tea producer in the world pushing India into number
two position. India had doubted China’s emergence as a top raking producer, citing
limitations infield level statistics and under reporting of the tea production in India.
Tea board of India was then engaged in revising the production.
Since 1985, even though China’s area under tea cultivation is lower than
earlier period due to improvement in yield, production increased by 3.28 per cent
per annum during 1984-94, further increased by 4.13 per cent per annum during
1995-05.In India production increased by 1.83 per cent per annum and 1.07 per
cent per annum respectively during the same period. In Kenya, production
increased by 5.53 per cent per annum and 3.12 per cent per annum respectively
during the same period. Production in Sri Lanka and Indonesia also increased
during this period with improvement in supply conditions in Kenya, China and
Revitalizing Indian tea export in Russia
47 GSR-SAL Institute of Management, A’bad.
Indonesia, India’s share in world production declined even though its total
production increased.
Domestic consumption is calculated by deducting export from production.
In case of India, there is continuous increase in share of domestic consumption in
production; it increased from 32.06 per cent during 1951-60 to 66.92 per cent in
1981-90, further increased to78.26 per cent in 2001-04. We can observe that,
whatever additional production is taking place, it is almost entirely consumed
internally leaving export surplus to remain stagnant and sometimes export even
shows declining trend. In contrast, Kenya’s domestic consumption share in
production is very low and declined over a period of time shows that except for a
few years, the increase in production of tea in Kenya is almost entirely used for
export.
In Sri Lanka, domestic consumption in production is very low and is
declining. In 2001-04, around 94 per cent of tea production in Sri Lanka is used for
export. In recent years, tea export and production are almost same in Sri Lanka .In
china, share of export in production of tea increased over a period of time. From
below table one can observe that in China, production, export and consumption
shown increasing trend. In Indonesia, share of consumption in production
increased, but it is lower than India.
Revitalizing Indian tea export in Russia
48 GSR-SAL Institute of Management, A’bad.
(Source: Global Tea Brokers)
Over the years India has been reducing on productivity and quality
parameters. Industry is sensitive to productivity and quality which matters most for
the survival of tea companies. Evident that during 2000-2002, although total land
under cultivation improved marginally by 2.5 percent, tea production actually
dropped by 1.3 percent due to old life of plantations. Even, yield showed a sharp
drop of 3.9 percent from 1679 Kg/Hectare to 1614 Kg/Hectare.
Consumption Trends:
There has been a dramatic incline in tea consumption in favor of domestic
market since fifties. While at the time of Independence only 79 M.Kgs or about
31% of total production of 255 M.Kgs of tea was retained for internal
Revitalizing Indian tea export in Russia
49 GSR-SAL Institute of Management, A’bad.
consumption, in 2009 as much as 812 M.Kgs or about 82% of total production of
991 M.Kgs of tea went for domestic consumption. Such a massive increase in
domestic consumption has been due to increase in population, greater urbanization,
increase in income and standard of living etc. Indian tea export has been an
important foreign exchange earner for the country.
There was an inborn growth in export earnings from tea over the years.
Till 70s’, UK was the major buyer of Indian tea. Since 80s’ USSR became the
largest buyer of Indian tea due to existence of the trade agreement between India
and previous USSR. USSR happened to be the major buyer of Indian tea
accounting for more than 50% of the total Indian export till 1991. However, with
the breakdown of USSR and abolition of Central Buying Mechanism, Indian tea
exports suffered a setback from 1992-93. However, Indian Tea exports to
Russia/CIS countries recovered from the setback since 1993 under Rupee Debt
Repayment Route facilities as also due to long term agreement on tea entered into
between Russia and India. Depressed scenario again started since 2001 due to
change in consumption pattern, i.e. switch over from CTC to Orthodox as per
consumer preference and thus India has lost the Russian market. Another reason
for decline in export of Indian tea to Russia is offering of teas at lower prices by
China, South Asian countries like Indonesia and Vietnam.
Global competition:
The major competitive countries in tea in the world are Sri Lanka,
Kenya, China and Indonesia. China is the major producer of green tea while Sri
Lanka and Indonesia are producing mainly orthodox varieties of tea. Kenya is
basically a CTC tea producing country. While India is facing competition from Sri
Lanka and Indonesia with regard to export of orthodox teas and from China with
Revitalizing Indian tea export in Russia
50 GSR-SAL Institute of Management, A’bad.
regard to green tea export, it is facing competition from Kenya and from other
African countries in exporting CTC teas.
Because of absence of large domestic base and due to comparatively
small range of exportable items, Sri Lanka and Kenya have an edge over India to
offload their teas in any international markets. This is one of the reasons of higher
volume of export by Sri Lanka and Kenya compared to India. Another important
point is that, U.K has substantial interest in tea cultivation in Kenya. Most of the
first-rated companies, after Industrialization due to implementation of FERA Act
started tea cultivation in Kenya. So, it makes business sense for U.K. to buy tea
from Kenya and Kenya became the largest supplier of tea to U.K.
India's share in world production:
Country Market share
China 31 %
India 26%
Sri Lanka 9%
Kenya 9%
Turkey 4%
Indonesia 4%
Vietnam 4%
Bangladesh 2%
Malawi 1%
Uganda 1%
Tanzania 1%
Others
8%
Revitalizing Indian tea export in Russia
51 GSR-SAL Institute of Management, A’bad.
India is the second largest producer of Tea in the world second only to
China who overtook India as the largest producer of tea in 2006.
CHARACTERISTICS OF THE INDIA TEA INDUSTRY:
1) Productivity and quality:
The art of plucking, fine-tuned over the last 200 years, requires two fresh leaves and a bud to be plucked manually. Tea productivity can be measured as per unit of labor (man year) and per unit of land (hectare). Mechanized plucking (when labor is in short supply or expensive) enhances productivity, but with compromise on quality, as coarse leaves also gets plucked. When tea is in short supply, some producers increase productivity by allowing plucking of coarse leaves with fresh ones. When premium for quality rises, producers improve the quality by compromising on productivity. The productivity also depends on the age of tea bushes, genetic material, irrigation, fertilizer, cultivation techniques, etc. Replantation to replace old bushes is done to improve productivity.
2) Labor intensity:
This industry is very labor intensive. Labor cost is generally fixed and therefore lower production would result in higher unit cost of production. The proportion of variable elements in labor cost depends on labor legislation and extent of casual and temporary workers employed. If the production suffers on account of bad weather or pests, per unit cost of production goes up significantly.
3) Long gestation:
Tea bushes mature for commercial exploitation in 5-7 years and remain productive for an average 50 to 60 years. Major part of capital expenditure is to be incurred in first five years, which then yields return over the next 100 years.
4) Commodity nature:
Tea prices fluctuate widely with demand supply imbalances. The commodity is perishable and demand is relatively inelastic to price. While demand has a secular growth rate, supply can vary depending on climatic conditions in the
Revitalizing Indian tea export in Russia
52 GSR-SAL Institute of Management, A’bad.
major tea growing countries. Unlike other commodities, tea price cycles have no linkage with the general economic cycles, but with agro-climatic conditions.
5) Inconvenient but healthy drink:
Tea is a very inconvenient drink to brew. The tendency to form a creamy layer of caffeine -tannin adds to the inconvenience. Tea besides having properties of fatigue amelioration has chemicals, which help in maintaining cholesterol levels and in preventing cancer. However, research work on the subject is not conclusive.
6) Organized industry:
Tea industry is an organized agro industry. This implies that labor laws exist and since the dominant mode of tea trade is through auctions, a large number of small producers get fair prices.
7) Domestic Competition:
The major share of tea market is dominated by unorganized players. There are about 1000 of tea brands in India, of which 90% of the brands are represented by regional players while the balance of the 10% is dominated by Tata Tea, HUL, Wagh Bakri Chai, Godrej, Sapat International and others. With the growing shift from loose to branded tea, regional players are now expanding their reach and also getting premium with their offerings.
Special Features of India Tea Industry:
• Production dependent of agro-climatic conditions
• Same plant and same agro-practices give variations in quality in different
regions
• Product Life is for limited period
• Labor intensive
• High Cost due to high input cost
• No priority for Scientific Cost Management
• Huge proportion old tea & Low Productivity
Revitalizing Indian tea export in Russia
53 GSR-SAL Institute of Management, A’bad.
• Low investment in Development Programme
SWOT ANALYSIS OF TEA INDUSTRY OF INDIA:
Strength:
• Demand for tea has been growing at some 2% per annum and should
accelerate further
• Technical & Manpower Skill: Due to a huge population base in India
Technical &Manpower Skill is available in abundant.
• Good Research Support by tea growers has will help industry grow further.
Weaknesses:
• Labor intensive industry: The second generation labors are unwilling to join
this industry hence it could pose a problem of skilled labor in the near
future.
• No Effective Cost Management system adopted by companies and other
regulatory bodies.
• Supply from more efficient players like Kenya, China, Sri lanka
• Declining Export of India over the years.
Opportunities:
• Export Potential if India can increase its production capacity.
• To make tea more acceptable and fashionable like coffee.
• To come up with new flavors/formulation of the tea, tea houses etc to
popularize the concept of tea in India.
• Large untapped rural market for branded tea companies like HUL and Tata
Tea.
Revitalizing Indian tea export in Russia
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Threats:
• Global competition
• Low Cost in some countries like China, Sri Lanka and Kenya.
• Import of Tea from other countries.
• Cost escalation on account of increase in the cost of production
PORTER'S FIVE FORCES:
Industry Rivalry (High):
• There are approximately700 tea companies in India hence there is intense
rivalry amongst them.
• Market is dominated by a large number of unorganized players.
• Industry growth is slow.
• There are low switching costs.
Revitalizing Indian tea export in Russia
55 GSR-SAL Institute of Management, A’bad.
Bargaining Power of Buyers (High):
• There is a large numbers of buyers purchasing the product.
• The bargaining power of buyers is extremely high as the buyers have many
options available.
• Not much product differentiation in terms of taste also low switching cost.
• Buyers purchase a large proportion of the industry’s total output.
Bargaining Power of Suppliers (Low):
• There are a large number of produces of tea in India.
• There are substitutes like coffee available
• Supplier’s product creates low switching cost.
Threat of Substitutes (Moderate):
• Substitutes like Coffee, Cold drinks, juice (young generation new to tea).
• Existing consumers are loyal
• Substitute’s price may be lower.
• As there are so many players in the industry a price war is unavoidable.
• The substitute products quality & performance may be better.
Threat of new Entrants (High):
• Large untapped rural market for branded tea segment in rural India and
Indian tea in global markets.
• Encouraging government policies like food and beverage act.
Revitalizing Indian tea export in Russia
56 GSR-SAL Institute of Management, A’bad.
Government and the Indian tea industry
The Indian tea industry as the second largest employer in the country has
enjoyed the attention of the Indian government. When export sales went down, the
government has been kind to the demand of the industry and its cultivators. It has
passed resolutions supporting the industry domestically and has also lobbied
extensively with organizations like the WTO internationally.
The Indian administration along with the European Union and six other
countries (Brazil, Chile, Japan, South Korea and Mexico) filed a complaint with
the WTO against the Byrd Amendment which was formally known as the
Continued Dumping and Subsidy Offset Act of 2000 legislated by the US. The
essence of this act was that non-US firms which sell below cost price in the US
could be fined and the money given to the US companies who made the complaint
in the first place. The act adversely affected the commodities business of the
complainant states and has since been repealed after WTO ruled the act to be
illegal.
Furthermore, the Indian government took cognizance of the changed tea
and coffee market and set up an Inter-Ministerial Committee (IMC) to look into
their problems in late 2003. The IMC has recommended that the government share
the financial burden of plantation industry on
account of welfare measures envisaged for
plantation workers mandated under the Plantation
Labor Act 1951. Moreover, IMC has
recommended to introduce means so that the
agricultural income tax levied by the state
governments can be slashed and the tea industry be
made competitive. It has recommended that sick or bankrupt plantation estates
For the period of 2005 through 2008, supply of tea in the Indian market has exceeded demand. Below table gives the supply and demand statistics for tea in India.
As per apex industry body ASSOCHAM-‘’The total turnover of the tea
industry in India is likely to reach Rs. 33,000 crore by 2015 from the current level
of about Rs. 19,500 crore.’’
Chapter 5
ruSSIa tea
market and
ConSumptIon
pattern
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russIa: Tea MarKeT & consuMPTIon PaTTern
Russia: An Overview
Geographic coordinates 60 00 N, 100 00 E Area 17,098,242 sq km Land boundaries 20,241.5 km Coastline 37,653 km territorial sea 12 nm arable land 7.17% permanent crops 0.11% Population 138,082,178 (July 2012 est.) Population growth rate -0.48% (2012 est.) Birth rate 10.94 births/1,000 population (2012 est.) Death rate 16.03 deaths/1,000 population (July 2012 est.) Urbanization 73% of total population Life expectancy at birth 66.46 years Health expenditures 5.4% of GDP Physicians density 4.3089 physicians/1,000 population Education expenditures 3.9% of GDP Government type federation GDP (purchasing power parity) $2.38 trillion (2012 est.) GDP (official exchange rate) $1.791 trillion (2012 est.) GDP - real growth rate 4.3% (2012 est.) GDP - per capita (PPP) $16,700 (2012 est.) Labor force 75.41 million (2012 est.) Unemployment rate 6.8% (2012 est.) Population below poverty line 13.1% (2012) revenues $382.8 billion expenditures $376.2 billion (2012 est.) Inflation rate (consumer prices) 8.9% (2012 est.) Industrial production growth rate 5% (2012 est.) Imports $310.1 billion (2012 est.) Exports $498.6 billion (2012 est.)
production of cereal and leguminous plants puts Russia in the fourth place in the
world (after China, USA and India). Crop farming provides about 40% of the
gross output of agriculture; livestock - more than 60%. Livestock is represented by
dairy, meat and fur industries.
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SOCIO-CULTURAL FACTOR:
Tea Consumption in Russia:
According to the independent market and media research company
ordinary, the following brands top the list of consumer preference in Russia:
• Musky Chain,
• Brook Bond,
• Dolman,
• Princess Gait
• Lipton etc.
Gallup Media Russia reports that 98.5 percent of Russians drink tea
and, according to state figures, per capita tea consumption in Russia equals 1.5
kilogram per person per year, while in Great Britain the matching figure is 2.5
kilograms. This indicates that Russia's tea market has the possible to develop. Tea
is the only product the consumption of which is higher in the provinces than in the
big cities. The leaders in terms of per capita consumption of tea in Russia are
the northern lands, Siberia and the Caucasus.
Demand on the market is increasing, even for exclusive brands, and so
does the rating of preferences for teabags (15 percent). In addition to the factor of
convenience, the increased demand for teabags has resulted from massive
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promotional campaigns organized by such huge companies as Douse Egbert’s and
Unilever.
Aware of the trend, Russian companies have rushed to produce tea bags
and invest in brand advertising. They can save on advertising tea bags as a product
– their competitor are doing that for them.
Other trends on the market include increased consumption of green
teas, herbal teas and flavored teas. Of the last category, most popular are teas with
bergamot and lemon.
Not very long ago this segment of the market was fully controlled by
foreign companies, but now domestic companies are gradually breaking in.
Consumption pattern of tea bags:
As to the tea bags segment Russia repeats the pattern of the European
tea market. Russia consumes more tea bags with every year. In 2002 the share of
tea bags on the Russian market has increased from 7% to 12%. Accordingly to the
industry experts this growth will continue in the future.
The increase of the tea bag sales is by many explained not only with
the increased population income but also with the influence of the Russian
producers on this market. The tea in tea bags becomes cheaper and tastier as the
national producers understand better than anyone else the high requirements to tea
quality put forward by the Russian consumers. Thus for the production of the tea
bags they choose the grades that are not worse than traditional leaf grades in terms
of taste and smell.
Reasons for decline in tea consumption:
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"Russia's tea industry will develop," senior manager of the Milford
company Sergei Kramarenko. "However, there are some problems that may
negatively affect the tempo of its development.
The most serious problem is that of quality. Many well-known, though
dishonest, companies practice merger premium brands with cheaper ones and
selling the mixtures as premium brands. Naturally, these companies show higher
cost efficiencies, but this is achieved at the expense of quality. Such dishonest
methods of rivalry weaken both the market and customer bearing."
Tea Will Be Promoted Among the Young People:
The Russian association of manufacturers of tea and coffee
“Roschaykofe” and the Chinese manufacturers of tea are meaning to effectuate
certain number of joint actions which must increase the consumption of tea among
the young people. Today one of the problems of this branch consists in that “tea is
losing its young consumer”. Meanwhile, the Chinese manufacturers of tea are
planning to increase significantly the deliveries of green tea in Russia.
Today Russia imports 40% of tea from Sri Lanka, 20% — from
India, 12% — from Indonesia and 9% — from China. The yearly consumption of
tea in Russia is equal to 170 thousand tons, per capita —
Festivals in Russia:
1 kg a year. By the
consumption of tea Russia occupies the third place in the world, after China
and India. The volume of Russian tea market is evaluated as being equal to
US$ 1 billion.
Easter
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The Easter service begins late on the eve of Easter and continue through
the night. At midnight the people attending worship, carrying lit candles, follows
the priest; this symbolize the women who came to the tomb of Christ and found it
empty. As dawn breaks, the Easter service finishes and the worshippers disperse to
their homes to break their long fast with special Easter foods and coloured eggs.
New Years Eve
Usually people meet the New Year eve in the close family circle. People
wait till midnight, eat delicious things, watch TV, try to be happy, merry, hear
music etc. They launch fireworks more and more. They like to beautify the fir or a
pine in their houses. They like to visit masquerade meetings especially children, to
find presents under the decorated tree and elsewhere. They like to meet Father
Frost and Snowmaid as fairy tales' characters and most lovely present givers.
People dance around the fir, sing New Year songs.
Independence Day
June 12 is Independence Day. It's an official holiday. They spend this day
on their dachas which is a small wooden houses in scenery where they plant some
vegetables, enjoy nature and live simple life being close to nature. June 12 is
Russia's newest holiday, Independence Day, which commemorate the adoption in
1991 of the Declaration of Sovereignty of the Russian alliance.
Russian winter festival
December 25 to January 5 is the time of the year for the Russian Winter
Festival. Events are held to celebrate the coming new year,especially in Moscow,
St Petersburg, Novgorod, Vladimir and Suzdal, where troika rides, along with
other traditional Russian folk customs, take place. Because the Soviet Union
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ceased to exist on December 21, 1991, Christmas week now offers another reason
to have fun a new beginning.
Christmas:
The Christmas' Eve night lasts from 6 to 7 January. Usually on the
Christmas' Eve people have a fast from morning till late evening or until the first
star will appear. The mummers go from house to house during Christmas; they sing
Christmas carols and are treated. Dens are in every family. People make it
themselves. The sett is a two-circle small box and there play scenes with wooden
figures. The main scene is the Birth of Our Saviour.
Analysis of the Russian Tea Market:
Russia has a long history of tea drinking because of its
nearness to China and Central Asia. Russia is the largest market for tea
in the world, both in terms of all tea variety, as well as for just black tea.
In 2007 in terms of retail value the Russian market was worth $3,266
million and in terms of retail volume it was 161.44 million kg.17 The
year-on-year growth rate of the Russian tea market, for the period 2006-
07 in terms of retail value was 12% and in terms of retail volume was
2.3%.18 The Russian market also has one of the highest per capita use
rates for tea. In 2007, per capita consumption of tea in Russia was 1.3 kg
compared to the average global per capita use of tea, which was 0.3 kg
in the same year.19 Retail prices for tea in Russia are relatively high and
growing. In 2007, the average retail price for tea in Russia was $20.2 per
kg, compared to the average global retail price of $13.2 per kg in the
same year.
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Growth potential in Russian market:
If one recollect, prior to the collapse of Soviet Union, India
was the leading tea exporter to that country. However post 2000 the
share of Indian tea decline to 30000 tn in 2006 from 113,000 tn and this
was to the advantage of countries like Sri lanka, Kenya, Vietnam, China
and Indonesia. Traditionally the Russian consumer had acquired a taste
for Indian tea and always preferred it over brands from other Asian
countries. However India lost the market due to poor quality of tea
supplies compared to its Asian counterparts.
Earlier India lost its share of market to other countries because
it imported low quality CTC teas when the purchasing power in Russia
tumble due to collapse of the entire economy in 1990s. India now aims
to improve its tea image in the mind of Russian consumer by marketing
new varieties of tea which is something special for the Russians. The
Indians are intent on a paradigm shift to quality based trade from the
earlier quantity based approach. It has plans to promote Assam,
Darjeeling and Nilgiri tea brands.
As when exports to Russia commence we see prices of
premium quality tea firming up, which may result into better times ahead
for growers of premium quality tea. Recently a Russian allocation
comprise of the Association of Russian Tea and Coffee companies and
members of Indian Tea Board have signed a MOU for taking appropriate
steps to promote export of Indian Tea into Russian market.
The intervention of politics in the tea trade:
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As was shown by the Boston Tea Party, tea makes a good
pawn in international affairs and the politicisation of tea is further
compounded by the prevalence of consumption by the South, unlike with
coffee or cocoa.
To take one example, the disagreement between Pakistan and
India over Kashmir weakens the South Asian friendship for Regional
collaboration (SAARC), which would otherwise have the most potential
for influence the tea trade as it includes both Sri Lanka and India, which
together market most of the world’s quality value-added tea. Pakistan
and India are currently in a quid pro quo arrangement whereby Pakistan
will buy Indian tea if India buys Pakistan’s cotton.
Domestic politics also plays an important part in tea
manufacture. The activities of the Tamil Tigers in the tea-growing
regions of Sri Lanka have been describe as the greatest cost to the Sri
Lankan tea industry; while in India over 450 armed separatist extremist
organizations disturb the in service environment.
The organization with authority over tea as an export
commodity is the World Trade Organization, which would ultimately
have authority in mediating any dispute. For example, the WTO has been
pressuring the EU to abolish tea tariff ‘preference’ to Kenya, which
bestows a major price advantage to that nation.21 The WTO, however,
has traditionally kept out of regulating commodities markets, including
tea, except in tariff issues.
Revitalizing Indian tea export in Russia
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The Tea Working Group of the Food and farming
Organization (FAO) of the UN, therefore, is more relevant as the
international body for the tea industry. On a regional level,
organizations gaining in status and legal clout include SAARC in South
Asia and the Common Market for East and South Africa (COMESA) in
Africa.
Tarrif:
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Productions:
The top five players in the Russian tea market, namely Orimi
Trade, Ahmad Tea Fabric, Unilever SNG, Mai Kompanya and Akbar
Bros Ltd, contributed to more than 50% of the total sales in 2007. In
Table 3 on the next page are the names of the major players in the
Russian tea market and their own market shares.
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Forecast of Tea Volumes by Sub-Sectors for the Period 2007 to 2012:
Due to the rising affluence and growing health and wellness trend, there is a growing demand for specialty premium teas such as green tea, herbal/fruit tea, and other tea In Russia, as reflected in the forecasted values below.
Chapter 6
CompetItIve
analySIS of
tea
exporterS
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coMPeTITIve analysIs:
RUSSIAN TEA IMPORT STORIES:
History of Tea Import in Russia:
• Tea in Russia was introduced in 1638:
When a Mongolian ruler donated to Tsar Michael I four pod (65–70 kg) of tea.
• In 1679, treaty between Russia and china:
Russia concluded a treaty on regular tea supplies from China via camel caravan in exchange for furs, the difficult trade route made the cost of tea extremely high, so that the beverage became available only to royalty and the very wealthy of Russia.
• In 1689, the creation of THE TEA ROAD-
The Treaty of Nerchinsk was signed that formalized Russia's control over Siberia, and also marked that traders used between Russia and China.
• In 1735, The Russian Empress extends tea as a regulated trade:
In order to fill Russia’s tea demand, traders and three hundred camels travel 11,000 miles to and from China, which takes sixteen months. Russian tea-drinking customs appear which entail using tea concentrate, adding hot water, topping it with a lemon, and drinking it through a lump of sugar held between the teeth.
• In 1736, maximum import of tea by Russia to fulfil domestic demand:
Russia was importing more than 3 million pounds by camel procession in the form of loose tea and tea bricks, enough tea to considerably lower the price so that middle and lower class Russians could afford the beverage.
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• Kiakhta tea and tea caravans:
The peak year for the Kiakhta tea trade was in 1824, and the peak year for the tea caravans was 1860, From 1860, they started to decline due to Faster train service allowed for tea to be imported from nearly a year and a half to eventually just over a week. By 1925 caravan as the sole means of transport for tea had ended.
Current market trend of Tea Import in Russia:
• Main trends in Tea Sector in Russian market in 2010–2011
In 2010 and 2011 was marked by a strong unpredictability in prices, which
nevertheless continued their upward trend. In 2011, Kenya and Sri Lanka
registered a record crop while there were declines in India.
• New consumption parameters
In Russia, most consumers especially for tea are concerned about a number of
issues: The use of pesticides on tea plantations, the more general environmental
impact of the plantations, food safety, and the welfare of growers. The supply
chain must remain attentive and attempt to solve all these problems, to ensure
that they do not start to slow down the increasing popularity of the product.
• Health and fashion
Consumers in Russia are increasingly looking for good-quality and specialty
teas. Health issues play an increasing role in determining consumers’ choices of
food products. Excellent marketing has allowed green tea, largely from Asia, to
benefit from this trend.
Fashionable teas are also increasing – for example, iced teas, flavored teas,
white, green and other teas, hot and cold. Producer countries should diversify
their product range and develop brands which will increase their market
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visibility, and support marketing campaigns and the fight against fake
imitations.
• Tea-producing countries themselves
The tea-producing countries themselves can be considered developing markets.
They currently drink only one-tenth of the quantity consumed by the traditional
tea-importing countries, leaving considerable potential for growth. The
development of these markets would also bring pressure to bear on the value
chain and increase the amount of added value retained by the tea-producing
ACP countries.
• Environment and sustainability
The market for fair-trade certified tea and ethically sourced tea should grow,
and a new market is opening for ethically sourced tea.
The production of tea from sustainable sources marketed principally under the
Fair-trade label generally achieves a higher price than the standard product with
fair-trade and organic certification increasingly found side by side.
• Emerging markets
A positive sign is that with demand from consumers rising, tea exports are
likely to increase as China and India are trying to increase local consumption of
tea, their exportable surplus is reducing. The two countries are likely to
consume a growing percentage of the world's tea over the coming decades,
leaving more space on global markets for other exporters. Kenya's tea exports to
China, India, Russia, and United Arab Emirates have increased. Increasing
purchasing power in emerging nations is stimulating their consumption of tea.
Russia the world's leading importer of tea, is consuming more specialty teas and
more expensive teas. Import duty, which currently stands at 0% for raw tea and
15–20% for processed tea, will be revised downwards if Russia joins the World
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Trade Organization (WTO), probably at the end of this year. Russia would
certainly like to increase domestic output.
Import policies highlights:
Russia have less or removed import duty but it continues to maintain a
number of import restrictions like charges and fees that exceed the cost of the
service, licensing, registration, and certification regimes that are burdensome.
Minimum value addition under advance authorization scheme for export of tea has
been reduced from the existing 100% to 50% DTA (Domestic Tariff Area) sale
limit of instant tea by EOU(export oriyentel unit) units has been increased from the
existing 30% to 50%.
In 2007 the Government decreased to 0% duties on agricultural products,
which do not grow in Russia. At present import duties on processed tea in primary
packing not exceeding 3 kg are highlike 15% to 20%. Import of other tea green and
black is duty-free.
When importing agricultural and food production equipment to Russia, there
are several ways to document such transactions, each having different tax
consequences. Generally, tax planning is connected with VAT. The transaction
chain has to be properly created under the optimal scheme; otherwise the supplier
will probably need to pay 18% VAT to Russian state budget. Russia enacted a new
trade law as of February 1, 2010 (the “Trade Law”) which establishes new rules for
sale of food products, and sets forth restrictions on various practices of retailers.
The Trade Law establishes new rules for distributorship agreements for all types of
products, including food products, establishes deadlines, and bans discrimination
against parties involved in business activity. With regard to food products, the
Trade Law limits the amount of bonuses payable by the supplier to the distributor
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for a volume of food products that is purchased. Such bonuses are not to exceed
10% of the price of food products. A distributor may not deduct more than this
amount as a cost of sold goods.
Major exporting countries’ competition:
Since, the demand of russia is second largest after U.S. in world therefore
Russia is dominant on other major producer countries like China, Kenya , Sri
Lanka and India. All the major competitors are having remarkable increase in
production and croping of tea, but India has slopped down it’s market share
globally as well as in Russia Tea Market.
To regain these position of India some strategic decessions must be taken.
For this purpose we first need to analyze competitiors position in global as well as
in Russian Market. To cope up with competiton we have shown some general
information about all the major competitors and their existing strengths and
weaknesses with upcoming oppurtunities and threats in global as well as in Russia.
Rank Country Agriculture area HA in ‘000
Production (in Tones) (2009)
1 China 524321 1375780 2 India 179963 972700 3 Kenya 27350 314100 4 Sri Lanka 2610 290000 5 Turkey 38911 198601 6 Vietnam 10272 185700 7 Iran (Islamic Republic of) 48515 165717 8 Indonesia 53600 146440 9 Japan 4609 86000
10 Argentina 140500 71715
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(Source: Faostat.Org)
(Source: Faostat.Org)
As shown in graph China, India, Kenya, Sri Lanka and Turkey are five
major global players in tea market production. But here we are focusing on to
capture Russian Tea Market. For the purpose to export tea to Russia, ranks are
different for different countries. So here some general information about major
players exporting to countries to Russia.
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1st Sri Lanka
Sri Lanka is having 4th rank in all over the world tea
production. Sri Lanka has 26100000 hectares of
agricultural land and with very much popular in its
premium quality of Black tea . Approximately 39%
of its labor force serves the agricultural sector. About 6.84% of the total tea of the
world is produced by Sri Lanka and more over in 2009 Sri Lanka produced 290000
tonnes of tea. Further more in 2009 Sri lanka had exported 54257 tonnes tea to
russia with 1st
2nd India
rank in exporting to Russia.
India is one of the growing and leading countries in
most of the aspects like production and export of
tea globally. India ranks number one in most of the
cultivating crops but we are here to know about tea
produced by India. You will be overwhelmed to
know this that 22.93% of total tea of the world are
produced by India. This is not the least in 2009
India has produced 972700 tonnes of tea. India is having 179963000 hectares of
agriculture land. Where in exporting to Russia India had exported 45788 tonnes to
Russia with second rank in 2009.
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3rd Vietnam
The total agricultural area of Vietnam is round about
10272000 hectares . The reason why Vietnam is on
our list is because the total amount of tea produced
by Vietnam in 2009 was 185700 tonnes and 4.38% of
total tea produced in 2009. In 2009 Vietnam was on
6th rank to produce tea in world. In export transaction,
Vietnam was on 3rd
4th China
rank with 20099 tonnes of exported to Russia.
China is one of the rising nations now days and has a
huge name in the open market in most of the things
including electronics, crockery, as well as agricultural
sector too. You will be find out that 32.43% of the total
tea produced throughout the globe is produced by china.
While on the other hand 15% of the total land of china is
cultivating land. The total amount of tea produced by
china in 2009 was 1375780 tonnes and that is why it ranks number one in our list
of maximum tea producing countries but in exporting to Russia, china lied at 4th
rank with 18614 tonnes exported to Russia.
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5th Indonesia
Indonesia is very much popular in agricultural sector in
many aspects because of its production of coffee, tea,
and cocoa. In this list Indonesia ranks number 8th in the
production of Tea because Indonesia had produced
146440 tonnes of tea in 2009 with 53600000 hectares of agriculture land.
Exporting to Russia, Indonesia came on 5th
6th Kenya
rank with 18462 tonnes of tea in 2009.
Kenya is one of the major leading countries in it because
about 7.40% of the total tea of the world in 2009 was
produced by Kenya. Kenya has 27350000 hectares
agriculture land and more over Kenya has produced
314100 tonnes of tea in 2009 with 3rd world ranking. But in exporting kenya came
to 6th
All major contries had contributed significantly in Russian tea market.
To explore some competitive advantage and to maximize core competancies we
have analyzed future trend in Russian Tea Market. With the help of past, present
and future estimated data here all the countries are given ranking to understand
which country will dominant to Russia or all over the world.
rank with 15033 tonnes exported to Russia in 2009.
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Comparison Table:
Country Sri Lanka India Vietnam China Indonesia Kenya Production (Tones) 290000 972700 185700 1375780 146440 314100 Rank in WORLD by
Production 4 2th 6nd 1th 8st 3th rd
Agriculture area (‘000)
2610 179963 10272 524321 53600 27350
Rank Area wise 6 2th 5nd 1th 3st 4rd th Export to Russia
(2009) 54257 45788 20099 18614 18462 15033
Rank export wise (2009)
1 2st 3nd 4rd 5th 6th th
Export to Russia (2012) Estimated
78520 14074 22587 22173 22088 23239
Rank export wise (2012)
1 6st 3th 4rd th 5 2th nd
Export to Russia (2015) Estimated
85083 -2033 28101 25655
25494
28753
Rank export wise (2015)
1 6st 3th 4rd 5th 2th nd
Export to Russia (2020) Estimated
96022 -28880 37292 31458 31171 37943
Rank export wise (2020)
1 6st 3th 4rd 5th 2th nd
(Estimation contain of data from 2000 to 2009. Which are base to find future trend of Russian
Market.All data collected from faostat.fao.org)
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Major Tea Exporters to Russia: (Year:2010)
Country % share Volume (in tones)
Sri Lanka 29% 52664.87
India 25% 45400.74
China 11% 19976.33
Vietnam 11% 19976.33
Kenya 8% 14528.24
Indonesia 7% 12712.21
Other Countries 9% 16344.27
TOTAL 100% 181603 (Source:en.id-marketing.ru/articles/market-of-tea)
SWOT analysis for major players: Sri-Lankan tea industry:
Strength:
• Sri-Lanka holds a dominant position as a leading exporter of black tea and has a
strong presence in major markets such as the Russian Republic and CIS
countries, Jordan, Egypt and U.A.E.
• It has a reasonable diversified product line, producing both orthodox and CTC
tea. It has recently developed a type of Ortho CTC- tea with some of the more
desirable features of both forms.
• It has made some progress in production and exports of different forms of valve
added tea such as decaffeinated tea, instant tea, and flavoured tea. Many of the
private players have targeted the healthy food segment of the world with their
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organically grown tea and are trying to establish direct sales linkage with
overseas end distributors.
• The Sri-Lankan tea industry is operating in a diversifies geographical market
which gives it strength to sustain future demand fluctuation.
• Quality control within the industry is good.
• Sri Lanka’s image is strong in international tea market.
Weakness:
• The total area under tea in Sri-Lanka is shrinking without much improvement in
productivity, in contrast with Kenya were both land area under tea and
productivity is on the rise.
• The facilities for the production of the tea have become absolute. The growing
stock is old and has lost productivity. Factory modernization is slow and there
is an imbalance in production rate in Orthodox and CTC teas. The country has
been slow in exploiting the potential of the tea bag market by falling behind the
CTC production. In the instant tea market also, despite its earlier lead, Sri-
Lanka has fallen behind India and Kenya.
• Its productivity is very low compared to other international producers.
• The availability of quality worker is on the decline.
• The export distribution network for the tea is weak. Most of the Tea is still
channelled through commodity auction.
• Technical and management skills are lacking.
• The sector is financially weak.
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• Unit cost is high, relative to key competitors.
• The coordination of production and marketing is weak and international
marketing skills are below what is required for a market leader.
• The rate for product innovation is low.
Opportunities:
• World demand for black tea is expected to grow at the rate of 3.2% per year. A
substantial part of this demand is likely to come from developing countries.
Particularly in the Middle East and from CIS countries which have a preference
for orthodox tea. The CIS countries are also likely to continue to be strong
buyers of high quality tea as there are indications that the market there has
started to recover from its earlier economic problem.
• The demand for tea in the west is likely to become very selective for speciality
tea such as instant tea, organically grown tea, and flavoured tea. Sri Lanka has a
strong potential for exploiting this premium price segment.
• The future consumption potential in other key market is high.
• The price trends in the major markets like the CIS and U.A.E are strong.
• The world market for beverages is fast becoming segmented due to changing
life style and consumption preferences, as well as intensive market promotion
by beverage manufacturers. Sri Lanka is placed better than its competitors to
take advantage of this segmentation.
• Sri Lanka produces a wide array of tea, from high quality light tea to strong
dark tea. It can exploit its ability to expand its product line and diversify into
the related products.
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• There is a good potential for Sri-Lanka to achieve forward integration of its
market by establishing direct linkage with overseas buyers and consumers. The
private tea companies in the country are already exporting branded tea and
packaging is developing.
• Deregulation and recent government actions is freeing up the production
marketing system extend good opportunities to the private sector to install new
production processes that enable cost efficiency and foster increased price
competition.
• The favourable exchange rate regime holds good potential for future price
competitiveness.
Threats:
• All most all countries competing with Sri-Lanka have higher productivity and
productivity growth rate.
• Kenya has overtaken Sri-Lanka as the larger exporter of tea.
• The pace of technology development and product innovation is low.
• Government’s control over labour market still threatens to destabilize the
industry.
• Sri-Lanka’s lack of CTC production capacity is likely to make it lose some
extremely lucrative market like Pakistan, which is slated to become the leading
importer of black tea by the year 2005.
• Changing demography and buyers need and taste are likely to replace the
demand for traditional bulk tea with differentiated tea in the world market.
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• Stagnant infrastructure development may decrease the industry’s ability to
compete internationally.
China tea industry:
Strengths:
The strengths of a business or organization are positive elements, something they do well and are under their control. The strengths of a company or group and value to it, and can be what gives it the edge in some areas over the competitors. The following section will outline main strengths of china tea industry,
• Being a market leader, as is key to their success as it boosts reputation, profit and market share.
• Competitive pricing is a vital element of china tea industry’s overall success, as this keeps them in line with their rivals, if not above them.
• Keeping costs lower than their competitors and keeping the cost advantages helps pass on some of the benefits to consumers.
• China has an extensive customer base, which is a major strength regarding sales and profit.
• Being financially strong helps deal with any problems, ride any dip in profits and out perform their rivals.
• China has a high percentage of the market share, meaning it is ahead of many competitors except Sri Lanka and India.
Weaknesses:
Weaknesses of a company or organization or industry are things that
need to be improved or perform better, which are under their control. Weaknesses
are also things that place you behind competitors, or stop you being able to meet
objectives. This section will present main weaknesses of china tea industry.
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• China tea industry’s lack of innovation limits its success, as there is no forward thinking.
• Online presence is vital for success these days, and lack of one is a limitation.
• China tea industry’s limited product line is a major weakness.
Opportunities:
Opportunities are external changes, trends or needs that could enhance
the business or organization’s strategic position, or which could be of a benefit to
them. This section will outline opportunities that is currently facing.
• China tea industry is in good financial position, which is an opportunity for them to explore in terms of investment in new projects.
• China tea industry has the opportunity to enter a niche market, gain leading position and therefore boost financial performance.
• Grasping the opportunity to expand the customer base is something can aim for, either geographically or through new products.
• Expanding the product lines by could help them raise sales and increase their product portfolio.
• China tea industry has a number of highly skilled staff, which is an opportunity for them to explore as expertise of their staff can help to bring the business forward.
Threats:
Threats are factors which may restrict damage or put areas of the
business or organization at risk. They are factors which are outside of the
company's control. Being aware of the threats and being able to prepare for them
makes this section valuable when considering contingency plans and strategies.
This section will outline main threats is currently facing.
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• Consumer lifestyle changes could lead to less of a demand for products.
• Changes in the way consumers shop and spend and other changing consumer patterns could be a threat to china tea industry’s performance.
• Price wars between competitors, price cuts and so on could damage profits for china tea industry.
• A slow economy or financial slowdown could have a major impact on business and profits.
• Could be threatened by the growing power customers have to set the price of their products.
Kenya tea industry:
Strengths:
The strengths of a business or organization are positive elements,
something they do well and are under their control. The strengths of a company or
group and value to it, and can be what gives it the edge in some areas over the
competitors. The following section will outline main strengths of Kenya tea
industry,
• Competitive pricing is a vital element of Kenya tea industry’s overall success,
as this keeps them in line with their rivals, if not above them.
• Keeping costs lower than their competitors and keeping the cost advantages
helps pass on some of the benefits to consumers.
• High quality products are a vital strength, helping to ensure customers return to
Kenya tea industry.
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• Kenya tea industry’s position in the market is high and strong – a major strength
in this industry as they are ahead of many rivals.
Weaknesses:
Weaknesses of a company or organization are things that need to be
improved or perform better, which are under their control. Weaknesses are also
things that place you behind competitors, or stop you being able to meet objectives.
This section will present main weaknesses are
• The lack of business alliances is a major weakness for Kenya tea industry, as
they will struggle to get deals, favours and partnerships.
• Kenya tea industry’s lack of innovation limits its success, as there is no forward
thinking.
• Kenya tea industry’s limited product line is a major weakness.
Opportunities:
Opportunities are external changes, trends or needs that could enhance
the business or organization’s strategic position, or which could be of a benefit to
them. This section will outline opportunities that is currently facing.
• Low labour cost and strong man power can stimulate the industry.
• Grasping the opportunity to expand the customer base is something can aim for,
either geographically or through new products.
Threats:
Threats are factors which may restrict damage or put areas of the
business or organisation at risk. They are factors which are outside of the
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company's control. Being aware of the threats and being able to prepare for them
makes this section valuable when considering contingency plans and strategies.
This section will outline main threats is currently facing.
• Consumer lifestyle changes could lead to less of a demand for products.
• Tax increases placing additional financial burdens on could be a threat.
• Not keeping up with changes in technology could be harmful to the future of as they could slip behind their rivals.0
• Slow growth and decline of the market is a threat to Kenya tea industry.
• Price wars between competitors, price cuts and so on could damage profits for Kenya tea industry.
According to the recent article of Business Standard:
The total turnover of the tea industry in India is likely to touch Rs
33,000 crore by 2015 from the current level of about Rs 19,500 crore, as per a
study titled ‘Indian Tea Industry’, released by industry body ASSOCHAM. With
nearly six lakh hectares area under tea cultivation, the domestic tea industry is
growing at a compound annual growth rate (CAGR) of about 15 per cent, stated
the study.
“India is world’s largest consumer, second largest producer and fourth
largest exporter of tea after China and accounts for nearly 30 per cent of global
output and nearly 25 per cent of tea produced worldwide is consumed in India ,”
said DS Rawat, secretary general of ASSOCHAM while releasing the findings of
the study.
“Branded market accounts for nearly 55 per cent of the total market and
is growing at about 20 per cent while the unbranded market is growing at 10 per
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cent annually,” said Mr. Rawat.
Nearly 35 lakh workers are employed in over 1,500 tea estates across
India and about 65 per cent of these are employed indirectly. According to an
ASSOCHAM estimate, the tea production during the current year is likely to stay
over 950 million kg as against 966.4 million kg in 2010.
“Awareness about health benefits associated with moderate intake of tea
is another significant factor behind this rise in its demand as now more and more
people are familiar with healing properties of tea,” said Mr. Rawat.
Historically regarded as a hot beverage, the penetration of tea in the non-alcoholic
cold beverage segment is another driving force for this industry owing to the rising
similarity towards ice-tea which currently accounts for over five per cent of entire
non-alcoholic beverage market in India, found the study.
“There is not much product differentiation at rural and urban levels and
thus key industry players are coming out with value added products but with
rapidly changing market scenario and technological advancement in agri-business,
there is tremendous scope and potential for growth and development of domestic
tea industry,” the study found.
The Indian tea industry is presently facing tough competition from
China, Sri Lanka, United Kingdom, Kenya and Japan.
Hindustan Unilever is the current market leader in terms of sales value with over
20 per cent market share; while Tata Tea is the leader in terms of sales volume
with nearly 20 per cent market share.
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Threat of new entrant
Bargaining power of the
buyer
Bargaining power of suppliers
Threat of substitute
product
Competitive intensity among
competitors
Porter analysis of global tea industry:
Threat of new entrant:
New entrant in an industry creates additional capacity and come with an
urge to gain market share and consume franchise. In the process, prices are pushed
down and margin is reduced, resulting in reduced profitability in the long run.
In the global tea industry, large scale entry, of the African producer in the
70s, added capacity which led to the excesses being witnessed in the industry
today. Some of the producing countries may not have the competitive advantage
for producing tea and may actually be pushing industry towards prolong decline.
The major entry barriers are:
• Product differentiation
• Economy of scale
• Governmental polices
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• Major players in the market.
Bargaining power of the buyer:
The ultimate aim of the buyers is to lower the price as far as transferring
the profit from the producer to themselves to maximum extent possible.
In the tea market the bargaining power has been important because of the
focus of the few large buyers in the auction system where prices could be easily be
fixed by collusive action. There is high degree of agreement in the later stages in
the tea processing and marketing, the producer have no mean of breaking out of the
system without an extremely heavy instrument. The almost undifferentiated or
standardized nature of products sold through the auction system has contributed to
the bargaining power of buyers.
Bargaining power of suppliers:
If the supplier of the product has enough power over the distribution
system, they can control the price and profitability. This usually happens when the
suppliers are large, relatively few in numbers, or are in some kind of agreement to
limit supply to the market, of the products are of high demand or involve high
switching cost.
Tea has been at the disadvantage in all this aspects. The industry
worldwide is characterized by an agglomeration of small producer- all trying to
increase their output with their expectation of enhancing revenue regardless of the
effect on price.
In countries like Sri Lanka and India, substantially investment has already
been made in the sector and to support significant employment. It is therefore
simple to understand why there are such easy price takers. Also, tea is not the
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product of high switching cost and consumer can easily switch to alternative
beverage.
Threat of substitute product:
Producer in the industry constantly compete with firms in other industries
producing the same products. Substitute products can be identified by looking at
the primary demand at product class level, such as drinking market such as soft
drinks may be substitute for tea.
The major substitute products for tea are soft drink, fruit juice, coffee and
alcohol. Intra-industry rivalry between these products differs from market to
market. In terms of per capita consumption, however there has been a very little
change for coffee, tea and alcohol but soft drink consumption have been gone up
significantly.
World trade in fruit juice has exceeded five billion US dollars per year
and the growth is expected to continue for some time. However all the import of
fruit juice can take place in 5 countries of the world, including U.S, Germany, U.K,
Nether land and France. All of these are important tea consuming countries also.
The growing trend of fruit juice consumption is probably due to growing health
consciousness in the developing countries. This industry has been ahead of new
product development, such as new flavour and blend juices. Convient packaging
and aggressive have helped increase consumer preference for this type of drink.
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Competitive intensity among competitors:
The main reason for the intense competition in the global tea industry
has been:
• Competitors are numerous, and many of they are roughly are equal in size and power, such as Sri Lanka and Kenya, India and china, and Malaysia and Thailand.
• Market growth has been low, and share gain at the expense of the competitors has been the only avenue for growth.
• Products have been essentially undifferentiated.
• The cost buyer switching from one supplier to another has been low because of the dominance of the auction system; producers have not developed ways and means to tie theirs consumers into long term relationships.
• The perish ability of the product as created the need to cut the price for clearing the stocks.
• Producer remains in the market in spite of low profits because of sunk investments and the lack of other opportunities.
Chapter 7
fIndIngS
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fIndIngs:
Indian tea exports decline:
Russians have begun to take a fancy to tea from Sri Lanka and China
instead of India. Of late, India has been losing ground in the global markets,
creating a flutter in the Indian tea industry. The fall in exports growth directly
reflects on exports to Russia, as it is the largest importer of India tea in the world.
This hit the bottom lines of the tea exporting community in India because Russia
accounts for more than 50 per cent of total tea exports from the India. Russia
becomes vital to the Indian tea industry because of the sheer quantity involved. A
fall in exports to this market has snowballing effect on the entire Indian economy.
Tea exporters in Siliguri expect a decline in exports due to the falling
demand for Indian tea in the world market, which is facing tough competition
from Sri Lanka and Kenya.
The tea gardens of Darjeeling, Terai, Dooars including Assam are well-
known to produce the world's best blend of tea and contribute 75 percent of India's
total tea production every year.
Tea exporters said that entry of the other countries in the foreign market and
the ongoing payment problems have led to the decline in the exports.
"We purchase tea from Middle East and Russia for our export. This year,
there has been a decline in exports as our competitors like China, Kenya and Sri
Lanka have gone ahead of us. Earlier, we were number one in exports, now we
have fallen to fourth position," said Vice President of Federation of All India Tea
Traders Association (FAITTA), Kamal Kumar Tiwari.
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Tiwari added that apart from the slowdown in exports, weather also played
havoc this season.
"Unfavourable weather conditions are another reason for the decline in
the tea exports. The fluctuating weather would also affect the production of tea,"
added Tiwari.
India faces firm competition from Sri Lanka and Indonesia in the traditional
tea market, and in green tea from China, while Kenya and other African countries
vie for the CTC export market.
Reasons for poor performance of Indian Tea sector: As quality is becoming the deciding factor, India will have to produce
quality teas if it wants to continue its hold in the international market.
Many factors have been cited as causing the crisis in the Indian tea sector–
since the late 1990’s. The striking fall in prices is one of the most significant
causes of the crisis. The worst affected are plantation workers and small growers;
many estates failed to withstand the descending slide of price and hence moved
out of business leading to the closure of tea estates that employ thousands of
workers and of factories (BLF) to which small growers might sell their products.
Tea prices in India are being driven down by many factors:
a) Decline in demand for Indian tea in the global market
b) Defects in auction system
c) Poor price realization
d) Defective market structure
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e) Increase in cost of production
a) Decline in demand for Indian tea in the global market:
(Source: Annual Bulletin of Statistics 2006, ITC, London)
The decade of 90’s has been quite depressing for the Tea Industry in
India .The major cause of depression in the industry was the decline in the
international demand of Indian tea. The traditional markets of Indian tea like
USSR and UK have drastically reduced the import of tea from India. Changed
global situations like disintegration of USSR, WTO agreement, globalization of
markets across the nations, etc. have proved to be adverse to India. In the year
2004, India lost its eminent position of the largest producer of tea to China. Kenya
has already taken over Sri Lanka in export pushing India to third position. There is
a fierce competition abroad. Indian tea has lost its competitive advantage to other
countries on account of high cost and poor quality. While tea production of India
grew by about 250 percent since 1947 (1947 production-255mkg and 2007
production-950mkg) but the rate of growth of export remained trivial. It appears