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The Covid-19 pandemic created a windfall for Nepal’s tea industry, as prices jumped 40% on Asian demand.
Landlocked Nepal exports half of its annual tea harvest of 25,000 metric tons, of which 19,000 tons is CTC (cut, tear, curl). Half of Nepal’s CTC is destined for India, where most of it blended and resold. Nepal also ships sizeable quantities of orthodox tea that is used in blends.
Nepal’s tea factories closed initially, but few of the country’s 14,000 smallholders enforced lockdowns. Fertilizer was costly and scarce, and the weather was adverse, but most kept producing.
In India, however, tea production declined by as much as 40% during lockdowns. India filled the gap by importing 60% more tea from Nepal in 2020 than the year before. For that tea, Indian buyers paid prices well below levels for domestically grown tea, but 25% higher than prices in Nepal's own market.
India's tea industry grew concerned about the influx. In November 2021, the government ordered commercial blenders to stop using Nepal tea. Nepal's tea exports nosedived, and both countries began re-evaluating the Friendship Treaty signed in 1950 that eliminated tariffs on bilateral trade. India’s Parliament drafted legislation to impose “anti-dumping” duties of 40-100% on imported tea. In July, members of India's Commerce Committee angrily declared Nepal tea inferior to Darjeeling.
The ban backfired.
To comply with the regulation, Tata Consumer Products (TCP) eliminated Himalayan blends from its top-selling Tata Gold, a mix of Assam and 15% long-leaf teas made by Darjeeling blenders using Nepal tea. Since Nepal tea was no longer available and 100% Darjeeling was far too expensive for a commodity brand, Tata, a $1.6 billion company, bought a million kilograms of long-leaf tea blended elsewhere. Darjeeling prices plummeted.
Neither country could withstand the financial pain. In October, India reversed the ban at the insistence of blenders. The reversal prevents Himalayan blends from being marketed as Darjeeling. Tata Gold was never sold as Darjeeling, so TCP complies.
In the weeks since the ban was withdrawn, Nepal’s exports to India have started to rebound. National Tea and Coffee Development Board (NTCDB) statistics reveal that 11,185 metric tons worth 2.78 billion Nepalese rupees were exported in 2019/20. In 2020/21, export volume rose to 11.9 million metric tons, and revenue increased to 3.79 billion Nepalese rupees.
The driving force in all the above was elementary economics.
Bishnu Prasad Bhattarai, executive director of Nepal's National Tea and Coffee Development Board (NTCDB), called the rise in export earnings "an encouraging sign," even though export volume declined. He said that Nepalese tea has started fetching good prices in the international market.
Most of the tea production in Nepal is CTC, with larger farms in the eastern plains exporting significant quantities to India's state of West Bengal, Russia, and the Czech Republic. Orthodox teas are produced in smaller quantities, with 60% of the tea exported to Europe, Japan, the U.S., China, and Canada.
The tea is in demand because well-made teas from Nepal taste as good as mid-grade Darjeeling and cost much less. This is a big part of the reason that exports have increased. In 2020/21, Nepal exported $29.6 million worth of tea at an average price of 200 Nepalese rupees ($2.48) per kilogram.
Bhattarai is championing a government program to expand Nepal's tea production beyond Jhapa and Ilam, which produce 17,429 metric tons and 6,534 metric tons, respectively. Secondary producers include farms in Panchthar, Dhankuta, Terahthum, Nuwakot, Sindhupalchok, Morang, Kaski, and Lalitpur districts.
Bhattarai reported that an assessment financed by the NTCDB using Geographical Information System data revealed that 1.8 million hectares of land are suitable for cultivating orthodox tea in Nepal. Currently, only 16,920 hectares are under cultivation of tea.