New Tariff on Imported Tea

While the growing domestic consumption leaves a huge gap in demand for and supply of tea, additional tariff on imported tea is likely to increase prices of the beverage.

Tea Traders Association of Bangladesh (TTA) has urged the government to withdraw new 20 percent regulatory duty imposed on import of tea on the ground that it will hurt mass consumption of the beverage.

The government has imposed 20 percent regulatory duty on imported tea in a bid to protect the local tea industry. National Board of Revenue on January 8, 2012 issued an SRO to the effect of levying the new duty. 

Until then, the import tax on tea was 60 percent. Adding the additional duty, importers now ave to pay 80 percent tax on imported tea, sources in NBR said. The government increased the duty in response to a proposal of Bangladesh Tea Sangsad.

The 60 percent supplementary duty was imposed a long time ago to discourage tea import so that the domestic procurers do not feet threatened. An influential group of garden owners lobbied with the government to increase the duties by 20 percent, a leader of the Tea Traders Association of Bangladesh said in recent statement.

The traders claim that the incremental tariff is going the affect their business and they resent that it will speciously undermine the huge investment they have made over the years to ensure that the most popular beverage in the country can reach the drinkers.One member of the association told First News that the new tariff has made imported tea costlier, which will also raise the price of domestic tea since domestic supply alone cannot meet domestic demand. 

The unrealistic import duty will result in higher prices for the beverage and the ultimate sufferers will be the tea lovers of the country, according to TTA. The export of tea in 2011 was 12.92 million kilograms that has dropped to 9.01 million kilograms. The local consumption of tea has reached 20 million kilograms.

Tea production in the country had been increasing at a rate of only 2-3 percent per year against a local consumption growth of 8-9 percent, creating a huge demand-supply gap. According to a report of the Commerce Ministry, export of tea will stop after 2016 because local consumption rate of beverage is outpacing the local production. The country imported 4-5 million kilograms of tea in 2010 despite heavy import duty, the association said.

The tea production in Bangladesh from 1980 to 2010 increased by 48 percent. In 1980, it was 40 million kilograms and in 2010, 59.16 million kilograms whereas domestic consumption between this period increased from 9.1 million kilograms to 62.98 million kilograms. 

There are 163 tea gardens in Bangladesh stretching over an area of 115,820.33 hectares of land. The area suitable for tea cultivation is 61,334.63 hectares although tea is grown on 54,106.24 hectares of land, according to Bangladesh Tea Board (BTB). The number of tea factories in the country is 116.

The had been on of the major export items of Bangladesh since 1971, but that scenario changed in recent years because of open market economy, new suppliers entering the world market with low priced tea, and rapid increase of internal demand in Bangladesh.

According to BTB, Bangladesh exported 3.15 million kilograms of tea worth 433.5 million taka in 2009. 

The production in other countries has experienced significant growth. For example, Vietnam produced 40.2 million kilograms in 1995, but in 2009 production went up to a whopping 154 millon kilograms marking a 283 percent growth.

Pakistan was a big market for Bangladeshi tea, but that been lost because the price of Bangladeshi tea is much higher than prices of similar quality tea available in the international market from other countries.

Due to rapid infrastructural development, huge investment in brand building, massive promotion and awareness, easy availability, increasing population and growing purchasing power of people, tea consumption has increased at a rapid pace. Tea cultivation has turned into a profitable business over the last on decade. 

At present, good quality tea is selling at 165-180 taka per kilogram at the Chittagong auction. But at the same time, a huge quantity of low-grade tea is also produced and offered in the auction which are proving difficult to sell. The average price this season is the second highest it has ever been for a season.

Experts are concerned that tea being a poor man's beverage, unrealistic prices will only result curtailing consumption , and will force consumers to look for other alternatives. If that shift happens, then it will be difficult to biring them back into the tea drinking habit. "We should allow domestic consumption to grow at its natural pace and take measures to increase production to meet the total market need," the Tea Traders Association said.