Roport No. EC-178 This report may not be published nor may it be quoted as representing the views of the Bank Group. The Bank Group does not accept responsbility for the accuracy or completeness of the report INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT ON THE WORLD TEA ECONOMY June 30, 1971 Economics Department Prepared by: Dieter Elz CURRENCY EQUIVAIENTS US$1.00 = 7.5 Indian rupees 5 5.95 Ceylonese rupees = 378 Indonesian rupees - 7.14 East African shillings - 100 old pence - 41.67 new pence 1 new pence * 2.4 old pence To convert from old pence per pound to new pence per kilogram, multiply by .9185. WEIGHTS AND MASURES 1 hectare - 2.47 acres 1 kilogram - 2.204 pounds 1 metric ton _/ = 1,000 kilograms 1/ Only the metric ton is used in this study. SU1^A1HY AND COCLUSIOYNS 3TIDUCTION (vii) it EiSTOlrs AND CHARACTEISTICS 3OF T&4 2-r-0du ctio COl &H.-ve,tiA Maraufac ture 3 Tea characteri stics 5 II. WEIIEW AND PROSPECTS CF THE WORLD TEA ECONOMY 6 iup1y 6 CorAsurption, 9 E~~orts and porte ~~~~~~11 Centrally Planred Countries 13 Prices 14 1Il, DEVELOPMENT ASPECTS AND ADJUSTNANT PROBLEMS OF TEA IN YlAtTOR ?RODUCING COUNTRIES 18 India 18 Consump-tion 18 Production 20 Ceylon 23 Production 23 Riversification 28 kfri ca 31 Turke 34 Pakistan 34 In.donesia 35 .Aamentina30 'f ~~~~~~~~~~~~~~~36 V. ECOMEC AND EI4PLOYMENT FACTORS IN THE TEA INDUSTRY 37 iaxes and Duties 37 ir oor ~~~~~~~~~~~~~39 yiels . 2 Est,a1ilsh kent Costs 45 Smallholders 50 V. INTERNATIO NAL ACTION3 52 interrnational Tea Agreeme.nr ts 52 Diversification 55 Bank Groun Involvement in Tea Chart 1 Tea Productiori in Major Producirv-. R.egions, l950-69 Z Chart 2 Annual Average Tea Prices 1 or Selected Countries at London Auction, 11952-7() C0hart 3 The Indian Tea Mrket 19 JIIST OF TEXT TABI2S Table 1 Tea- Production, Consumption, Trade Balances and Per Capita Consumption, Actual 1967-69, Projected 1980 7 Table 2 Ubrld Tea Exports, Export Value, Export Unit Value and London Auc tioIl Prices, Averages 1955-57, 1960-62 and 1967-69 12 Table 3 Value of Tea Exports, Share of Country in World Exports and Share of Tea in Total Country Export Earnings, 1955-57 and 1967-69 Average 19 Table )4 Ceylon: Area, Production, Exports and Prices of Tea, 1965-7( 21: Table Ceylon: Production, Yield and Area under Tea, Actual 1967-69, Projected 1980 27 Table 6 Yields, Costs and Prices for Ceylon Tea by Elevation Groups, 1968 30 Table 7 Ceylon: Cost of Production and Income from Selected Crops 31 Table 8 Tea: Costs, Duties and Charges., and Prices Received at London Auctions by Estates, in Selected Countries 38 Table 9 Percentage Share of Labor and Other Inputs on Total Production Costs and on Individual Production Operations in Various Producing Counries hi Table 10 Yield per Hectare, Costs and Net Profits per Kilogram for Selected Sanples of '7'ea Estates in East Africa a and for Different Altitudes in Ceylon 44 Table 11 Investment Costs per Hectare for Establitihing, Modernising or Rehabilitating Tea Industries in India, Ceylon, Indonesia, Kenya, Tanzania, and Uganda at 1970 Input Prices, in National Currencies and U.S. Dollars 46 (iiiE) LIST OF TE)T TABLS (continued) .age Table 12 Estimate of Man Days to Establish One Hectare of Tea 49 Table 13 Exports of Black Tea by Country, 1967 to 1970 and 1970 Quotas 54 Table 14 Past and Anticipated Bank Group Lending for Tea 57 LIST OF ANNEX TABLES Table 1 Tea Prodluction by Regions and Countries and Share of Regions and Countries on World, Total Average 1955-57 and 1967-69 Table 2 Area under Tea in Principal Producing Countries of the World, Averages 1956-58, 1961-63, 1966-68 Table 3 Consumption by Regions and Countries and Share of Regions and Countries on World Total, Averages 1955-57 and 1967-69 Table 4 United Kingdom - Tea Consumption, Re-exports, Off-take, Gross Imports and Stocks, 1955-59 Table 5 Annual Average Tea Prices for Selected Countries at London Auction, 1955-70 Table 6 Yields of Mature Tea Per Hectare in Selected Countries, 1959-69 Table 7 India - Total Areas of Extension, Replacements and Replantings in North India, South India and All India, 1955/56-1968/69 Table 8 Duties and Taxes on Tea Exported from Ceylon Table 9 Estimated Cost of Replanting Tea and Bringing in Some Alterna- tive Crops Table 10 Ceylon: Exports and Imports by Principal Commodities, 1966-69 Table 11 Tea - Transportation, Local Charges and London Auction Charges Table 12 Wage Rate Including Special Allowances for Male Field Tea Workers in Various Producing Countries Table 13 Projected Yearly Production and Consumption Development in India and Projected Production Development in Ceylon to Achieve 1980 Output and Consumption Levels, as lnt;'.cated in Table 1 (iv) SUMMARY AND CONCLUSIONS 1. Projections indicate that world iMort demand will grow at about 2.0 percent yearly during the 1970's. Export availability wi-1' grow be- tween 2.0 percent and 2.5 percent yearly. The lower rate of growth of ex- port availabilities assumes that production in India will continue to grow at the past rate of 2.0 percent yearly. The higher growth rate assurnes that the process of replantinlg and new planting of tea in Ind.ia will be accelerated. So far there is no convincing evidence that this is going to be the case. Since it takes about six years before newly replanted tea produces significant,ly, the performance:in replanting and new plant- ing in India during the next two or three years will significantly influ- ence the world market situation. 'This study provides a year-to-year out- put projection for India which should be achieved for one or the other growth rates in export availabilities to prevail and thus allows early evaluation on long-term supplies. 2. There are, of course, other factors which can exercise a consid- erable influence on world market demand and supply, such as consumption development in the United Kingdom and export expansion in Ceylon. These have been taken into account by providing alternative projection assump- tions. But the development in India seems to be most crucial for future world supply and demand. 3. World market prices declined from the mid-1950's to 1969 because of supply pressure. In 1970 a drastic increase in prices was experienced and the world market now appears to be in equilibrium. If world import demand and export availabilities grow at 2.0 percent yearly during the 1970's, the international tea market will be in equilibrium in 1980 at 1967-69 prices. The average price for all tea at London auction in 1967- 69 was 47 old pence per pound (43.2 new pence per kilogram), compared with 9.7 old pence per pound (45.6 new pence per kilogram) in 1970. If export availabilities grow at 2.5 percent yearly and import demand at 2.0 percent yearly, projections indicate a surplus of about 35,000 tons in 1980. In that case, London average auction prices could conceivably fall i1o 42 old pence per pound (38.6 new pence per kilogram). 4. To date the World Bank Group has committed $37.2 million for tea expansion including road construction. The output from these projects will amount to about 38,000 tons in 1980. With the exception of one loan made to Kenya in 1964, all other loans were made after 1967. Since it takes at least eight years before the tea plant reaches full maturity, exports from these projects did not contribute to the decline in world market prices which was experienced until 1969. Future output from these projects and others which the Bank Group is conSidering for financing are included in our supply, demand and price forecast. 5. All projects are distinguished by efficient production methods - expressed, among other criteria, in terms of high yields per hectare and low cost per unit of output. By organizing efficient smallholder production / N and marketing schemres, t1he Bank has also contributed to the introduction of a new institutional dimension into the tea economy. Approximately 50,000 farmers are expected to participate in these projects. 6. PFuture problems will be different in the traditional tea pro- ducing countries (Ceylon, India and Indonesia) than in Africa and other parts of the world. 7. In India and Ceylon the expansion process requilres replanting and modernizing tee. manufacture. vost of the tea is too old to expect manjor yield increases. This is particularly true for Ceylon, where little replanting has been done. Replanting programs shoulcd be accelerated, since production costs from newly planted tea will be considerably lower at r^aturity than those from old tea. In Ceylon the replanting process should be connected with a diversification program, as the cost of re- planting the entire tea area would be prohibi-tive, and marginal tea grow- ing areas should be increasingly taken out of production. 8. In Indonesia, the third largest individual tea exporter, the problem is one of rehabilitation rather than of output expansion. Dur- ing and alter World War IT the tea economy deteri-rated and, although the tea bushes are old, all phases of cultivation and harvesting have fi rst to be improved before replanting can be undertaken. This rehabil- i tation will also -quire the replacement of machinery. The old method of manufacturing is now outmoded and no longer suitable for modern pro- cessing methods. In the new tea growing countries strong emphasis should be put (n maLntaining the quality of leaf. 'Tnis may prove to be a formidable task since it involves strict control. of a large number of smallholders. The expar: ion process has to aim at efficient production methods. One of the most important factors influencing the viability of tea hold- ings is yield. Considerable increase in net income will be experienced if yields can be raised without. quality deterioration. In the traditional tea growing cour'tries - Ceylon, India and indonesia - this can only be econo- mrically achaeved throuigh replanting or new planting. The potential for high yields is greater, on the averaga, on good tea land in Ceylon than in other areas. In the new growing regions of East Africa the planted tea is already of high yielding potential, and yields on the whole exceed yields in other growing areas. Wvhile yield increases will take place there, the rate of increase will be slower than with replanted tea in Ceylon. 1. @The investment, Gosts in termLs of U.S. dollars for replanting or new planting of tea are highest in Ceylon and in Tnd-ia. The lower costs in thie East African countries are mainly explaine, uy higher labor pro- ductivity. 12. What are tne implicat.ions ok tills report from an investor's point of view? Tea is a crop with a lorg gestation period and it will / - \ be about six years before today' s investment decision regarding new plant- ing or replanting will make an appreciable impact on the world supply sit- uation. Expansion plans in Africa and other new tea growing countries are comparatively firm, and thus their influence on 1980 world supply is al- ready fairly well determined. The same is true in Indonesia but here there is somewhat more uncertainty. The process of rehabilitation in India and Ceylon should be closely watched during the next three or four years to assess their effect on future world output. If their development plans fall short of our expectations, expansion in other areas could be contem- plated. Otherwise prices would be pushed upward because of a restricted supply situation. The reverse would hold true if tea rehabilitation pro- ceeded faster than expected. 13. The Bank's plans for investment in tea are certain until 1973, and the expected impact on output has been included in our projections. Any additional investment until then should probably be channelled into the traditional tea growing areas to help in the rehabilitation process. Financial assistance for new planting beyond that already contemplated would raise the danger of contributing to an excess supply of tea. 14. Decisions for investment after 1973/71 should take account of the actual experience in replanting or new planting up to then asi com- pared with our projections and also by the further experience the Bank will have gained in supporting smallholder production. Again one would have to consider the possibility of further involvement in the rehabili- tation process. But this time the expansion of tea in new areas should also be considered. Based on the practical experience gained thus far and on findings in this study, this expansion might well concentrate on smallholder production based on family labor. Such a system is labor intensive, provides cash income to growers and, if controlled effectively, educates farmers in the techniques of production and marketing efficiency which will be essential if they are to remain competitive in the tea in- dustry. (vii) INTRODUCTION 1. In its report on international development 1/ the Pearson Com- mission recommended that international lending agencies should take into account in their lending policies the impact of new productive capacity on world market prices. 2. From the mid-l950's to 1969 world market prices for tea have declined; further declilnes may be possible as a continuing consequence of excess supplies. The World Bank Group has helped to finance tea de- velopment in a nunber of countries. Although production from these proj- ects is orly now reaching maturity and only contributed to a minor degree to the past supply situation, future production and exports will influ- ence the international tea market. 3. This study is designed to improve the Bank's understanding of tthe world tea economy and provide help in making operational decisions. its objective is to analyze the past and expe'2 `t-d (1980) world market de- mand, supply and price situation on the basis of existing studies. The paper relies on an earlier Bank study, j/ although it tries to avoid any repetition and introduces aspects not previously covered. Particular ernhasis is given to developments arising subsequent to the writing of the earller study. Wi. Projections are included for all tea producing and consum- ing countries of any importance except the rentrally planned countries. Adequate statistics for a detailed analysis of the latter were not avail- able, but an effor-. was made to determrine whether there was any li-keli- hood that developments in these countries could materially upset our pro- N _ C 1 0 C _~ CC '- _ Vl O O u' % N > ~~'O .- 0)ts5 R S i-, 4C iE L 0- ft~ .. CCU NFIES SAT LONDOiN AUCTION, 1952 1i970 'PENCE PER POUND) 70 T I 170 , CEYLON 60 6 S 0 \ \ < 5\ / \ ,~~~,NORTH INDIA| AVERAGE\/ 50 I/u \ \ > S Ot;TH IND[IA ) tA , 5 O. 55 T \ s KENVA ~~TANZANIA - \ Z | J ~~~~~~~~~~~' MALAWI 30 t j --- --30 .:! ~ ~ ~ A // 201 i 20 '52 '53 '54 '55 '56 '57 '58 '59 '60 '6 i'62 '63 '4'65 '66 '67 '68 '69 '70 IBRD 4605(6R) I I t~~~~~~~~~~~~~~~~~~ I 60. The London price is not oray influenced by the supply and de- mand situation in one partlcular year, but also by the level of stocks. London stocks account for about 50 percent of world market inventories and are the determining factor for the international market. If the unsold stock leveL in London is in excess of working requirements, the degree of competition among buyers slackens and prices fall. Since tea. is perishable, buyers' inventories would soon decline in value if they bought more than working requirements for extended periods. A short- age of stocks, on the other hand, stimulates competition and prices rise. 61. The close relationship between London prices and stock changes suggests that a good statistical explanation can be found and used for price projections. The relevant equation L/ shows that a change in U.K. stocks of 10,000 tons is associated with a price change of about 1.30.4 per ton (3.31 old pence per pound) in the opposite direction. 62. As previously projected world irport demand and export avail- abilities in 1980 are expected to be in equilibrium at 1967-69 prices. 2/ The London average auction price for all teas at that time was 47.0 old pence per pound (43.2 new pence per kilogram). 3/ 1/ For the years 1956-69, a regression of price on stocks gave the fol- lowing result: P = 75.3501 - 0.3315 St R2 = 0.95 where P - the actual annual average price for all teas at London auction in pence per pound; and St - the annual average end-of-month stocks in thousand metric tons in bonded warehouses in the United Kingdom. 2/ The analysis on which this price forecast is based has indicated that in the past inflation has not had any appreciable (if any at al_) effect on international tea prices. We therefore assumed that this will be the case in the future. 3/ In February 1971 the United Kingdomn introduced the decimal currency system. One new pence equals 2.4 old pence. Tea prices are now quoted i n new pence per kilogram. The projected price of 42 (old) pence per pound is equivalent to 38.6 new pence per kilogram. - 16 - 63. The projection also indicated that a surplus of about 35,700 tons could arise if Indian production and export expansion increases at a faster rate than can be foreseen at this time. 64. Stock accumulation will take place gradually and could reach a yearly increase of about 35,700 tons in 1980. According to past dis- tribution patterns, 50 percent would accumulate in the United Kingdom. Based on the price-stock relationship, the average London auction price for all teas would fall to about 42 (old) pence per pound (38.6 new pence per kilogram) for all teas sold at London auction. 65. A decline in tea prices below 42.0 old pence per pound is un- likely since some areas of tea will prove unprofitable at this price. They will reduce output, thereby establishing equilibrium in supply and demand. This had already happened to some extent in Ceylon in 1970 in response to low 1969 world market prices. 66. Since tea is perishable and soon deteriorates, storage is not practicable for any length of time. Thus subsidizing tea to maintain production and exports would not be a long-run solution, since demand in the developed importing countries is price inelastic, implying that the decline in prices will not be accompanied by any appreciable increase in consumption. Buyers would simply stop buying when stocks rise above working inventory requirements. 67. Based on the above proiections it is possible to estimate the total 1980 export value under the two different price forecasts. The first projection indicated that import demand and supply in 1980 would be in equilibrium at 1967-69 prices. According to Table 2 the world export unit value for tea in that year was 35.9 new pence per kilogram (86.2 old pence per kilogram) and projected net exports in 1980 would be 721,700 tons, according to Table 1. Thus the total export value would amount to about ,259 million. 68. To calculate the total 1980 world export value at the projected lower price (38.6 new pence per kilogram for the average of all teas sold at London auction) the relationship between the London auction price and the average and world export unit value had to be established. 690 In 1960-62 the statistical spread between the London average auction price and the world export unit value was 21 old pence per kilo- grain (8.9 new pence per kilogram). By 1967-69 this spread had declined to 18 old pence per kilogram (7.4 new pence per kilogram). For our pro- jection it was assumed that the spread will remain in 1980 at the 1967-69 level. Thus, based on the projected London auction price of 38.6 new pence per kilogram, the corresponding world export unit value is pro- jected at 31.2 new pence per kilogram. - 17 - 7'0. According to Table 1 net exports corresponding to the lower price would aimunt to 756,700 tons. Consequently the total world ex- port value would amount to about L236 million. Thus the prevention of a surplus would raise export earnings by i23 million ($55 million). / l/ This would also roughly be the benefit which could be expected from an international tea agreement designed to prevent a surplus in the tea industry. - pi - III. DEVELOPMENT ASPECTS AND ADJUSTMENT PROBLEMS OF TEA IN MAJOR PRODUCING COUNTRIES 71. Wide differences exist in the contribution tea makes to the economy of individual countries as well as in the role of exporting countries in the world market. Table 3 brings some of the important data together. 72. This chapter is not a description of the tea economies in the producing countries. This has been given elsewhere. 1/ The fol- lowing remarks are intended to point out the issues and problems which individual countries face in light of the expected development of the world market situation. India 73. India is the world's largest producer and consumer of tea. Until 1965 she was also the world's largest exporter of tea. In that year Ceylon moved into first place because the production expans_on in India was insufficient to provide for the rapidly growing domestic market as well as the expanding export market. Consumption 7L4. Indian tea consumption is of great importance in the supply and demand situation of the international tea market. Tea is a national drink, but the pattern of consumption varies widely from state to state. In the lower income classes it is considered more as a food than simply a beverage, since together with sugar it supplies energy. Per capita consumption, which is still one of the lowest in the world, increased from 1955-57 to 1967-69 from 0.25 kilogram to 0.37 kilogram. Total con- sumption increased at the same time by 5.8 percent yearly or by a cumu- lative total of 95,500 tons, thereby taking an increasing share of pro- duction. This resulted in declining exports, as is illustrated in Chart 3. 75. Total consumption is expected to increase by five percent yearly between 1967-69 and 1980, reaching 350,000 tons in the latter year. This rate of expansion was experienced during 1955-57 and 1965. Sirnce 1965 consumption increased by 5.8 percent, however. The Indian government is trying to slow down the rate of growth in consumption ex- pansion by increasing retail prices through higher excise taxes. The latest increase was decreed in April 1970. Since retail demand is price elastic it may be assumed that higher prices will reduce the growth rate 1/ "Review of the World Tea Economy", EC-174, April 1970. CHART 3 TnE INDIAN TEA IMARKET 7 I ~ ~ ~~I I-I I I I I y 1 400_ _ _ I t________ ~~. ~~~~.ROUCIO 30000rtt z u 2000/o 0 - F r - ON5 s~~~~~~~~MPTION ' . I , } 1 j I i I , I 11 1,~~~~~~~~~~~~~~~~~~~~* 'I I0 S -t t 1 j 8 - - F -1 -|----T-- I--X, 7 0 OCNSUMPTION AS A PERCENTAGE OF PRODUCTION --- t-A 30 27 33 28 36 34 35 38 39 39 41 40 44 50 47 47 55 60i . L ' i 1953/54 54/55 55/56 56/57 57/58 58/59 59/60 60/61 61/62 62/63 63/64 64/65 65/66 66/67 67/68 68/69 69 70 YAD'USTrD FOR :HANGES IN 'rOCKS IE3RV-S74;3 I I ~~ ~~~~~~~~~~~~~~~~~~~4 ft TabJe3: VALUE OF TEA EXFORTS, SHARE OF COUNTRY IN WIJRJD EXPORTS AND SHARE OF TEA IN TOTAL COUNTRY E lIT EARNINGS, 1955-57 AND 1967-69 AVERAGE __ 19gf _1967-69 CountyTea Share in: Countp, Tea Share in: Tea Export World Tea Country Total Tea Export World Tea Country Total Value Export Value Export Earnings Value Export Value Export Earnings (million I) (.......... percent ..... ) (million b) (C....*... , .percent.* .,......*. *) India 95.0 46.1 19.9 83.2 ho.6 12.1 Ceylon 81.5 39.5 60.8 77.9 37.8 58.3 Kenya 3.0 1.5 9.9 11.2 5.4 15.8 Malawi 3.2 1.6 n.a. la7 2.3 22.7 Uganda 1.0 0.5 2.4 4.1h 2.1 5.8 Tanzania 0.6 0.3 1.3 3.1 1.3 3.4 Malritius 0.1 0.05 0.5 0.8 0. 3.1 WMorld 2/ 206.0 100.0 206.1 100.0 n.a. = not available. 1/ Converted from U.S. dollars at: one pound sterling 2.8 U.S. dollars up to and including 1967; one pound sterling 2.4 U.S. dollars after 1967. 2/ Excluding centrally planned countries. Source: FAO Tea Statistics, doc. CCP:Tah/TA69/WPl and doc. CCP:TE70/2, October 1970; UN 1tnthly Bulletin of Statistics (various issues). - 20 - from 5.8 percent yearly to 5.0 percent yearly. / However, even with the lower growth rate output expansion will have to increase from 2.2 percent yearly to 2.8 percent yearly to maintain exports at 1967-69 levels. Pres- ently there are great doubts that this can be achieved. Production 76. The major drawback in the struggle of the Indian tea industry to increase output is the old age of tea bushes. About 30 percent of the plants are over 50 years old, 40 percent are between 30 and 50 years old, and 20 percent are up to 20 years of age. In spite of this age structure, yields increased during the 1960's (Annex Table 6) by 0.8 percent yearly in North India and by 2.8 percent yearly in South India. This was the result of' better management, higher fertilizer applications and newly planted tea achieving yields far beyond average yields of old tea. How- ever, the rate of growth is likely to decline unless replanting and gen- eral rehabilitation measures are accelerated. 77. Accepting the assumption that tea plants become uneconomic after 50 years at the price and tax structure existing at the end of the 1960's, India would have to replant or replace 30 percent of its area immediately. Based on 1966-68 data (Annex Table 2), this would require about 100,000 hectares to be replanted immediately. 78. Even if it is assumed that the area with bushes over 50 years old should not be replanted at once, but should be included in an overall two percent yearly replanting program, 2/ the record is poor (as Annex Table 7 indicates). A replanting or replacement program of two percent yearly would require about 7,000 hectares to be planted annually. This is a far cry from the 1,562 hectares achieved in 1968/69. The tea industry has tried to compensate for the lack of replanting by extending the tea area, but even then the two percent target has not been achieved. 79. The rehabilitation of the tea industry on a large scale should have been started during the 1950's. At that time tea prices were com- paratively high and profits would have allowed estates to finance a 1/ Log C 0.80 - 0.93 log P + 0.13 log Y R2 0.51 (0.26) (0.86) where: log C per capita consumption in kilograms (actual income divided by cost-of-living index 1967 = 100); log P X real retail price for loose tea in rupees per kilogram (actual price divided by cost-of-living index); and log Y - real per capita income in rupees. 2/ Replanting yearly two percent of the total area would replace old by new tea every 50 years. Replanting involves uprooting and replanting within two years after uprooting. Replacement involves planting hew land with tea and uprooting an equal area of tea after the new tea produces. - 21 - replanting prog,ra,. out of their own resouces. 'The failure to replant or rehabilitate the tea industry was largely the result of tihe lack of proven seed materials and clones as well as the uncertainty of foreign- owned estates regarding their future in India. After 1960 prices and income declined and profit margins became too small to enable individual growers to undertake a vigorous replanting program out of their own re- sources. 80. One of the reasons for the small profit margin is the heavy burden of taxation whlich accoun-ted for about 65 percent of the margin between price received and actual cost of production in 1968, as Table 8 indicates. Although the Indian government reduced the incidence of excise taxes for export tea and abolished the export duty in 1970, the burden of taxes is still high. 81. The Tea Board of India has set a production target of 46o,ooo tons for the fourth Five-Year Plan ending in 1973-74 and projected pro- duction to reach 586,000 tons. This represents a yearly growth rate from i967-69 to 1980/81 of 3.3 percent, compared with 2.0 percent dur- i.ng the 1960's. The plan envisages an average yearly replanting target between 1969/70 and 1980/81 of 6,600 hectares and a goal for new plant- ings of about 3,700 hectares. This compares with average yearly replant- ings and new plantings in 1966/67-1968/69 of 1,811 hectares and 2,975 hectares respectively. Obviously replanting and new plantings would have to be stepped up considerably. 82. Tnere is no doubt that this plan would greatly increase the efficiency of the Indian tea industry. Among other factors, yields would increase from about 1,150 kilograms per hectare to 1,500 kilograms per hectare. Of particular importance would be the improvement in labor pro- ducti-vity. Presently 2.5-3.0 laborers are employed per hectare of tea (described later) but many of them are not engaged in productive tea pro- duction. The increase in output per hectare would improve productivity without increasing the number of workers. 83. This would be an expensive undertaking. It cost about 18,000 rupees to replant and 12,000 .upees to extend one hectare of tea - in- cluding the cost of factory expansion to take account of higher yields. Taking the government tea development target of yearly replanting of 6,600 hectares and new planting (equivalent to extension) of 3,700 hec- tares yearly implies a cost of about 112 million rupees per year for replanting and about 45 million rupees yearly for extension. 8L+. In addition to replanting and extension, each of other rehab- iit'ation measures, such as draining, infilling, improvements in pruning, fertilizer and weed control, and better management practices would have to be applied. According to a study by the Indian Tea Association, i/ 1/ A Strategy for Tea ir the Seventies, Indian Tea Association, Calcutta, February 17, 1971. - 22 - this would cost about 0.23 rupees per kilogram of increased output under North Indian conditions. 85. We doubt that enough capital would become available to increase output to 586,000 tons. It is feasible, however, that output could in- crease to 550,000 tons by 1980. This would require an acceleration in replanting and extension from an average of about 4,80o hectares per year in 1966-68 to an average of about 6,000 hectares per year in 1970-7h, assuming that the tea replanted or newly planted in the latter period will reach maturity by 1980. But to achieve this goal the Indian govern- ment would have to give greater incentives such as subsidies, reduction in taxes, etc. to stimulate investment. 86. The Government of India realizes the need for support of the industry in order to accelerate production expansion. A special section of the Tea Board has been set up to encourage the development of tea pro- duction. The Plantation Finance Scheme, introduced in 1962, has a fund of Rs. 45 million from which loans are made to finance new plantings and replantings. In order to make the scheme available to those estates which obtain their working capital by means of short-term loans from a bank against hypothecation of crops, the government will accept a second mort- gage with the fixed assets of the estate as security. Up to March 31, 1967, loans of Rs. 25 million had been advanced and 1,284 hectares planted or replanted. An Irrigation Loan Scheme with a fund of Rs. 10 million met with little response, but a total of Rs. 47 million were advanced to pro- vid(e tea machinery and irrigation equipment under hire-purchase schemes. For small growers, loans of Rs. 3 million have been made for the constrmc- tion of cooperative factories, while both subsidies and loans have been extended for the purchase of fertilizers. 87. Tax rebates have also been given by the Government of India to encourage planting of tea. In 1965 a development allowance of 40 percent of the actual cost of planting in new areas and 20 percent of the cost in other areas was granted, subject to specified maxima. These allowances, which were to be applied to the Central Income Tax, were increased in October 1968 to 50 and 30 percent respectively. Direct subsidies for re- planting were introduced in 1968 at the rate of Rs. 3,500 per hectare for tea gardens in the plains, and Rs. 4,500 for those in the hills. 88. Thus far, these measures have not succeeded in increasing the rate of growth in production, and it is doubtful that this will be the case during the 1970's. Therefore, we project 1980 output at 510,000 tons in line with the past trend. A larger 1980 supply can only be achieved if replanting and extension are accelerated in the next two or three years since it takes about eight years before a plant reaches f-ill maturity. Ce2Lon 89. Next to India, Ceylon is the second largest producer of tea in the world, accounting for nearly 23 percent (or 221,700 tons) of the worid total in 1967-69. TjnJike India, however, the Ceylon tea economy is a1mzst entirely dependent on exports since domestic consumption (18,000 tons in 1967-69) accounts f'or only about eight percent of domistic production. Since 1965 Ceylon has been the world's largest tea exporter with exports in 1967-69 a,munting to 208,900 tons. 90. Because of the small diomestic consuiption and the comparatively smaill increase expected in the future, any appreciable increase in pro- ductiorn will move into export channels. Thus, unlike India where domestic consumption determines and even restricts exports, production in Ceylon strongly affects and in turn is affected by the international tea market situation. 91. Between L965 and 1970 the value of tea exported ranged between 63 percent and 55 percent of Ceylon's total exports. It accounted for 1 ,120 million rupees in 1970. Bece-use of falling prices and a static export situation since 1966, foreign exchange earnings have been falling quite drastically, as Table L; indicates. The reason for this decline in prices is not absolutely clear. The increasing saturation of the world market no doubt played a major role. There have also been complaints by importers that the quality of tea has deteriorated, probably because of coarse plucking and because the expansion in factory capacity didi not keep step with the irncrease in tea production, and overloading of manu- facturing machinery usually reduces quality. 92. About 70 percent of the area under tea is owned by Ceylon com- panies 1/ (i.e., "rupee companies") and Ceylon individuals. Tne rest is owned by sterling companies or non-Ceylon individuals, but their share has been declining. In terms of value of production, however, the latter co=panies still account for 40-45 percent, mainly because sterling com- panies own a greater share of the area in the high elevations where higher priced teas are produced. Production 93. The registered area under tea changed very little since 1965 (Table 1). This ;.s a reflection of the lack of good land for new plant- ings, lack of capital for area extensions and the policy of the govern- ment not to increase the country's dependency on tea exports. 9! . Nearly two thirds (about 160,000 hectares) of the tea bushes in Ceylon are 70-80 years old and should be replaced. As in India, this procesa should have started early in tle 1950's, but severe taxation and / Co-paniis registered in Ceylon as ooposed to "sterling companies", companies registered in the UnLited Kingdom. -24- Table 1i: CEY]ON: AREA, PRODUCTION, EXPORTS AND) PRTGES 0O' TEA, 1965-7() Tea FXport Value 1/ Unit Value 1/ Exports Registered U.S. Rupee Dollar as j or Year Tea Area Production Exports Rupees Dollars Cents Cents Total ExpTorts (hectares) (.... metric tons.... (...)million...) (.per pound.) (percent) 1965 240,695 228,19 221h,339 1,210 254 2.)15 51 62 1(66 2h1.,560 222,263 200,172 1,027 216 2.33 9 60 1967 2li2,520 220,902 216,683 1,061 223 2.22 46 63 1968 241,984 2?4,98h 208,745 1,162 195 2.52 42 57 19v69 241,988 219,51) 201,62b 1,062 179 2.39 40 55 1973 2L1,988 212,283 X)8,5l 1,120 188 2.44 hI. 56 ,' In November 1967 the Ceylon rupee was deval.ued in terms of the U.S. dollar from $1 = 4.76 rupees to $1 = 5.95 rupees. 3curce: Annual Report, Central Bank of' Ceylon, 1970, p. 12, Customs Returns and Administration Report, of the Tea Controller for 1969, Ceylon, July 1970. - 2;) - the e.rosion of irzvesiorsl con2idence stemming from sporadlic govermnent threats to nationalize the industry created an u'nsatisfactory investment climate. Tne situation improved somewhat with the introduction of the tea subsidy schemes which demonstrated the government's desire to actively support the industry irrespective of ownership. BEut up to now only about six percent of the total area has been replanted since 1966. 95. Yields are low coopared with other tea growing countries (Annex Table 6). Low yields of smallholider production and the age structure ac- cournt for t.is. On estates, yields of 1,300 kilograms per hectare are not urncommon. Due to favorab1'e climatic and geographic conditions the potential of increasirng yields with newly planted varieties is greater in Ceylon than in most other tea growing areas, including East Africa - a fact which puts Ceylon in a very favorably competitive situation. To take advantage of this situation, however, a stringent replanting pro- gram has to be undertaken which can be quite expensive since in many cases soil fertility has suffered and disease problems exist. 96. Heavy taxation is still a major impediment to an accelerated replanting program. As Table 8 indicates, the various taxes in 1968 accounted for nearly 70 percent of the margin between costs and prices received. Sales -wax and export duties account for nearly 20 percent of the value of tea exports (AnLnex Table 8). ButC even with the present age structure, the Ceylon tea industry would probably be able to withstand competition from other producers if taxes and duties were abolished. But the Ceylon government would lose one of its most imortant sources of revenue. 97. In order to encourage replanting in the tea industry the gov- erment introduced the Tea Replanting Subsidy Scheme, under which Rs. 9,260 per hectare (Rs. 3,750 per acre) are paid as a subsidy towards replanting costs. The funds for the subsidy are collected by a cess at the rate of 4 cents per pound. A repLanting incentive loan scheme is also in operation under which loans up to Rs. 4,9h0 per hectare (Rs. 2,000 per acre) are granted by the Central Mbrtgage Bank at low interest rates. These schemes cover about the expenditure for field costs. Tney do noit1 however, take account of the loss in income dur- ing the time from uprooting the old tea until the time the new tea starts producirng. This peri od covers about six years until the newly planted tea reaches yields achlieved previously with old tea (900 kilo- grams per hectare), At average 1969 Colombo net auction prices (Rs. 3.37 per kilogramri) the loss in income would thus amunt to about Rs. 18,000 per hectare. 98. In addition to replanting, factories have to be modernized and their capacity increased to take account of the increase in yield. Average lactory capacity on estates is about 275,000 kilograms, which would have to be doubled to take account of higher yields. It is esti- mated that it costs about Rs. 4.0 per kilogram to enlarge capacity and mo dernize factories under Ceylon conditions. The average tea estate is about 300 hectares, and consequently investment costs would account for - 26 _ about Rs. 3,667 per hectare. Thus per hectare field investment costs (Rs. 14,200) plus per hectare factory investment cost for replanting amount to about Rs. 18,000. 99. To induce factory owners to invest capital on factory develop- ment the Tea Factory Development Subsidy Scheme was introduced. Under the scheme the following subsidies are applicable: (a) An outright payment of a subsidy equivalent to one third of the. cost of approved items of tea machinery, equipment, etc. installed in tea factories; (b) On loans taken for improvements to existing factories and for the construction of new factories the full interest is subsidized for 20 years; and (c) Imports of raw materials and finished goods required for tea factory development are duty free. 100. The foreign exchange cost of the Tea Factory Development Scheme is presently financed by two loans from the Asian Development Bank. The first loan of $2.0 million has been fully allocated. The second loan for $3.5 million was approved in October 1970. In spite of these subsidies there still exists a backlog of investments to provide adequate factory capacity for the present production. In 1966 this backlog was Rs. 90 million (US $151.3 million equivalent). In the meantime, there has been an upsurge of investments in tea factories of about Rs. 21 million. Tak- ing account of this and the second loan of ADB would still leave a deficit of Rs. 48 million (US $5.06 million equivalent) to bring factory capacity in line with production. This does not take account of additional require- ments for any increase in output beyond 1970 levels. 101. Present supply forecasts indicate that Ceylon will increase her production by 61,300 tons between 1967-69 and 1980 (Table 1). The pro- jection assumes that the replanting program will be accelerated by 1980 to 1.4 percent yearly of the total registered tea area, compared with 0.8 percent yearly in 1969. The registered tea area, however, will not be allowed to increase (Table 5). 102. To achieve the projected output the replanted tea area will in- crease by 28,500 hectares. According to investment cost data established earlier, the achievement of this goal would require a total amount of about Rs. 513 million (US $88 million). Some additional funds would also have to be allocated to improve yields on the old seedling area. 1031. In view of the past performance one could doubt that this target will be achieved. However, as of June 1969, replanting permits had been issued for about 20,000 hectares; 16,500 hectares had been uprooted and about 12,000 hectares replanted. These amounts are not large compared to the present total area (2h2,000 hectares), but they are significant when compared to the 90,000 hectares that will remain in tea when replanting is completed. Thus the projected output is feasible provided subsidies will Table 5: CEYLON: P'QO)P!',TION, YIELD AND AREA UND&H TEA, ACTUAL ioQ67-69, PROJEC'TFE) 1980 Total Area of Tea Seed inLgArea in BearinE Cleonal Area in lBeariga Total Reglstered in bearing Yield Yield Output Tea Area (clonal, per Area Output per Area Oultput seedling) hectare hectare (.'1,0OO hectares....' (kilograrms) hectares) tons) (kilograms). hectares) tons) tons) 2967 2 2.5 232.1 942 229.2 215.7 1,767 30'J 5.3 22L.0 1965 2h2.0 231.h 95i 227.2 216.7 1,976 1.2 8.3 225.0 2)L 2. C 230.7 92L4 22 5.I 2C 07. 2,182 5.5 122.0 219.8 197¸. 21,2.^ 227.' 1,011 2G8. 7 21Y.6 2,5cC 1CC.8 47. 257.6 1380 2L2.C' 223.h i,1ll 193.1 191.2 2,'3UC' 34.0 85.o 276. 2 Assumotions: (a) The registered tea area is kept constant from 1968 to 198C. (b) The seedling tea area is progressively reduced from 2,024 hectares yearly in 1969 to -,25C hectares yearly in 1980. (c) The clonal tea area is progressively increased from 1,3v0 hectares yearly in 1969 to 3,Lh40 hectares yearly In 1980. (d) Seedling and clonal ,ea yields will increase as shown. Source: ISRD, Economics Department. _ 20 - be continued and, probably even more important, investorst confidence in the future of a private Ceylon tea industry is restored. 10. The plan as outlined in Table 5 presents a gradual replanting, which is feasible if the necessary resources can be provided. It would allow more efficient use to be made of the labor force without increasing its size. It is unlikely and actually undesirable that all of the tea area should be replanted because the necessary funds are unlikely to be available and marginal areas should be taken out of production permanently. A reduction in area does not imply a decline in output, however, since yields will improve. With replanted tea Ceylon would be able to produce the 1980 projected output of 276,200 tons with only about 110,000 hectares, less than half of the present registered tea area. Ceylon will have to set a target to indicate the area which should remain under tea and which would eventually be replanted. The remaining area would have to be phased out of tea and put to other uses. Diversification 105. Presently FAQ is engaged in a large diversification study financed by ONDP. There are three major issues which arise out of this situation. 106. First, questions to be answered are: (a) What is the proper rate of replanting; (b) which are the areas that should be replanted; and (c) what incentives are required to bring about the required rate of replant- ing? Answers to these questions require information on the technical pro- duction requirements of the plant, yields and production costs at different altitudes, effects on employment and possible changes in the pattern of demand for tea of different qualities in markets likely to be important to Ceylon. 107. Second, decisions have to be made regarding the introduction of new crops or the expansion of present crops whenever tea land becomes available. This involves information on cropping patterns, cost and re- turns, labor utilization, domestic and export marketing prospects and the institutional requirements to grow and market the crops. 108. Third, a decision has to be made whether the replanting program should be restricted to plantations, or if smallholdings should be in- cluded. 109. As stated before, Ceylon tea gardens were established a long time ago. Areas which were at that time prolitable because of cost and price advantages are not necessarily remunerative today. This seems to be par- ticularly true for the medium-grown tea which was first established over 100 years ago. Diversification into other crops is likely to be more pronounced in this area than in the others. Yields are comparatively low, and since there is a close relationship between yield and production cost, the profit margins for medium-grown tea are slim. - 29 - 110. Cos- and yield statistics are indicated in Table 6, Although the aata are based on a comparatively small sample, they roughly indi- cate the real si tuation. What is of particular importance is the fact that the lower yields in medium-grown areas are apparently due not only to age but also to climate and soil. This is confirmed by the low VP tea yields, indicating that marginal lands are less suitable for VP teas. One should thus be careful before recomending that low yielding areas should be replanted with VP tea in order tow increase the average yield. The Ceylon goverrment recognized this and recently changed its replantt- ing policy so that permission to replant would only be granted if the land had been proved suitable. ill. It should also be noted that there are disadvantages to diver- sifiLcation. It might be easier to maintain the status quo and raise yields on the existing acreage (even without replanting) than to press forward with a more compplex mnltiple cropping system. The expertise req-ulred to improve tea output is almost certainly greater than the knowledge needed to initiate and expand other crops. Furthermore, tea exports provide a low-cost and admirnstratively simple form of taxation. The effect on employment could also be serious, since tea is a labor- intensive crop and alternative crops are likely to be less labor-intensive. Previously i4t has been shown that the projected output could be produced with 110,000 hectares if all were planted with high yielding varieties. The present registered tea area is 242,000 hectares. Thus 132,000 hec- tares would become redundant assuming no further increase in production. Since about three laborers are required to produce one hectare of tea under present conditions of productivity prevailing in the industry, about i00,WO laborers will have to leave the industry. 112. An important considerat.ion is the fact that export income from an acre of tea is likely to be greater than the foreign exchange earnings from suitable alternative crops. However, this situation has to be viewed in the light of investment requirements. Some of the relevant cost and income data for important crops grown in Ceylon are brought together in Table 7. The gross value per acre given in the table is an indication of the potential foreign exchange earnings to the economy. Apart from two spices, tea is by far the most important source of foreign exchange. This would be true even if' tea prices fell by 30 percent. The return to the farmer is lower for tea than for any other crop, however, because tea pro- duction costs greatly exceed those of' other crops. Furthermore, the in- vestment for tea replanting would be higher than investment requirements for other crops likely to be grown in Ceylon (Annex Table 9). Thus there is a stroeng incentive for the farmer to consider crop diversification. 113. The climate and soil are suitable for the planting of a wide variety of other crops. The choice of crops should not be too difficult since considerable possibilities for ivport substitution exist, as Annex Table 10 indicates. Rice would be the most important of these crops since the country imports about 50 percent of its cereal requirements. - 30 - Table ': YELi{;, COSTS AIt U PRICES FORZ CEY,ON TEA hY ELEVATION GROUPS, 1908 eldYi.el. _/ Eloevat ion GrMups Natiormal Estateus Cost; Average (olombo VP Average ?/ 3/ Net Auction Price (.kilograms per hectare.) (.rupees per kilogram..) EAlgh grown 2,765 983 1,327 7.91 9.39 - cdium grown 2,302 862 1,` 79 7.63 8.11 1,cw grown 3,90h1 9); 9 1,169 7.25 7.94 1/ Based on sanmle of 116 estates. 2J/ ased on 1967 yields of 360 estates. 3/ Based on sample survey of 107 tea fact,ories. Source: Ceylon Tea Control Department. a :"ne -r IL V A~i.:') FNs RO7' SE 1'L D 3R&3P6 Price Yield Crop per per Gross Cost of Unlit 1/ Acre Value Production Return (rupees) (kilograms) (......rupees per acre.....) Tea 0.71/kg. 374 2,655 2,461 194 Coconut OiL 1,489/ton 300 447 Cake 300/ton i50 4 092 228 264 Oil Palm Oil z,135/ton 1,000 1,135 Kernel oil 1,282/ton 100 128 Cake 285/ton 100 22 1,292 81o 482 Coffee 7,000/ton 100 700 200 500 Cocoa 2,800/ton 150 420 225 195 Cinnamon 11.0/kg 100 1,110 550 560 Cardamon 43.2/kg. 70 3,024 600 2,h24 Pepper 35.3/kg. 77 2,720 1,700 1,020 Nutm.. egr/Mace 5.h/kg. 227 1,225 500 725 / 1966 prices and cost of production for tea, coconut, oil palm, coffee, cocoa; 1968 prices and cost of production for cinnamon, cardamon, pepper, nutmeg/mace. Source: Ceylon Sessional Papers, 1968, Renort of the Tea Commission; Report of the `.^orking on Othe'r e nn.i-i.1 Cmrns; Annual Ad- J_nistra,ion HeDort of Teacontroller 1966-i - 32- But there are a large variety of other commoodities which could be produced: These include coconut, palm oil, livestock, forestry products, spices, starchy roots, vegetables and f uits. There are export markets for most of these products, and Ceylonts share of these markets thus far has been very small (except for cardamon). llL. One of the major tasks would be to educate farmers as to produc- tio!l techniques, establish an efficient market organization and determine domestic and export market possibilities. It may also be desirable to have a separate scheme for smallholders and small estates whose size of holding, technical knowledge and financial resources are different from those of large estates. il. Tea production in Ceylon comes predominantly from estates. Of the 2h1,500 hectares under tea at end-1969, smallholdings accounted for 42,052 hectares, or about 17 percent. There were 112,231 smallholdings and thus the average area was O.h hectares. Although the figures on yields according to size of holdings are not readily available it is well known that the yields of smallholdings are much below those on es- tates. The condition of many of the smal]holders' t a lands is unsatis- factory as is the quality of the tea they produce. 1 However, some smallholders are attempting to improve their situation. 116. Replanting and diversification provide opportunities for a change in the smallholder sector. Experiences in other countries show that properly organized smallho]der tea growing with cooperative pro- cessing can be fully as efficient as estate operations. It would, how- ever, be difficult to weld present scattered smallholder production (much of it on not very suitable land) into effective cooperative units. It should, therefore, be consi(dered if smallholder production should be limited to the best areas while owners of low-productivity tea land would be assisted in changing to other types of farming. The choice between these two alternatives is a matter of social and political rather than economic policy. Africa 11,. bMost important for future output expansion in Africa are the East African countries, particularly Kenya, Tanzania and Uganda. 118. Tnere are a number of important similarities in East African tea production. Although the first tea was planted as early as 1878 in Malawi, the industry developed slowly and today there are virtually no tea bushes over 50 years old, the original areas having been replanted or abandoned. Thus replanting does not present a problem. The expansion 1/ Report of the Ceylon Tea Commission, Ceylon, 1968, par. 25-28. - ,3 - that is taking place is on cleared land or land ,,nat has previously been planted with oti-1er crops. Because the mjor developrrent took place re- cently;, modern metlhods of manufacturing and production could be applied, and today the East African tea industry as a whole is the most up-to- date in the world. The industry developed at a time when there was a strong demand i'or CTC tea. The African countries took advantage of this situation and f'illed a market gap. As a result, prices for these teas did decline less, if at all, than Indian and Ceylonese tea prices. 19. probably the most important development in East Africa is the change ir. the institutional stracture. While up to the early 1960's tea was mainly produced on estates, since then t,he major thrust in tea expan- sion came from smallholders. These are organized into efficient central- ized production and marketing units based on cooperative efforts. Future tea expansion in these areas will be based mainly on smallholders, and it is in this field tI-hat the Bank Group has invested in teta developnent (de- scribed below). '20^ Among the East African tea producing countries, Kenya most rap- idly developed her ,,ea output and exports. In 1967-69 that country pro- duced 29,500 tons of tea on about 25,o0o hectares. Official plans call for an area increase to 46,100 hectares by 1975, of which approximately 23,100 would be in smallholder tea. Smallholder production accounted for about 10 percent of total tea output in 1969/70. The number of smallhold- ers was 48,433 and the average plot size about 0.4 hectare. 121. Tnus far tea has been almost entirely a plantation crop in Tanzania. In 1969 about 11,200 hectares were under tea, of which 9,300 hectares were grown by estates. The nmraber of smallholders in that year was about 4,600, but is expected to rise to 19,300 by 1975. Total Tan- zanian tea production in 1980 is projected at 22,000 tons of which 12,000 tons will be produced by smallholders. 122. In UgLanda tea is grown at an altitude between 4,000 and 6,000 feet. it was first introduced into the country at the beginning of the century, ana at the end of the 1960's i5,120 hectares produced 14,700 tons of black Lea. By 1980 estate and smallholder productions should reach 45,h00 tons of which about 20,000 tons would be produced by small- holders. Up to the mid-1960's about 85 percent of the tea area had been planted by estates. In 1966 the Uganda Tea Growers' Corporation was set up as the authority for implementing government plans for expansion of tea growing by A-frican s.mallholders. The Corporation expects to increase the s,allholder tea plantirng to about 16,000 hectares by 1975 which would be iin full production by around 1980. Area expansion on estates is expected to be small but yields will continue to rise. 123. Tea cultivation has been developed by the Government of 1'5uritius as a mweans of diversifying the economy o,f the isl1and and finding a crop able to resist cyclones. Production expanded with area and reached about ,G000 tons on 3,600 hectares. 'Fhe Governmient of Mauritius is supporting further tea expansion. It is estimated that by 1980 an additional 10,550 hectares will be planted, most of it cultivated by smallholders. Total production in that year is estimarted to amount to li,000 tons, of which 9,000 will be exported. 124. There are a number of other African countrles which produce and export tea; among them are Rwanda, BurUndi, Caiaeroon, Congo (Kinshasa), lMalawi, Madagascar, Seychelles, Rbunion, Mbzambique, South Africa and the Sudan. The production of these countries is relatively small; together they accounted for 2.8 percent of total world production in 1967-69. Output projections based mainly on official developrnent plans indicate the aggregate supply from these countries will increase from 25,700 tons in 1967-69 to 47,200 tons in 1980. Turkey 125. Tea production was developed by the Government of Turkey as a smallholding industry on the. Black Sea Coast. Output expansion has been encouraged by high producer support prices; these more than doubled be- tween 1954 and 1969. It was the intention of the Turkish Government to substitute domestic production for tea imports, but production expanded faster than expected, and there have been no imports since 1963. 126. So far producer prices have not been reduced to put a brake on the production expansion. New plantings are continuing at a rate of 2,000 hectares yearly. It is estimated that production will reach 45,000 tons in 1975, a figure which would be possible from present plantings at cuirrent yields (1,000 kilograms per hectare). Assuming that the past rate of area expansion continues, output in 1980 would amount to about 55,000 tons (from an additional 10,000 hectares). 127. In 1964 the State M&nopolies Department, which is in charge of the industry, began exporting tea. These exports increased steeply from 1L,500 tons in 1964 to 8,100 tons in 1967-69. However, the import unit value for Turkish tea in the Netherlands (the main market) is low and has been declining. Consequently the Mbnopoly incurs losses' in its export operations. In 1968-69 it sustained a loss of LT (Turkish lira) 132 mil- lion from tea sold abroad. The basis of such losses is illustrated when the Monopoly's production cost (LT 21.38 per kilogram) in 1968 is compared with the average export price (LT 2.18 per kilogram) actually obtained. The I2onopoly pays growers LT 3.50 per kilogram of leaf tea. In contrast Ceylonese and Indian growers receive the equivalent of LT 0.70 to LT 1.00 per kilogram and Africari growers about LT 0.50 to 0.80 kilogram. Pakistan 128. Tea production in Pakistan was 29,200 tons in 1967-69. Until 1966 Pakistan exported tea, but since consumption is increasing at a higher rate than production, Pakistan is now an importer of tea. Im- ports were about 5,000 tons in 1970 and are not expected to decline. 129. Because of the scarcity and high cost of foreign exchange and lack of re-investment by estates, the tea industiry has not been able to replace worn-out and ouvmoded machinery and the quality of domesticaLly produced tea is deteriorat,ing. Young tea planted under a compulsory expansion program is now coming into production, exacerbating the strain on exsting facilities. Pakistan's major problem is to improve and ex- pand factory capacity. The rate of increase in output is expected to prevail in the 1970' s, with expansion of production from newly planted tea compensating for tne decline in output of old tea (Table 1). Indonesia 130. Before World War II, Indonesia exported between 70,000 and 80,000 tons of tea. During the war large areas of tea were torn up for food production and have never been replanted. Since then there has been a decrease in the tea area and a decline in exports to about 33,000 tons (average for the 1960's) as well as a severe deterioration in quality and consequently in prices. in 1968 about 42,700 tons of black tea were pro- duced, of which 343700 tons were exported. The rests, which is generally of the lowest quality, was consured domesticaLly. 131. The indonesian tea industry comprises three different sectors: government-owned estates, consisting almost entirely of former Dutch es- tates; private estates; and smallholdings. Government estates produce black tea, most of which is exported. Smallholders produce mainly green tea, often. by primitive methods of homre manufacture. Their total produc- tilon of black tea is less than 4,000 tons. This tea, which is of low quality, gernerally goes into domestic consumption together with about another 4,000 tons of black tea from government and private estates. Private estates produce black and green tea. 132. Thse decline in the Indonesian tea industry affected all sec- tors. nhough area data are misleading and not very reliable, of the 50,000 hectares of smallholder tea in 1968 only about 37,000 hectares were productIve; and of this area only 20 percent is considered to have reasonabLe stands of tlea in good maintenance. 33. Only comprehensive rehabilitation followed by replanting at a later date can prevent a further decline in Indonesian tea output and quality. Direct replanting without prior rehabilitation is difficult, since soil conditions have deteriorated during the period of neglect to such an externt thar, they would not be suitable to support the vigorous grow tlh of newly planted tea. Furthermore, considerable yield increases are still possible fromr existing tea areas. Rehabilitation would, how- ever, require modernizing and excpanding the factory sector so that little if any additional investment would be required when the replanting process gets under way. Part of the reLlanti-n,g can be incorporated in the rehab- ilitation process. The Bank will f-inance a tea rehabilitation project in Lndonesia involving 25 government estates with 23,300 hectares including 2,300 hectares of replanted tea. Argentina 13L. Tea production in Latin America amounted to 22,000 tons in 1967- 69. Argentina produced about 75 percent of the total output. The Govern- ment of Argentina has been concerned since 1960 with developing the tea industry in order to achieve self-sufficiency. It succeeded and Argentina is now a net exporter (Table 1). Soil and climatic conditions are favor- able for tea growing as in many Latin American countriesp but it becomes increasingly difficult to hire labor for tea growing. It is assumed that production expansion in Argentina will continue according to past trends, reaching 24,000 tons in 1980. Japan 135. Japan produces and consumes mainly green tea. Of the 105,000 -;ons consumed in 1969 only about 5.0 percent was black tea. Domestic green tea production accounted for 95.0 percent of total green tea consumption in that year. In the early 1960's green tea imports increased because the area under tea declined as a result of tea land being converted to indus- trial use. The declining trend in area came to an end in 1966 when author- ities began to encourage the displacement of upland rice with tea in order to prevent continuous accumulation of rice surpluses. 136. The situation is different for black tea. Japan produces little of this type and production is declining. Consumption and imports, on the other hand, are increasing. It is estimated that by 1980 imports will reach 14,000 tons compared with about ,300 tons in 1967-69. The expalsion in imports will be encouraged by the abolishment of import quota restrictions in 1971. IV. -ECON0MDC AND EP YMENT FAC.UL7t-S "N THE 'EA ITXDSIMSTY 137. Me previous chapter indicated some basic differences in struc- ture and problems facing lhe tea industry in individual producing coun- tries. Tnis chapter concentrates on major economic and enployment aspects in producing countries. Taxes and Duties 138. The long-term supply and de^mand ad.justment in the tea industry is infiuenced, among o-ther factors, by the profit margin, !/ the differ- ence between prices received ani costs. This margin determines the com- petitiveness of individual tea regions in international markets, since it indicates the extent to which individual producers can lower their prices to meet comipetition. 139, Table 8 indicates a cost and income comparison for a number of estates in each country. This is not a random sample, since it was im- nossible to collect the statistics on this basis. In general the estates are well managed, with higher than average yields and their costs would be lower than district and country averages, particularly in the cases of North India (Assam) and South India. On the other hand, the costs as such are somewhat understated since they do not include depreciation. Unfor- tunately, it was not possible to obtain 1970 data for India and Ceylon and 1968 statistics have to suffice for the comparison. There is also the well-known difficulty of expressing costs in a common currency. This tends to produce a comparison of exchange rates and since some official rates are over-valued introduces distortions into inter-country comparison. We are well aware of these difficulties and urge the reader to consider the data only as a general guide. They offer sowe striking findings, however, which persuaded us to include Table 8 in this study in spite of itb short- comings. 1140, They indicate that there are considerable differences in produc- tion costs (up to selling point). Malawi has the lowest production cost, but also receives lower prices for its tea because of quality differences. The h-ighest costs are encountered in Assam, which is the largest tea grow- ing region in Northi India. Costs in the other tea growing area of North india are slightly lower, except for the Darjeeling district. I14 Prices are comwpared at the London auction, since the bulk of the African teas and a large share Or Indian anid Ceylonese teas are shipped to that market. Table 8 indicates that transportation costs from Africa are 1/ The ords t-areconomici' and "unp-ofitable" have both been used in this paXper, although it is realized that "unecononric" has a broader mean- ing '.,an "rnprofitable". The conieept of profitability has validity for this paper because the bulk oe the tea is produced by conmanies whose policy is guided by the prospect of earning a profit. - 38 - Table 8: TEA: COSTS, DU17T.ES AND CHARGES, AND PRICES RECEIVED AT LONDON AUCTIONS BY ESTATES, IN SELECTED COUNTRIES (US cents per pound) India (1968) Ceylon Uganda Kenya Malawi Tanzania North South (1968) (197O) (1970) (970) (1970) I Cist At selling pointl/ 28.50 24.00 25.38 27.37 24.77 22.50 28.32 "ransportation charges2/ 4.37 4.34 4.67 6.04 5.34 6.22 5.34 London Auction charges3/ 2.50 2.28 2.50 2.50 2.50 2.28 2.50 Total cost 35.37 3-2 3775 35.91 32.61 31.00 36.16 II Prices Received at London Auctions 48.07 42.26 49.30 50.98 52.98 43.41 52.80 TII Margin, before duties & taxes (II-I) 12.70 11.64 16.75 15.07 20.37 12.41 16.64 IV Duties & Taxes Cess 0.24 0.24 1.56 0.28 0.28 0.33 0.10 Excise duty 3.094/ 2.35 4/ - - - Export duty 4.75 5/3.70o2 6.72 - _ _ 1.40 Sales tax - - 3.346/ - - - Total BT08 6.29 11.62 0.20 **T8 0.33 T15T V margin, after costs, duties & taxes (III-IV) 4.62 5.32 5.13 14.79 20.09 12.08 15.14 1/ F.a.s. embarkation point. _/ Fr3ight, shipping charges, brokerage, commissions and insurance. 3/ Landing charges, warehousing, insurance and brokerage for tea on pallets. 4/ Average rate of excise duty collected per pound. 7/ 20 percent ad valorem less 1.62 cents per pound on f.a.s. cost. T/ Average ad valorem sales tax collected per pound on tea sold at London Auctions. Sourze~; Data obtained from individual tea growers and estate companies. _ 39 _ slig;htly haiglher .cr Afrcan teas than for teas from India and Ceylon, be- cause shippijng Cnarges (loading, etc.) are lower in Calcutta and Go'ombo. Details on t,hese charges are indicated in Annex Table 1.1. 4h2. The difference between total costs (up to London) and the prices receLved at London auction is the income that would be available to the es- tate if ro other cost were applied. Tnis margin (III in Table 8) is the rmst meaningful for inter-country comparisons since it takes costs as well as prices into account. The margin varies from a low of 25 percent of the selling price in tne case of Yalawi to a high of 38 percent in Kenya. The margins are not unduly 'Low for any of the countries and from this point of view one cannot say that the industry is in a state of depression. 143. However. the real difference in profitability and competitive posi`tion becomes clear when taxes and duties are considered. Tnese se- verely depress the profit margin in India and Ceylon, but hardly affect the African countries. In 1968 duties and taxes accounted for nearly 65 percent of the profit margin in India and about 70 percent for Ceylon. In 1970 India abolished the export duty and reduced excise taxes, and in Ceylon the export duty rebate reduced that tax somewhat. However, since costs also rose, the situation may not have changed much. Part of these taxes are returned as subsidies, but if individual estates are not in- volved in rehabilitation, they would, of course, not benefit by this suppor.t. 144-lh The margin after costs, the last item in Table 8, would be a rough indication of the potential price decline before these estates be- cwae comrpletely unprof-table. Since the data refer to above-average es- tates, average and marginal estates would experience this state earlier. As a matter of fact, when international tea prices at London auction reached their lowest level in 1969, a number of estates in india and Ceylon were reported to have experienced considerable losses. 145. Apart from, differences in taxation, there are some important differences in the input structure between the traditional tea producing countrIes and the new emerging producers in East Africa which also ex- plain the differences in production cost. Labor -1h6. Previously it was said that production in the latter countries i3 technologically more aavanced. Labor costs and physical labor input illustrate the differences in technology. In India and Ceylon the labor force is about 3.0 laborers per hectare and in some cases is as high as 3.7 laborers per hectare. In Kenya, Tanzania and Uganda, on the other hand, thre labor force is 1.9 to 2.0 laborers per hectare. 1h7. 'These differences in labor requirements are due to historic circumstzxices, differences in seasonal requirements and differences in the technology ol' tea production and manufacturing. 1l. I india and Ceylon have traditionally had a larg2 labor force. W:;en the industry was est!ablished in these countries decades ago, labor- saving practices in the production process were limited and not impera- tive since labor was cheap. Over time the number of laborers increased with population growth, but since there were few alternative means of employment, tea estates, had to increase their labor force. Since labor was inexPensive, this did not originally meet much opposition from es- tate owners. The employment situation is particularly aggravated in Ceylon where the tea industry was based on immigrant Indian labor which was never absorbed into the Ceylonese population and stayed on or around tea estates. Agreement was reached between Indian and Geylonese author- ities to repatriate 525,00O lndian workers with their natural increase over a period of 15 years and to give 300,000 of the Indians Ceylonese citizenship. So far, however, very few Indian laborers have been repat- riated. The exodus of Indian labor would alleviate the problem of excess labor, if Ceylon reduced its tea area and replanted with high yielding clones. in Chapter II we indicated that about 400,000 laborers would be- come redundant because of replanting and factory modernization. 1L9. The East African tea industry is younger and the original labor complement was always smaller, and has always been kept strictly under control with the aim of increasing labor efficiency. Recently concluded work contracts indicate that the goal is still higher wages in exchange for higher labor productivity. -L50. Seasonal factors also account for major differences in labor recuirements between North India and the other tea producing countries. In Ass~am the crop is harvested from mid-April to about the third week in November, whereas in South India, Ceylon and most of the East African countries harvesting goes on throughout the year. This allows for an even spread of labor requirements although peak periods occur. In Assam year- r-ound labor requirements are determined by the peak six-months harvest so that large numbers of laborers have to be carried over considerable stretches of slack periods without performing adequate productive work. :.51. Technology is another factor influencing labor requirements and costs. The use of herbicides, modern methods in manufacture, mechaniza- tion of road work, etc. means quite a reduction in the labor employed. Because of the high complement of permanent labor in India and Ceylon, labor-intensive methods of road and building maintenance as well as cul- tivation practices are used. This does not apply to East Africa. Old fashioned factories, such as are often found in India and Ceylon, increase the amount of labor to be employed on transporting leaf and the finished product. M5dern factories and methods in the new tea producing regions reduce the factory labor force by about 50 percent. 152. Table 9 indicates the distribution of input items in total pro- auction cost. Although direct African wages are higher than in India and Ceylon (Annex Table 12), labor costs are higher in the two latter countries, accountirg for 43 percent and 53 percent of total costs in India and Ceylon Ta>le 9: ?iCE::T A AE S:D'E C LM3Q. AND) OTTT-3. IMPLUS ON TOTAL ?F,DiJJ:i )xx.'rS AON.' IN , Ir 1)^ I ID ..... i .j -V.LL), ) .TA R.S I : 3 v tJS P?"e vU_,j. ................. C_ v c T:. -1S "prcentaafes 5 in-ia Ce-rlon !S5.Of>)Kenya Ug.mJa Tanzani a , Ti g'; 'edi L AveraTe for (197') (1970) (197°) T orh Grorwn Grown Grown Al! Teas I. Total Production Cost of which: Labor 43.3 52.5 53.2 53.2 53.0 3h.8 4o. 3 31.0 Other i-ru s 56.7 'IL h6o.8 46. I F67, 65, ?'R 59,7 69.0 Totai cost 10 0. 0 100.0 100.0 100.0 100 .0 100.0 1)3.000 10(.0 II. Individual On>rations Plucking n.a. 28.5 28.8 27.0 28.2 23.6 20.7 29,9 of w'.ch: Labor n.. 2R8 27 22 23.6) 20C,7 29.9 Other inputs - - Fertilizina n,a. 10 .4 5.7 11, '.57?^6 . oF whic: h Labor n.a. 1.3 1.2 1.7 1.h 1,0 0C9 CQ Other inputs 4.1 9.1 9.7 9.1 L .2 .7 .9 i eedkn n.a. 7,0 '.7 8.L i.3 3,3 3.3 2.9 of which: Labor n.a. 6.6 i/ 8.2 _, ,. ,, 1" _.1 1.3 F' Oth-er inputs t 7 . / -.8 0.3 - 0.5' 1 1.8 2.2 1.6 ControL of pest & di sease n.a. 1.6 1.3 C.6 1.1 2/ 2/ 2/ of which: Labor n.a. 1.0 0.8 0.5 ..8 2/ 2/ Other 1nput-s 2/ 3.6 0.5 0.1 0.3 2/ 2/ 2/ Ianufacturing n.a. 21.6 20.3 23.: 2-.7 31.7 27.7 31.1 of which: Labor n.a. 5.7 5.5 7.2 6.1 2.? 2r5' Other inputs 15.0 15.i9 14.8 3/ 16,2 ˇ' 15.6 3/ 2&.8 3! 25.2 3/ 26.5 3-' n.a. not available. 1 Tnclludes upkeep cf fences. 2/ if any, included unaer weedin-. 3/ Incl udes t ranscrc r a, a n an hanc dli. Source: Data supplied by government agencies and individual estate companies. -. 1-{1- respectively. In these two countries labor intensive methods are often useu f-or operations like weeding, and pest and disease control. In East Africa insecticides and herbicides reduce labor requirements but increase material costs in the case of weeding, while pests and diseases are com- paratively unimportant because the tea is young and vigorous. In the manufacturing process labor requirements in India and Ceylon are high while other irnut expenditures are Low. In East Africa the situation is exactly the opposite. 153. The differences in labor requirements indicate a conflict be- tween economic and social goals. In most of the tea growing countries labor is plentiful and underemployed. Tea offers employment opportuni- ties, but economic necessities force owners to convert to capital inten- sive production and manufacturing methods. Yields 151. Important differences in yields exist not only among tea pro- ducing countries (Annex Table 6) but also between districts and estates within a country. Geographical conditions, such as climate, soil, etc., are major factors determinirg differences in output per hectare between and within countries. Others are management, cultivation practices, etc. Usually yields are higher at lower altitudes, which, however, does not imply that this affects profitability, since teas grown at high eleva- tions are better priced because the supply of this type of tea is limited and teas grown at high altitudes have specific characteristics with spe- cific demands. 155. One of the most important factors influencing the profitability of tea estates is yield. With increases in yield per hectare the revenue rises, provided leaf quality is maintained by adhering to proper plucking standards. Costs, on the other hand, do not rise proportionately with output because there are a number of activities, such as pruning and weeding, which vary little, regardless of yield levels. 15'6. Labor costs for harvesting will, of course, increase with higher yields, but not in a linear function, because only variable costs increase, since the existing labor force can usually handle the higher output withi- out employing additional workers. It is also easier and quicker to pluck vigorous, well-grown bushes where the "two leaves and a bud" are readily accessible, than to look for the harvest-ready leaf on a sparsely grown tea plant in a field with lots of vacancies. Peak harvesting periods im- pose a strain on laborers, but as experience in East Africa shows, in prac- tice very little extra labor is required as they are mostly paid on a piece-work basis and go flat out for the extra money. However, there are differences in the amount of leaf plucked between India and Ceylon on the one hand, and East Africa on the other. The plucking average in Kenya per worker a day is about 25 kilograms as against 15 kilograms on comparable estates in South. inda and Ceylon. The plucking norr.. in .enya is 20 kilo- gramns as agairnt 10 kilograms in South India and Ceylon. 157. In Table 10 the effect of yield changes on cost and net profiu (price received less cost) is indicated for East African tea growing countries and Ceylon. Inputs are prices at the 1969/70 levels and tea prices are 1969 prices, a year when pricEs were generally low. Ceylon prices are after taxes and duties. The estates selected for this example are well-managed estates, but their other characteristics tsuch as climate, soil3 etc.) do not necessarily vary mrach from other estates in the area. The data do not include establishment and capital costs. These fixed costs are conparatively small and accounit for not more than five percent of total costs per unit of output, assuming a 50-year production period. Estates which have been operating for many years have usually written off these costs. This applies to Ceylon, but less so for the East African countries where tea ,production is comparatively young. Lack of suffici- ent statistics prevented the inclusion of these costs in the above cost analysis. Thus the data in Table 10 somewhat underestimate production costs in the East African countries. :L58. it is interesting to note that with the given cost and price structure at that time, estates in Kenya still made a profit at yields of 700-800 kilograms per hectare, while profits in the otner East African countries are only possible at higher yields. All the selected estates were, however, profitable at country average yields in 1969 (underlined for each country in the table). 159. This was not the case for the medium and low grown teas in Ceylon. Since yields of the sample estates were higher than coultry averages, mainly due to better management, high and medium grown teas for these estates were profitable. Low grown teas were not, however, as the table shows. The situation would of course be Much more favor- able if duties and taxes had not reduced tea prices. Unfortunately, similar data are not available for India. 160. Ceylon is in a difficult situation since most of its tea bushes are old, implying lower growth rates of yields and increased fertilizer applications and consequently stronger pressure on profitability. In contrast yields in East Africa, with the exception of Tanzania, are al- ready higher than in Ceylon and are expected to increase further. 61. Table 10 also serves to indicate the effect of technology in terrns of higher yields on production costs. For this analysis it was assum;ed that costs and prices were constant at the 1969/70 level. Aver- age past yie'ld data (Annex Table 6) were then multiplied with the 1/ T'he United Planters Association of Southern india, Te Case for Tea 1968 and estates' records in Ceylon. Table -l 10. YI r) fl7, -l&. yrI rTr A, n ,->r'- .,,,T n A D S1/ P E ; H In WTTflr'T,'/i .0-In S T17Cl. -pAp AFMPT 92, / 0 F rnY' Tp. '-if-r Iq i r;M° Av R c' AND R DIFIFERENT ALTITUDES IN Ci-VIO' (national currencies) Kenya Tanzania Uganda on 3/ High Medium Low Net Net Net Net Net Net Yield Cost Profit 1V/ Cost Profit i/ Cost Profit ,/ Cost Profit Cost Profit Cost Profit Tioamgras) T .....T East African shillings per kilogram .....) .......... rupees per kilogram ............ 700-800 4.93 1.34 5.66 - 0.12 5.59 - 0.78 . ............. not available. 800-900 4.73 1.514 524 0.30 5.34 - o.53 ,4.25 - 0.20 3.46 - 3.63 - 0.l,6 900-1,000 4.53 1.71 4".98 0.56 5.09 - 0.28 -0.11 - 0.04 2L2L 3.148 - 0.31 1,000-1,100 14.31 1.96 4.79 0.75 4.90 - 0.09 3.92 0.13 3.53 - 0.07 3.35 - 0.18 1,100-1,200 4.11 2.16 4.60 o.9L 4.75 0.06 3.68 0.11 Q. o0 - 0.1S 1,200-1,300 4.oo 2.27 4.46 1.08 l4.59 0.22 i 0 _ 7 .09 2.26 0.09 1,300-1,400 :.90 2.3 _7 4.30 1.24 4.49 0.32 60 3-37 0.09 3.o6 0.11 1,400-1,500 3.82 2.45 1.20 1.34 h.39 0.12 3.35 0.70 3.28 0.18 3.08 0.0° 1,500-1,600 3.72 2.5 ).I0 .Lo . 1 O.50 3.33 0.70 not available 3.00 0.1l 1,600-1,100 3.69 2.58 14.02 1.52 .25 0.56 3.30 0.72 " 2.89 0.28 1,700-1,800 3.60 2.67 3.94 1.60 4.19 0.62 3.28 0.77 " not available Note: Underlined data refer to 1969 country average yield range. Broken line in case of Ceylon refers to average yield of sample (332 estates accounting for 57 percent of island production). 1/ Costs were calculated at 1969/70 input prices. Tea prices are actual 1969 f.o.b. prices for the East African countries and for Ceylon Drices at auction in Colombo (where most of the tea is sold). 2 Estates in East Africa were selected according to similar altitue (5,000-6,000 feet), comparable climate and average distance from estates to port. In Kenya the Kericho District was chosen; in Tanzania the Thingive District; and in Uganda the Toro District. In Ceylon high implies elevations above 14,000 feet; mediium elevation between 2,000-4,000 feet; and low elevation up to 2,000 feet. 3/ Prices at Colombo auction net of all taxes and duties in 1969: High 4.05 Rs/kg; Medium 3.146 Rs/kg; Low 3.17 Rs/kg. 4/ At 1969 f.o.b. prices: 6.27 East African shillings per kilogram. 2/ At 1969 f.o.b. prices: 5.54 " " " " " 6 At 1S9% f.o.b. prices: 14.81 " " " " Sourcet Economics Department, IBRD, based on information collected in individual countries. For Ceylon data supplied by Central Econordc Research Unit. A resrective costS at trhat yield level, as indicated in Table 10. The re- sults indicate that cost of production per hectare of tea generally de- clrned in East Africa and for low grown tea in Ceylon because of yield inmrovement. For high and medium grown tea in Ceylon costs remained constant. Establishmient Costs i62. As previously stated, in order to meet the increase in demand tea productiion has to expand either through replanting or expansion into new areas. in East Africa future expansion depends on developing new tea land and establishing new tea factories, In Ceylon and India, and also partly in Indonesia, improvement of the industry's efficiency re- quires replanting and imodernization of rnanufacture. The foremost re- quirement for Indonesia is rehabilitating estates by improving the pro- ductivitty of exsting tea bushes. 163. Irivestament requirements for these measures vary according to type ef investment, but also according to country. A comparison of these differences is shown in Table 11. The table indicates that, in terrs of U.S. dollars, Ceylon has the highest investment costs for estates because of high field investment costs. These are explained mainly by high labor costs, since the number of man days per hectare is nearly twice as high as for estates in East Africa (Table 12). Since additional costs, such as materials, management and other overhead are not appreciably lower than in East Africa, there is no corpensating effect to counterbalance high labor costs. 1o'. Underlying the Ceylonese calcu:lation is the assiulption that this country contintes to produce orthodox tea. Conversion to CTC tnachinery would increase investment costs for manufacture. iTnufacturing invest- mient costs in Ceylon are, however, lower than in East Africa by about U.S. $300-400 per hectare since part of the old equipment can be used in the ,rodernization process. l 65. Indonesia was included in the calculation because that oountry is now undertaking a substantial estate rehabilitation program involving abouv 36,000 hecLares. The objectives of this program are to improve tea auality and raise yields from about 800 kilograms at present to 1,100 kilograms in 1975a At the same time factories are to be m,odernized and exoanded to wake account of the larger volume. Eventually all of the 36,000 hectares will have to be replanted, but little expansion in fac- tory capacities would be required since they will be modernized and ex- Danded, keepoing in mind the exparision after rehabilitation. If the cost of replanting were to be added to the rehabilitation, a rough estimate inai.cates that inveatment cost per hectare (at 1970 prices) would increase by about $1,000 166. In ever-v case the investments would raise yields, which would represent a cost saving as has previously been expla-ined. It is there- fore interesting to show the effect of these yield increases on net income, -46- Table lit INVESTMENT COSTS P9R-ECTARE FOR ESTABLISHING, MODERNISING OR FEN3BILITATING TEA INDtfETRTBS IN INDIA, CEYI)N, INDONESIA, KENYA, TANZANIA, AND UGANDA AT 1970 INPUr PRICES, IN NATIONAL CURRENCIES AND U.S. DOLLARS J Net income Yield per hectare per hectare -3/ Total Cost Projected at Actual ProJected Actual C;ountry Field Manmfaature g Total in US dollars maturity / 1969 1969 (.Natioral ourrenoiea ........... Kilogram n ...... US dollars ....) Irndia 5/ Replanting l4,0vo 4,o00 18,000 2,400 2,000 1,075 560 (204J) 301 (1096/) lxtension 10,000 1,OOO 1l4,000 1,667 2,000 1,075 560 (20;1/ 301 (109&') 2&Yon / 7/ RVplanting lh,o00 l,0oo 18,000 3,025 2,500 953 923 (283-6/i 352 (108Wi) Indonesia 2/ 170,171 189,914 360,065 952 1,100 800 308 224 Eiktates 5,h79 10/ 6,530 12,009 1,681 1,700 1,314 763 590 Eitates 6,750 - / 6,530 13,280 1,860 1,700 1,31 763 590 SiThlold1ers lu/ I 8,517 6,530 15,047 2,100 1,600 1,314 719 590 II 3,747 6,530 10,277 1,439 1,600 1,314 719 590 ra rania 2/ RStates 6,019 13/ 6,798 12,817 1,743 1,700 868 624 318 Fetates 6,205 I/ 6,798 13,003 1,820 1,700 868 624 318 Swa3.1holders 1E/ 1 10,295 6,798 17,091 2,393 1,600 868 587 318 Tr ~4,691 6,798 12,489 1,608 1,600 868 587 318 Eganda 2( Estates 5,827 16/ 4,908 10,735 1,503 1,800 1,528 598 508 Estatee 6,835 17/ 4,908 1l,743 1,644 1,800 1,528 598 508 Smallholders 18/ I 11,001 [,908 15,909 2,227 1,700 1,528 565 508 rI 4,85o 4,908 9,758 1,366 1,700 17528 565 508 (Footrntes on next page) Sourcet Producers' aesociations and individual estates. -47 - Foc;-zotes to '.'>.> .-- l/ Conversion factors: Cne US dollar = 7.5 Indian rupees, 5.95 Ceylonese rupees, 378 Indonesian rupees, 7.14 East African shillings. 2/ Includes lorries, housing, etc. 3/ To calculate net inicome, the margin on tea sold in London before duties and taxes, as indicated in Table 8, line II, was multiplied by the yield data given in Table 11. The foilowing margins were used in US cents per kilogram: India 28.00, Ceylon 36.93, Kenya 44.91, Tanzania 36.88 and Uganda 33.22. 'For Indonesia a margin of 28.00 US cernts per kilogram was used. 4/ Yield achieved througlh investment. 5/ Replanting includes =rooting old tea, preparing land for planting new tea and modernizing machinery. Extension is the same as for replanlt- ing except uprooting. 6/ Net income derived by using the margin after payment of duties and taxes as listed in Table 8, line IV. 7/ No extension planned. See text. 8/ For explanation, see text. Q/ Manufacturing costs include new factory. Construction cost of factory is related to size of estate or smailholder sector and intake of tea. The tendency to build larger automated factories is shown in Uganda, as irndicated below: Kenya Tanzania Iganda Construction cost of factory L167O L72,000 L199,000 Annual capacity (kilograms) 909,091 909,091 2,000,000 Nwuber of hectares 506 506 811 Factory cost per hectare (shares) 6,530 6,798 4,908 s,0/ Location: Fericho - Includes actual costs incurred in land prepara- tion and road improvement. No account is taken of land value. I1/ Location: Kericho - Assumes clearing of new land (100 man days per hectare more than labor needed in land preparation at EA Sh 14.56 per rt£an day) and construction of new roads at EA Sh 1,976 per hectare. No accournt is taken of 'Land vaIue. 12/ AsswirDtions: Estirmated family labor input equals total labor input: 7T4Z an 0ayz per hectare with heavy clearing of bush; charge for openirg up road: EA Sh 1,976 per hectare; cost of purchased inputs: EA Sh 1,771; Location: Area alreadiy served by KTDA. A All labor charged at 19770 wage rate (including labor benefits) of E:A Sh 4.56 per man day. Assumes clearing of bush and new road constructcion. I.I-t No labor charge (shadow wage rate is zero), otherwise as in I. INote; Light clearing of bush and no road construction charge would reduce cost by EA Sh 2,432. - Lb C - Footnotes to Table 11 (cont'd.): 13/ Location: Rungwe - Includes actual costs incurred in land preparation and road improvement. No account is taken of land value. lL/ Location: Rungwe - Assumes clearing of heavy bush (100 man days more than labor needed in land preparation at EA Sh 3.85 per man day) and charge for road construction at EA Sh 717 per hectare. No account is taken of land value. i5/ Assumptions: Estimated family labor input equals total labor inputs: 1,412 man days per hectare with light clearing of bush. Heavy clear- ing of bush (100 man days in addition to light clearing) is done by hired labor. Charge for road construction: EA Sh 717 per hectare. Cost of purchased inputs: EA Sh 3,589. Location Rungwe, Upper Area. I All labor charged at 1970 wage rate (including labor benefits) of EA Sh 3.85 per man day. Assumes heavy clearing of bush and new road coristruction. II No labor charge for family labor (1,h12 man days) but charge for heavy clearing (100 man days at EA Sh 3.85). Includes charge for new road construction. Note: Light clearing of bush and no road construction charge would reduce cost by EA Sh 1,102 per hectare. 16/ Location: Toro - Includes actual costs incurred in land preparation and road improvement. No account is taken of land value. 17/ Location: Toro - Assumes additional charge for clearing henvy bush (100 man days more than labor needed in land preparation at EA Sh 5.00 per man day) and charge for road construction: EA Sh 2,500 per hec- tare. No account is taken of land value. 13/ Assumptions: Estimated family labor input equals total labor inputs: 1,229 man days per hectare with light clearing of bush. Heavy clear- ing of bush (100 man days in addition to light clearing) is done by hired labor. Charge for road construction: EA Sh 2,500 per hectare. Cost of purchased inputs: EA Sh 1,856. I All labor (including family) charged at 1970 wage rate (includ- ing labor benefits) of EA Sh 5.00 per man day. Assumes heavy clearing of bush and new road construction. II No labor charge for family labor (1,229 man days) but charge for heavy clearing (100 man days at EA Sh 5.00). Includes charge for new road construction. Note: Light clearing of bush and no road construction charge would reduce cost by EA Sh 3,000 per hectare. Tabl'Pe 12: - 1_' Jr .DA-Z' TO B'STA?I. TST{ O N E ET,T OP T,A ±ncz . a Ceyrlon Indonesia . en.a Tanrza-tia l / 215 ?/ Rep* ltlfnlg RehabiTitatlon I II . II I II Estate!s 1,000 1"-9 1?7 L65 565 508 60i8 533 633 Snallholders 9l6 i,oV 1l.1l2 1,512 1,229 1,329 of which fatdly labc 91W6 1,oh6 1hl12 1,4122 1,229 1,229 I/ Assur-otions: I Assumes iight-, clearing of bush. II Assu,mes heavy clearing of bush, i.e., I + lfO a-n days per hectareCd 2/ The low family labor irnnut is due to the fact that for many owners of sialiholdilrngs, far rin.f i-s not the r main occupa::on; of,ten they, hold. city jobs and hire labor to run the holdi.-l Source: i73RD. neglecting the cost saving effecL whlch could not be assessed with the avaiLable data for India and Ceylon but which has been taken into ac- count in East Africa and Indonesia. 167. Presently the net income per hectare is higher in East Africa than in the other countries shown in Table 11 if the reduction in net income through taxes and duties in India and Ceylon is taken into account (as it should be). At 1968 prices, costs and yields, taxes and duties reduce for the estate the net profit per hectare for exported tea by about U.S. $190 in India and by about U.S. $240 in Ceylon. 168. The improvement in yield through replanting would increase net incomes in all countries, but would still leave the East African coun- tries in first place if taxes and duties remained at 1968 levels in India and Ceylon. 169. If we assume, however, that these charges were abolished, Ceylon would outdistance all other countries in terms of net income. Another way of looking at it is to calculate the effect on government revenue from replanting. At 1968 cost, price and tax levels the rev- enues received by governments in India and Ceylon were about U.S. $190 per hectare and U.S. $2h0 per hectare respectively for exported tea. Through replanting this revenue would be increased to U.S. $355 for India and U.S. $640 for Ceylon, assuming the 1968 tax structure prevails. Smallholders 170. An interesting finding offers a comparison between smallholders and estates in East Africa. Investment costs for the former are higher than for estates if the labor input is priced at 1970 wage rates. This discrepancy arises because smallholder establishment is more labor inten- sive than investment on estates (Table 12) where more capital intensive methods are applied. In this respect the smallholder sector resembles the situation in Ceylon where labor intensive methods are also applied. However, in that country the cost is further increased by overhead costs such as management, administration, etc. - costs which are much lower or non-existent in the smallholder sector. 171. If family labor wage is assumed to be zero 1/ (shadow wage rate equals zero), smallholder investment is lower than for estates. In some cases smallholdings are too large to be managed by the family or the 1/ Whether this is a justifiable assumption is not discussed here. Since man days as well as wage rates are indicated in footnotes to Table 11, it is quite easy to assume different shadow wage rates and calculate their effect on investment costs. owner has another Job and does not work on the farm. Our calculations incdicate that in this case investment costs are higher than for estates, since capital intensive methods cannot be applied. This implies that tea smailholdings should be managed by the family and should be of a size to allow all activities to be carried out by the family. 172. Firially, it should be noted that the investment requirements should only be one aspect in the decision- making process. Social, other economic and even political factors are equally important. V. TNT ERNATIONAL ACTION 173. The slump in tea prices which occurred in 1969 was the seventh iLn nhe history of the world tea economy. The first three (1866, 18?9, 1896) alose because of sudden increases in exports. The consequent drop in prices was, however, soon followed by increases as supply and demand quickly reached equilibrium. In this respect these situations resemble the developments on the world tea market in 1969 and 1970. 171k, The fourth (1920) and the sixth (1951-52) slumps were the re- sult of wartime stock releases in the United Kingdom or other adjustments to the postwar market situation. They were short-lived. Of greater im- portance was the fifth slump which fell between those two price falls. it occurred in 1927 and, since it extended over several years, finally led to an international agreement among producers to restrict their ex- ports. International Tea Agreements 175. In 1933 after a prolonged period of rising production, depressed demand and falling prices, the International Tea Agreement was set up. The Agreement, which was essentially an oligopoly, was based on two main principles: (a) limitation of expansion of planted area; and (b) restric- tion of exports from participating countries. Participating countries were India, Ceylon, Pakistan, Indonesia, Malaya and the British East African territories. At that time this group accounted for about 80 percent of world exports. The last-mentioned group and Malaya obtained conditions which allowed them a greater degree of expansion of plantings and special export ceilings. Efforts to associate Mainland China and Japan with the scheme were not successful. 176. During the years 1933 to 1938 exports were restricted by approx- imately 10 percent, as compared with the last four pre-Agreement years, although they had been relatively high in the pre-Agreement period. In- ternational prices were maintained at about 75-80 percent of the pre- Depression level, on the average, which was a considerably better per- formance than for many other agricultural commodities. No doubt the fixed tea drinking habits and low price elasticity of demand in the chief tea consuming countries made it possible to avoid a larger price decline during this period. However, it might be noted that, although prices did not decline greatly, year-to-year changes in London auction prices averaged 9.5 percent and thus were nearly three tines as high as during the 1956-66 period when no agreement was in effect.1 1/ During the period 1956-66, the average price fluctuations for "alal teas" were 3.5 percent. These fluctuations were considerably smaller than for many agricultural products. However, tea prices declined steadily during this period. 177. D ring VWorld War II special ar-rangements based or. bulk purchas- ing by the Unrted Kingdom were in operation. Tne Agreement remained in force until 1955 without the East African territories and Malaya as mem- bers. No attempt was made after 1938 to force tea prices up by restrict- ing exports; indeed, export quotas were on the average (1945-55) some 30 percent above the actual exports of the participating countries. Thus the Agreement had no effect on postwar output, trade or prices. 178. Two main arguments were offered in 1955 against renewal of the Agreement. The first one was that an increase in tea production and ex- ports was necessary to acceierate economic growth and protect the foreign trade balance of each of the exporting countries. None of these countries was, therefore, prepared to accept restrictions from which the others might benefit. Secondly, a large number of new producers were emerging, notably in East Africa. Since these were determined on vigorous expansion, any restrictions applicable to the old producers would have amunted to a guarantee of a growing market to the new ones. 1/ 179. A series of meetings was held in 1969 under the auspices of the FAO to discuss the establishmen' or a new long-term international tea agreement, based on limitations of export growth to about 6,000-8,000 tons yearly to match the annual increment in import demand. India and Ceylon expressed themselves very much in favor of such an arrangement,. The two major exporting countries agreed to the principle of differential growth in the exports of individual countries in order to safeguard the interests of small producers, particularly those which had already committed them- selves to tea cultivation as an important part of their diversification programs, while insuring an equitable share in growth to all exporting courntries. African producers, however, were reluctant to commit them- se7ves before their tea development plans are completed. Nevertheless, agreement was reached to limit 1970 exports so that they would not exceed the long-term growth in import demand. 180. Originally a global export quota of 598,800 tons was fixed at a meeting in Mauritius in the autumn of 1969. This quota was reduced to 594,800 tons when it turned out that the original amount was unrealistic in view of production developments in 1969-70. This quota of 594,800 tons was divided among exporters of black tea excluding the centrally plannedl countries, Brazil and Rhodesia. The share of individual countries in this quota is indicated in Table 13. By the end of 1970 it turned out that, somne countries had considerably overestimated their 1970 exports when applying for a quota. This was due partly to weather conditions and partly to a general misJudgment of their export situation. As a result total exports fell short of the quota by about 15,000 tons or 2.5 percent (Table 13). 1/ The Lact that the average price for "all teas" in 195L and 1955 were at their highest level ever no doubt also influenced producers to terminate the Agreement. - 5 li Table 1'3: EXPOR)TS OF BLACK TEA B13Y COUNTRY, 1-967 TO ]1970) AMJJ) 1970 QUOTAS (thousand metric tons) Quo tfa f 1 970 Actual IKxport,S Percentage 1967 1968 1969 1970 Total Exported; Ceylon 216.5 208.7 20l.5 208.3 India 212.3 2Oh.1 16h1.8 2O0I.1 (Ceylon t India)(hM?8.8) (bih .8) (366.3) (1412.).1 b420.9 98.o IritOiesl a 26.61/ 34.71/ 27.i?/ 35.5 1 3b .9 102.0 Kenya "y 18.5 27. 32.8 35.0 38.? 90.(0 lgai1da J 9.3 11.2 15.8 15.9 18.hj 86.41 T,t--]*,a w 16.8 15.8 17.2 17.7 17.4 101.7 M",c'arbiaiie 1lh. 114.1 15.6 16.7 16.h 101.8 Argentina 11.h 1I-.7 114.6 162 11t.7 110,2 Conga, Dem. Rep. 5.6 7.6 14.] 7.73/ 10.0 77.0 Turkey 8.6 7.L- 8.3 7.8 9.14 83.(0 Tanzania 2/ 6.o 6..7 7.6 (7.8k!8) 7.8 1oo.0o/ Mauritius 1.6 1.7 2.6 2.6 3.0 86.7 Chi ria. (Taiwan) 3.3 3.8 2.1L 2.1 3.7 56.8 .iw nda 0.3 ).8 1.0 1.3 1.5 86.7 Cane:ron 0.1 0.8 0.6 (0.6L/) 0.9 66.7k! Vietiaam Rep. 1.0 0.7 0.2 (0.2$/) 0,7 Burunci 0.1. 0.2 ().I) 0.2 Original quota Shortfall - 4.0 Total 552.3 62.4 516.3 579.7 5914.8 China (Plainland) 22.3 26.0 26.7 n.a. North Vietnam .1.1 1.6 1.6 n.a. trazil 3.0 3.0 2.8 n.a. Rhodesia (South) 0.5 0.5 0.o n.a. World lNe t' Export- (Piack tea) 579.2 503.5 547.9 610.7L,/ n.a. = not available 1/ iet we.ight. 2/ Excludi ng int;ra-trade with other meribers of the East Afriean Conunity. 3/ £xcliviing "uncontrolledl" exports estimated at 2.5 thousand metric tons. 1W £'a r tly estimidted. Source: FAO, Consultative Corwmittee on Tea, doe. CCP:'rE 71/:EX) 3/14, April 13, 1971. 18L-s The Exporters' Group of the Consultative Comrittee on Tea met in .kpril 1971 and agreed Ithat there should be a quota running from Jan- uary 1, 1971, to March 31, 1972. For the calendar year 1971 the global quota would be 594,800 tons, the s&me total as agreed for 1970. The quota for the full 15-month period would be decided at a review session of the Group to be held in Septemiber 1971. It was further agreed that any individual quotas would not be definitive figures which would commit countries from the point of view of a future long-term agreement. 182. The prospects for such an agreement are uncertain at this time. Furthermore, since world market prices in the meantime have recovered from their 1969 low and the danger of a long-term surplus is less immi- nent, the pressure for reaching a long-term agreement has been reduced. A number of African countries still oppose such an agreement. All coun- tries agreed, however, to discuss their long-term tea development plans and perhaps make adJustments, if necessary, to take account of the world market situation. India and Ceylon, on the other hand, indicated that they are not interested in a series of short-term agreements if there are no prospects of arriving at a long-run arrangement. Diversification 183. Diversification is often proposed or implemented in conjunction with an internatioral agreement to restrict exports of a particular com- modity. The Tnternational Coffee Agreement, which incorporates a diversi- fication fund, is an example. Diversification has also been discussed in international conferences as a possibility to help adjust supply and de- mand in the tea industry. 1/ 184. However, its implementation ultimately depends on opportunities and necessities in i4ndividual countries, and it has been treated as such in this paper irn the discussion of the Ceylonese tea industry. In that country the tea industry is faced with a massive problem of rehabilita- tion if the level of efficiency is to be improved. In this process tea land has to be converted because it is either not suited for optimum out- put under expected future economic developments in the industry, or the necessary financing is not available for replanting the entire tea area, or because completely replanting the presenrt tea area would drown the imarket in surpluses. 185. In some respects the condition of the tea industry in East Africa is quite the opposite from Ceylon. In these countries tea is coMparatively your4g and replanting is not an issue. Adjustment to the future world mar- ket situation would not imply taking tea out of production and putting the iand to oth.er uses. Any contribution to a worldwide supply adjustment would only be done through a postponement of expansion plans, but not a 1/ UnICTAD, Some Aspects of Diversification in the Tea Industry, by Dieter ELz, TD/ACBCC(VI)/R.l0, Geneva, March 3, 1971. reduction in area. Furtheitiotes di versifi cation is already a requirement of sr,aalhol1der procluction, and this is the only sector which is expected to expand in future. In Ke.ya, foI- exauple, the government requires that each smallhold>ng shlould produce subsistence as well as one or more cash CrOps. Tea planting is, thorefore, designed to utilize only part of each :.no ividual holding. Bank Group Involvement in Tea 15o. To date the Banic Group has corqmitted $37.2 millton for tea do- ve.lopmero.t in- five producirng countries, name-ly, Indonesia, Kenya, Miuritius, Tanzania and IJganda (Table 1i). It is estimated that the total output or the increased production through rehabilitation which will be generated by these projects will amount to around 38,000 tons by 1980, of which about 34.,000 tons is expected to go into expoi-t channels. This represents less than five percent of the projected world exports in that year. Except for Indonesia, all these projects are smallholder projects in which about 50,000 farmers participate. 1871. The Bank is currently considering becoming involved in financing further tea development projects in three countries, that is, East Pakistan, Tanzania and Uganda. Appraisal for the Tanzanian project has been con- cluded, and it is expected that financing will commence in fiscal year 1972, if approved by the Board. About 15,000 farmers are expected to participate, and it is estimated that this project would add 7,500 tons to world exports in 1980. 188. Exports frora the above projects and anticipated exports from proj- ects not yet appraised have been included in our projections. All projects are distinguished by efficient production methods, expressed, among other criteria, by high yields per hectare and low cost per unit of output. By organizing efficient smallholder production and marketing schemes, they have also contributed to the introduction of a new institutional dimension into the-tea economy which, as the example of the Kenya Tea Development Authority shows, has been highly effective. Table 1.1: PAST AND AN'ICIPATED) BANK GPDUP LENDING IOR TEA Date o:f LoaI Amioun,t Area of' Projected Fa-rners. Credit Agreement of Loan Project Output Ecpected Country or Fiscal Year or Credit in 1980 Type of to of Anticipated (U.S. $ Tea (1,000 Project Partici- _LIndin mi:l.lionj (h ca este Past lendig Kenya 8/17/61k 2.8 5,800 5,000-7,000 Smallholder 15,000 Kenya 1/ 6/30/65 3.0 Tea roads Kenya 6/17/68 2.1 14,200 18,000 Smuallholder 26,000 Tanzania 2/ 1/13/66 1.7 Tea factorys ftertil.izer and plants Ugancla ,/ 7/28/67 0.5 Tea roads Uganda 9/15/67 3.4 3,900 144500 Smallholder 5,500 t Uganda 2/ 9/29/69 3.5 Tea roads Mauritius 4/9/70 5.2 2,365 2,360 Smallholder 3.,730 Indonesia 6/17/71 15.0 23,300 7,000 f/ Rehabilitation - estate Within firm lendinrgram Tanzania 1972 7.3 8,300 7,600 Smallholder 15,000 t 1/ Part of road project. 2/ Part of Agricultural Credit Project. 3/ Part of road project. h;/ Increase in output from 1970 output. Note: The Cameroon Development Corporation Project (1967) includes 400 hectares of tea. The origi.nal planting schedule has been postponed. To date it has not been decided how many hectares will be planted, but it is unlikely that more than 100 hectares (producing about 150 tons) will be in full bearing by 1980. The financial contribution of the Bank for tea development of this project is also uncertain at this stage. Source: IBM3D. q a i X no.A k'r~1Jdu..zXi~ h.~ riWNh~5 A;~;J uUU' ...& L rn.,{,.. r i'I'A gz*i9J UX 0? E'".j)< ~.cis!C1S.i2;L2 k-Th SU{A, OF REGJOI%'S AND CA('XTXRTh,S ON WOR-I, TOTAL AVERAGE 1955-57 AND 1967-69 Yearly Share on Worla / Region and Country Production Rates of Total 1955-57 1967-69 Change 1955-57 1i,7U9 (1,000 metric tons) (..........percent.. Asia India 309 394 2.0 4h.9 [40.6 Ceylon 3.75 222 2.0 25.5 22.9 Indonesia 245 38 - 1.h 6.5 3.9 Pakistan 23 29 2.0 3.3 3.0 Japan 3/ 72 87 1.6 10.5 9,0 China (Taiwan) 4/ l4 25 5.0 2.0 2.6 Iran 6 1, 9.6 0.9 1.9 Turkey 2 26 2h.0 0.3 2.7 Other Asia 6 10 4.14 0.9 1.0 Total 6 4 2.3 94. ;7* Africa Kenya 10 30 9.6 1.[4 3.1 Uganda 3 15 1J.4 0.4 O.q .anzania 2 8 12.2 0.3 0.8 Malawi 9 1? 5.5 1.2 1.8 J'bzarnbique 6 15 7.9 0.9 1.5 Congo (Kinshasa) 2 8 12.2 0.2 0.8 Other Africa 2 7 ll..0 0.3 0.7 Total 3 100 97 10.2 Latin Airnerica Argentina 2 16 18.9 0.3 1.6 Other Latin America 2 6 9. 0.2 0.6 Total [4 22 1TL.2 0.5 2.2 Whorld (excluding centrally planned) 690 971 2.9 100.0 100.0 1/ World excluding centrally planned countries. 2/ Estates only. f3/ f which about 85,000 tons greern tea ifn 1967-69. 4/ Of which aboutv 21,000 tons green tea in 1967-69. Note: Data differ slightly from those in Table _ due to rounding. So-urce: FAO, Tea Statistics, doc. CCP/Tah/lA69/WP1 and doc. CCP:TE 70/2, October-6, 1970. TuEs ATI G Table 2: AREA UNDER TEA IN PRINCIPAL PRODUCING COUNTRIES Or THE WORLD, AVERAGES 1956-58, 1961-63, 1966-68 (thousand hiectares) Country or Region 1956-58 1961-63 1966-68 Asia 788.7 813.4 India 325.J 33T. Ceylon 231.1 238.2 241.8 Pakistan 32.0 33.6 40.6 Indonesia l/ 75.5 74.8 62.6 Malaysia 3.7 3.5 3.1 Japan 48.o 48.9 48.6 Taiwan 48.0 41.3 36.8 Papua and New Guinea - - 1.0 Iran 16.2 21.8 26.9 Turkey 10.1 16.5 23.8 East Africa 34.3 48.8 68.7 Kenya 12.2 30.3 Uganda 5.4 8.5 13.8 Tanzania 5.6 8.1 10.4 Malawi 11.1 12.4 14.2 Other Africa 19.7 27.6 0.1 Congo 9.6 .2/ Mauritius 1.4 1.9 3.1 Mozambique 13.h 15.2 14.8 Others 3/ 0.3 009 3.6 South America 37.6 34.9 3 Argentina 30.7 28.0 28.1 Brazil -.7 4-. 4-5 Peru 2.2 2.7 2.9 USSR 65.6 65.7 71.7 World Total (excluding USSR) 880.3 924.7 970.2 1/ Excluding smallholdings. 2/ 1966-67 only. 3/ Including Cameroon, Rwanda, Burundi and South Africa. Source: International Tea Committee and Tea Board of India, Tea Statistics. ANNEX Tab1t-_ CONSU)4PTION BY REGIONS AND COUNTRIES AND SFA1T2: OF REGIONF AND C0TrP.IEvS ON W1RLD TOTAL, AVERAGES 1955-57 AND 1967-69 Yearly Share on Region and Country Total ConmsUDtion Rates of World Total1 (1J,000 metric tons) (............peroent..........U) Developed Countriee United Kingdom 227.3 222.9 - 0.2 32.9 22.9 EEC 17.2 22.24 2.3 2.5 2.3 Ireland 10.1 ll.6 1.2 1.5 1.2 Other W. Europe 6.2 9.2 3.3 0.9 0.9 United States 47.7 64.0 2.5 6.9 6.6 Canada 20.2 20.6 0.2 2.9 2.1e South Africa 11. 18.5 3.7 1.7 1.9 Australia 25.14 28.3 0.9 3.7 2.9 New Zealand 6.7 7.7 1.2 1.0 0.8 Japan 58.7 92.2 3.8 8.5 9.5 Turkey 4.h 19.8 033 .6 2.0 Total Developed T 63.1 2.1 Developing Countries Non-producing: Asia 32.8 63.5 5.7 4.8 6.5 Africa 52.0 73.7 2.9 7.5 7.6 Latin America .8 3 o. 1.2 Total Non-produCing 0.6 L. 13.1153 Producing: Asia: Ceylon 8.1 18.0 6.9 1.2 1.9 India 100.0 195.5 -/ 5.7 14h.L 20.1 Indonesia 4.5 .Y 8.o 4.9 o.6 0.8 Pak.ie,an 17.1 29.2 4.6 2.5 3.0 Others 25.5 37.9 4 379 Total Asia 15.2 2 .. 2 29.7 Africa: Keny'a 2.3 4.2 5.1 0.3 0.4 1alai iv 1.5 2.2 2/ 3.2 0.2 0.2 Tanzania 0.8 1.9 7.5 0.1 0.2 Uganda 0.7 1.2 4.6 0.1 0.1 Others 0.9 3.3 11.4 0.1 . Total Africa 2 1 . 6 .2 1.3 Latin America 3.3 5.4 4.2 0.5 0.5 Oceania 0.5 0.7 2.8 0.1 0.1 Total ProducI ng 265. 2 . 5 S 3 b 2 8 Total Developing _ 1$.2 4260 6 World (exCl. centrally pLanned countries 69:.6 973.2 2.9 100.0 10O.0 F- ccluding centrally p;n.:oed cC1; 1 / Includes an official eiAi.ate 6ff L22 U)0 metric tons in 1969 given to the FA0 Conni2.tative Condttee on Tea, Second Session, In December 1970. / Partly esti.ated. rc Includles Southern Rhodesia and Zamnbia. oWe'AO, d CLo.C . CMAT7a.0/-, O6/wel ;.Q7; U'. n tae.t rp t'l T?. SecOOd Se;;;oicm, Jeaoci CG?t7 ,ii Ocz-obnx S.. 11C:70; .srd ven' Tee. Ag :MBe,^,1<- E'96n ) S14X;;eE of D Table J: UNITED KINtMXJM - TEA CONS UfPTOION, RE-EXPOI?TS, OOFF'-TAKE, (IROSS DIPOItTS ANDJ STOCYS3, 19.5-69 (thousand metric tons) Total Re- Gross End of Consumrption Exports Off-Take irmports Year (1l) +(2 ) Stocks (] ) ~(2) (3) (l l955 217.0 14.9 231.9 226.5 73.6 1956 235.7 1lh.4 250.1 233.0 514.9 1957 229.6 13.6 243.2 269.5 83.2 19958 234.7 1h.5 2149.2 266.8 100.9 1959 231.7 i8.3 250.0 234.8 85.6 1960 223.5 13.7 237.2 238.5 86.9 1961 236.7 114.4 251.1 252.0 86.4 1962 230.6 17.5 2148.1 252.8 90.5 1)6,3 230.6 16.8 247.4 255.4 96.9 1961i 229.6 18.h 248.0 243.0 90.6 1°65 220.5 17.8 238.3 253.14 103.7 1966 219.5 19.0 238.5 232.8 98.9 1967 230.4 17.1 247.5 247.3 99.5 1968 222.8 20.3 243.1 269.6 126.7 1969 215.6 22.2 237.8 212.2 100.3 Source: FAO, Tea Statistics, doc. CCP:Tah/1A69tdP1 and International Tea Committee, Annua) Rulletin of Statistics, 1970 Q.able A.CNUA.L A A,F 7h.A PE.I ?11,S, FOx SE~CTED COUNTFS AT LIXNTIPN AUCTIO0N 1955-7C (old pence per pound) India Aver age North South Ceylon Kenya Uganda Tanza.nia lawi 1ll T eas 955 63.6 53.6 h1. 3 11I4 50.9 55.h4 Us. 60.2 3.956 61.1 51.1 66.2 42.6 4 2.7 46.9 37.6 58.0 1957 56.6 h4.1 58.2 hi. 2 43.1. 44.5 37.4 53.2 1958 58.9 45.9 59.2 h6.q h4.0 47.8 38.7 55.1 1959 58.1 44.5 60.8 4i6.2 I,2.3 146.6 35.4 5,.6C 2960 59.2 47.7 59.9 51.2 47.3 47.7 39.7 55.3 196]. 56.0 h6.L 55.5 50.0 47.0 49.7 hW3 52.9 1-962 60.6 h4.1 ¸5.2 53.9 ,6.l, 50 .¸ 34.9 53-1t 1.963 55.7 43.h 52.3 h8.1. L14J. 36.(c 35.2 50.7 196L6 5h.6 45.9 53.? 5c.8 h14.l 7. 4 33.6 51.5 1965 52.3 L44.B 51.2 h9.3 6.h4 h.7 h.8 q(¸.2 1966 52.1 41.o 5(¸.9 5c.I1 )5. 3 369.1 362. 18.9 1967 53.7 L2.5 52.3 52.1 4!8.4! 5c.3 36.0 )c .2 1968 48.4 ? 42.3 49.9 148.8 43.0 46.3 41.3 07.2 19i' L9 1;.3 34!.4 L8.5 48.2 4!0.0 43.JJ 28.1 14 4 I 157) 50,.9 )4.o 51.2 53.!` 51.0 52.8 h3.) 4! .7 c)mr-ro: Tnternationa] l'ea Conmrmi t.tee, Annual BuIletin of Statistics, 197(1. 'rable o: YIELJX3 OIl; MATUIIE. TEA PEF? HECTARE IN SELK 'IrECI CUUNTIE, 195T9-69 (kilograms ler hectare) Indi-ia Kenya Uganda Tanzania Malawi Ceylon North So U 1.h 1959 1,156 931 734 1,236 813 1,056 916 1960 1,139 857 658 1,191 854 91i7 1,o5l. 1961 936 8107 718 1,345 891 1,064 1,,091 1962 1,121 992 630 1,376 903 1,018 1,128 1963 1,1314 897 681 1,176 935 992 1,192 1961 1,l)IO 991i 606 , 1.156 919 1,102 1,103 l.96N 996 982 701 1,002 954 1,024 1,072 1966 1,185 1,218 808 1,31h 935 1,038 1,272 1967 991 1,133 8(5 1,2h6 921 1,077 1,215 1968 1,203 1,)h80 839 1,250 935 1,1O04 1,302 1969 1,31b 1,528 868 1,260 953 1,075 1/ 1,291 1 1/ Estimated. Source: Tea, Journal of the Boards of East Africa, Vol. 10, No. )4, January 1970. 7.X_ . I~ ISIG UL)"RO P Y I