Export of Tea and Lentils from Nepal

Pradyumna R. Pandey, Moti B. Shrees and Prakash Ghimire

Prepared by:

Field Study Team

Mr. Jib Raj Koirala, Under Secretary, Ministry of Commerce and Supplies (MoCS)- Team Leader Ms. Kalpana Shrestha, Under Secretary, MoCS- Member Dr. Pradyumna Raj Pandey, Senior Agriculture Economist, Ministry of Agriculture and Cooperatives- Member Mr. Suyash Khanal, Director, Trade and Export Promotion Centre (TEPC)- Member Mr. Rabindra Raj Paudyal, Section Officer, MoCS- Member Mr. Moti Bahadur Shrees, Section Officer, MoCS- Member Mr. Prakash Ghimire, Programme Officer, SAWTEE- Member

Introduction
The Government Of Nepal (GoN) introduced Trade Policy 2009, replacing the Trade Policy 1992 GoN launched the Nepal Trade Integration Strategy (NTIS) in 2010 as an action-oriented short- to medium-term strategy for export sector development and promotion. NTIS has identified four major challenges to Nepals export sector: i) to diversify and expand the export basket, ii) to diversify and expand export destinations, iii) to move up the value chain, and iv) to ensure a robust and positive impact of export on inclusive growth.

Introduction

(Cont..)

NTIS has identified 19 products12 goods and 7 services. Of the 12 identified goods, lentil and tea are two agricultural products that have high and medium export potential and medium and high socioeconomic impacts, respectively.

This presentation is based on three-day training programme on International Trading System for trade policy-related stakeholders, particularly Government officials, on 7-9 February 2012 and Field study in Eastern Boarder points from 21 to 27 February, 2012.

Objectives
To assess the export trend of lentil and tea.

To examine the strength of export potential and explore the market potential of these products.
To briefly analyze the value chain of these products. To identify the majors barriersboth supply-side and market access barriersfacing these products, and To prepare recommendations for policy reform and agendas for trade negotiations.

Major Tea Producing Districts

Source: NTCDB, 2012

Farm land of tea (in ha) Tea Small Total farm garden farming land Jhapa 6107 2981 9088 Ilam 1347 3794 5141 Panchathar 382 456 838 Dhankuta 230 212 442 Terathum 37 207 244 Others 960 5 965 Total 9063 7655 16718

Districts

Growth Rate of Tea Production in Nepal

Source: NTCDB, 2012

Cultivation and Production Trend of Lentils

Source: USAID, 2011

Cultivation and Production and Share in Total Production of Lentils

District Cultivati on area (in ha) 17,847 26,056 17,847 13,115 18,305 12,962 7,343 9,790 6,935 4,793 134,993 Producti on (in mt) 19,755 19,005 16,355 14,532 13,186 10,525 8,284 7,434 5,753 3,955 118,786 Share in total cultivati on 9.5 13.9 9.5 7.0 9.8 6.9 3.9 5.2 3.7 2.6 72.0 Share in total producti on 13.02 12.52 10.78 9.58 8.69 6.94 5.46 4.90 3.79 2.61 78.27 Productivi ty (mt/ha)

Sarlahi Dang Rautahat Bara Kailali Bardiya Parsa Banke Sunsari Chitwan Total of 10 districts Total of remaining districts Total of Nepal

1.11 0.73 0.92 1.11 0.72 0.81 1.13 0.76 0.83 0.83 0.88

52,444

3,2974

28.0

21.73

0.63

187,437

151,758

100

100

0.81

Note: Red color indicates top five values of respective columns Source: Ministry of Agriculture and Cooperatives, 2010

Current Export Performance: Tea and Lentil

Fiscal Years Lentils (in Mt.) Nepal Export* 15094 Tea (in Mt.) World Import 1343151 1387357 Nepal Export# 82 70 Nepals export share in World Import Lentils Tea 0.01 1.33 0.56 0.49 0.01 World Import 1999/00 1074175 2000/01 1138504

2001/02 1077372
2002/03 1118432

6022
5429

1452259
1385743

80
193

0.01
0.01

2003/04 1330364
2004/05 1316448 2005/06 1284462 2006/07 1537973 2007/08 1326148 2008/09 1712214

7590
2708 4680 8212.44 18355.83 56767.5

1431888
1451106 1469314 1547224 1685698 1567688

884
4,316 4,623 7,000 8,600 8,889

0.57
0.21

0.06
0.30 0.31 0.45 0.51 0.57

0.36
0.53

1.38 3.32

Source: FAOSTAT; * TEPC, 2012; # NTCDB, 2012; 2000

World Market and Market Prospects

Source: FAOSTAT

Top Tea Importing Countries

EU(27)ex.int 16% Remaining 33% Russian Federation 12% United Kingdom 9% Saudi Arebia 1% Japan 3% Iran (Islamic Repub) 3% Pakistan Egypt 6% 5% United States 7%

(in qty terms)

United Arab Emirates 5%

Source: FAOSTAT

Top Lentil Importing Countries

(in qty terms)
India 17% Remaining 26%

Bangladesh 11% Iran (Islamic Rep. 2% Pakistan 4% Algeria 4% Egypt 5% United Arab Sri Lanka Emirates 6% 7%

EU(27)ex.int 10%

Turkey 8%

Source: FAOSTAT

Applied MFN Tariff and Preferences Tariff for Nepal in Major Importing Countries
S. N 1 2 3 4 5 6 7 Tea Countries EU Russian Federation United Kingdom United States UAE Egypt Pakistan For Nepal 0% 0% 0% 0% 0% 2% 10% MFN Countries 6.5% India 9.2% Bangladesh 6.5% EU 3.2% Turkey 3.1% UAE 10.6% Sri Lanka 12.8% Egypt Lentils For Nepal MFN 0% 0%* 0% 9.65% 5% 4.48% 0% 30.4% 11.1% 33.1% 3.3% 25.6% 8.9%

8
9 10

Iran (Islamic Repub)

Japan Saudi Arabia

33.87%
0% 0%

- Algeria
15.3% Pakistan 3.1% Iran

5%
0% 5%

25.4%
18.2% -

Source: ITC, 2007, For MFN: WTO Tariff Profile 2011; *WTO Tariff Analysis Online 2011

RCA of Nepal on Tea and Lentils

Years
2001
2002 2003 2004 2005 2006 2007 2008 2009 2010

RCA on Tea
0.93
1.37 20.43 18.39 24.48 21.68 53.29 55.41 42.47 51.81

RCA on Lentils
134.05
185.11 347.65 188.27 148.96 109.92 58.04 341.60 699.87 540.53

RCA = Revealed comparative advantage Source: ITC, UN Comtrade, and FAO STAT.

Value Chain Analysis: Tea

Value Chain Analysis: Lentils

Market Access Barriers to Export Expansion

Tariff Barriers: Exports of Nepalese tea and lentils have so far not been critically affected by tariff barriers. Para Tariff Barriers: The Government of India imposes a 3% customs cess on tea and lentils - Need to pay about IRs 3,000s per test in CFL, India per consignment. - Nepalese Containers heading to Bangladesh through Fulbari-Banglabandh route has to pay a certain amount to a local development authority between Silguri and Panitanki of West Bengal. This is against the spirit of Nepal India Transit Treaty Non Tariff Barriers: Phytosanitary Certificate (PC) - Nepal does not have Pest Risk Analysis (PRA) report and accreditation laboratories so far. - Bangladesh requires test of fumigation of Methyl Bromide in exportable lentils, however, others generally no need. - India does not accept Nepals lab test report regarding tea export. Therefore, exporters need to go CFLs in Kolkota, Sunauli or Luknow periodically. Customs-related and other administrative hassles: - Nepali exporters are not getting cooperative facilitation to a desired extent from the Indian administration, particularly customs officials and the police. - Importing firms and banks of Bangladesh are often found delaying payments. - An export consignment to Bangladesh has to face three holidays (weekend) in a week in three different customs offices through which the consignment has to pass. Restrictive practices: - Nepalese tea is not allowed to participate in the Indian auction market in Kolkota. Therefore, they are compelled to sell their products at a lower rate and losing opportunity to establish its own brand in the Indian market.

Supply-side constraints to Export Expansion

Domestic investment environment - Poor security, law and order situation, physical threat to businessmen/industrialists, excessive labour unionism and over-politicization in industries. - The implementation of the governments security plan on the ground is weak. - High and rising interest rate, daylong power shedding, ever-increasing prices of petroleum products, increasing wage rate and shortage of labour. Problem of Inputs: - Poor irrigation facility and chemical fertilizers are affecting both the sectors. Lentil is cultivated in marginal land as a rain-fed crop and there is almost no surface irrigation facility. - Farmers are buying fertilizers from unauthorized sellers. A tea farmer during the discussion said that sub-standard fertilizers have polluted land and plants. Domestic policies: Nepal should also explore the option of providing subsidies to its farmers so that they can compete in internal and external markets. Human capital: - Dearth of human resource in the sectors, mainly for cultivation, harvesting and processing activities ( Due to excessive labor migration) Technological constraints: About 99 percent of lentil-processing plants are based on old technology. - Accredited laboratory facilities in both plant and food testing are lacking in the country. Other constraints: Poor governance, Policy unpredictability, lack of storage facility, wholesalers receive a disproportionate share of the value in the domestic market, etc.

Recommendations
Bilateral Level Negotiation with GoI is required to remove the custom cess, and the local development charge levied on Nepali cargo on the way to Bangladesh through the Fulbari-Banglabandh route, open its auction market to Nepali tea for the time being, either remove the testing requirement or accept report of Nepalese laboratories or establish such laboratories at major customs create a permanent dispute settlement mechanisms to deal with bilateral trade disputes with the participation of all stakeholders including exporters Negotiation with Government of Bangladesh is required to create a permanent dispute settlement mechanisms to deal with bilateral trade disputes with the participation of all stakeholders including exporters Multilateral level Harmonize the weekend holidays or develop alternative approach to facilitating Nepal-Bangladesh trade.

National level In the long run, there is a need of tea auction market in Nepal for facilitating export of tea in a formal way. GoN has to bring a lentil farming extension programme. A scientific price support mechanism would motive farmers to produce lentils. In the short run, interest rate subsidy on credit to agriculture-based exporting firms is recommended. The government should explore the option of introducing a Ration Card facility for tea industry laborers Separate power grid in industrial areas is required to provide adequate power supply to the processing firms adequately. For a long-run solution, electricity generation for domestic use should be increased. Government has to bring sustainable irrigation programme targeting tea farmers. Drip and sprinkler irrigation and their implementation in a participatory approach with farmers groups would address the problem of irrigation for the time being. There must be timely distribution of quality chemical fertilizers to tea farmers. Establishment of chemical fertilizer-producing factories in the country (as prioritized by the Industry Policy 2010) could be an effective long-term solution.

National level There is a need for harmonizing all local taxes. Fees of NTWC seem higher for bulk exporters. Its rate should be set on the basis of consignment instead of export value. GoN has to initiate programme of GAP and GMPs in tea and lentil sectors. Eligibility criteria for export incentive are to be made liberal (To benefit them who are exporting to India) The number of trade unions has to be reduced. Prevailing rigid labour law should be relaxed. An all-party consensus on not politicizing labour unions is required. The security situation should be improved and the rule of law ensured. GoN needs to speed up the process of accrediting Nepali laboratories, and initiate the process for mutual recognition with destination countries.

Thank you for your kind attention !