Tea ranks as the most popular beverage in the world. A total of 4.78 million metric tonnes of tea were produced in 58 major tea-growing countries in 2012. India, China, Sri Lanka and Kenya are the major producers of tea leaves. Production of tea has increased with an increase in global crop yields.
At home front, demand for tea has been increasing day by day as innovations in terms of packaging, quality etc. have been brought for locally-produced tea. The volume of tea for domestic consumption has risen to about 62 million kg (2013) which was 43.33 million kg in 2004 and 40.51 million kg in 2006.
BUILD recently conducted a study on financing of tea sector. According to the study, the total number of tea estates is 163 with 114 established tea factories and garden area is 115,630 ha. Tea output is meeting the local demand. Tea has emerged as a significant source of revenue, employment generation and foreign exchange-earning. It has helped balance trade deficit and played an important role in the development of the economy.
Once an important tea-exporting country, Bangladesh has lost this status as export decreased gradually because of slow growth of production and growing domestic consumption. Presently, exports have come down to almost nil. But tea production has wider value addition than other non-traditional sectors like readymade garments, shipbuilding, bicycles etc.
A bumper harvest of 63.85 million kilograms of tea, the highest for Bangladesh, was achieved in 2012 due to favourable weather and supportive policy measures. Production in 2011 and 2010 was 59.13 million kg and 59.24 million kg respectively, according to data from the Bangladesh Tea Research Institute. Bangladesh has still enough opportunities to grab a significant pie of the world market if an effective policy and finance could be arranged for the sector.
After the discontinuation of tea processing industry in the ADP in 1992, it was enlisted in the circular of the Bangladesh Bank (Circular Letter No: 04 SMESPD dated 2/9/10) to get refinancing facilities at the district levels. But tea gardens were not included in the refinancing scheme. A significant quantity of land in the old tea gardens has remained uncultivated because of lack of investment. Labour and other field-level production costs of tea have been increasing, causing cost escalation in the portion of agriculture (government-recognised ratio is 60:40). With continuous rise in domestic demand, there is a need for increasing tea production.
Bangladeshi tea can be exported again if production can be increased. But lending rate, on a compound basis, is high. Tea auction procedure is a bit lengthy. Investment in this sector is not encouraged. Refinancing is allowed for the industrial portion while agricultural portion where fund requirement is high, has to pay high interest rates. Some large projects are awaiting approval and inclusion in the ADP for long.
Bangladesh's tea sector is an agriculture- based industry. The process from plantation to plucking of tea has been considered as agriculture as per government formula, as mentioned and calculated. Cost involvement in the agriculture part is much higher than the industrial part. So low-cost funding is important for the agricultural part for increasing production.
It has been found that for collecting tax (ITO Manual, part 2, Rule 31) and for the purpose of financing tea industry, the sector has been divided into two segments: agriculture and industry. Here proportion of agriculture is 60 per cent and industry 40 per cent. Required fields are needed for tea plantation, namely tea seedling production, planting and care, preening etc that are considered as agriculture sector. Processing of green tea leaves and plucking step are considered as industrial sector.
In 2013, in Bishalchora Laboratory, a study was conducted by the Bangladesh Tea Research Institute where per kg production cost of green leaf was calculated. This shows that the ratio of agriculture (green leaf) and industry (factory production) is 74.16:24.48. If we convert it into percentage, it will be 75.67 per cent: 24.82 per cent. At present, the ratio between agriculture and industry in tea sector can be considered roughly at 75:25. Note that agriculture production expenses have increased because of labour wages, ration, pesticides and fertiliser, accommodation, medicine, different ingredients, electricity bill, tea planting expansion, land development tax, salaries and allowances of employees and employers which are on the rise since several years. For this reason, it is practical that ratio of agriculture and industry could be changed from the present level of 60:40 to 75:25.
The existing agricultural credit policy of the Bangladesh Bank allows the tea estate owners to take loan at 13 per cent interest rate from the scheduled banks, especially Krishi Bank. While farmers are enjoying four per cent interest rate for loans for cultivating turmeric, ginger and sunflower etc. The tea sector is not allowed this loan. The subsidised loan, if extended to tea, could minimise the enhanced cost at the field level to some extent.
The land expansion is not possible because there is no proper financing scheme. The present interest rate for land development at the compound rate stands at 17-18 per cent which is almost unaffordable. If a special refinancing/ financing scheme can be introduced, investment will increase. It is also worth mentioning, long-term lending for the sector is allowed for 7-8 years, but the interest rates are calculated quarterly. So by making the calculation compounded, the rate of interest is much higher than the rate of 13 per cent.
In total, about 6,440 hectares of lands in six districts have remained uncultivated. The Ministry of Commerce has projected that in Moulvibazar, Habiganj, Sylhet, Chittagong, Rangamati and Panchagarh, some new lands could be cultivated where about 106 tea gardens could lead to acreage expansion and add to extra 16 million kg quality tea. Through this addition by the year 2019, new employment of about 19,000 people can be created. This will definitely help alleviate poverty.
From the above projection, it is clear that uncultivated lands for new cultivation can increase production of tea and may contribute to exports at the same time after meeting local demand. Feasibility studies have been carried out for those lands for growing tea. These have machineries, human resources and technology for producing tea in those lands. Thus a quick decision can help improve the situation.
The total tax incidence (TTI) in tea is 110 per cent in India while it is 130 per cent in Sri Lanka. In Bangladesh, the TTI in 2014 was 72 per cent, which was only 62 per cent in fiscal 2013. In order to save local industries from cheap and poor quality imported tea, the tax incidence can be raised further. In case of need, tariff value of US$ 2 per kg can be imposed for the time-being for saving the quality of tea.
Considering increasing demand, the present level of production can meet domestic consumption marginally. In view of meeting increasing demand and decreasing trend of tea export, there is an urgent need to increase production. For this, uncultivable lands should be cultivated. Refinancing was in place till 1992 and could be revived to meet the growing needs of the sector.
Garden owners are bound to increase wages of the labourers, facilitate employees' accommodation, children's education and ensure their safety and security etc as per agreement with labour leaders. At present, among the total cultivable lands, approximately 60 per cent of the tea bushes' age is above 35 years. If those 60 per cent land is brought under replanting, then it could lead to huge expansion of production. There are about 6,440 hectares of lands remaining uncultivated.
In the refinancing scheme of the Bangladesh Bank, along with tea processing and plucking, cultivation, which needs long- term funding, should also be included to get term loan at a single digit interest rate.
Due to low rainfall and climate change, young tea plants die down. Irrigation in the tea sector is very costly because of the geographical pattern of the lands. Easy loan will help the tea garden owners ensure irrigation facilities to improve production.
The BGMEA has been allowed to get loans at the rate of 2 per cent for construction of houses for RMG workers. A project on urban slum integration is also planned to be implemented under which housing loan at the rate of 4 per cent will be allowed. Tea sector could be a potential area for this easy loan.
BUILD had extensive interviews with private sector entrepreneurs, government officials and related associations. The sector has got a lot of potential to be a promising export sector, which was once a pride of the country. But lack of financing and research and development are the problems that have barred growth of the sector. Tea entrepreneurs need all types of support.
The writer is CEO, BUILD.
ceo@buildbd.org
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