value chain/ market analysis of the orthodox tea sub ... - Nepal Trade

The low availability of green leaf is one of the reasons why most of the factories are runningbelow capacity. Despite the good production of green leaf in the some rural parts such asTehrathum, and Panchthar, the leaves are unable to reach factories due to a lack of anadequate transportation infrastructure. From rural communities, green leaf is carried byhumans or on the backs of animals which limits the amount of quality leaf that can reach aspecific factory.2.1.3 Cost of ProductionThe cost of production (COP) in orthodox tea depends on farming methods, productivity ofsoil, input costs, labor costs, overhead, and other financial variables. Farmers are generallynot sure of the COP and very often the financial costs are not taken into account. This resultsin a sub-standard level of knowledge in pricing methods.The cost of production can be divided into conventional and organic. The conventionalmethod yields higher productivity compared to organic due to the use of chemical fertilizersand pesticides. As per a report completed by the Netherlands Development Organization(SNV), the cost of production of green tea leaf under the conventional cropping methodscomes to around 19.55 NPR/kg based on production yield of green leaf to be around 2.75metric tons per year in a land of 0.5 ha. In contrast to this, COP of green tea leaf underorganic cropping methods which has a yield of green leaf around 1.35 metric tons per yearper 0.5 ha (while using only non-composted cattle dung) is 52.20 NPR/kg. For organiccropping methods which have a yield of 1.75 metric tons per year per 0.5 ha (while usingcattle dung and composts), the COP of green tea leaf is calculated to be 39.43 NPR/kg. Thedetailed cost of production was calculated in the SNV report and is presented in Annex 9.2.1.4 Distribution of Value AdditionThe green leaves provided by farmers are processed in large and small factories located inand around production areas. Based on farming methods, two types of orthodox green leaf aresupplied by farmers- organic green leaf and conventional green leaf. Organic green leavesare priced higher than the conventional leaves. Through discussions with farmers and traders,the average price for organic leaf was found to be 40 to 55 NPR per leaf and for conventionalleaves was 20 to 26 NPR per leaf. The price of green leaf also differs according to the flushand leaf quality. The first flush conventional green leaf had received a price of 31 to 43 NPRin some areas.The proceeds received by farmers for their tea leaves are low and in some cases almost equalto production costs. The gross income per household from green leaf varies from place toplace depending on the cost of production. The farmers who have easy access to resourcessuch as agricultural inputs, transportation, and live near factories have an advantage overthose who are not nearby factories or input providers. With an average plantation area of 0.75ha per farmer and productivity of 5.5 tons/yr/ha, the estimated average gross revenue perhousehold from the green leaf comes to around 95,000 NPR per year when the average priceis 23 NPR per leaf. It is estimated that 60 percent of proceeds are profited by farmers afterdeducting costs; however, the margin can vary depending upon the cost of production.During shortage periods, the CTC processors come to the hills for the purchase of green leafand offer competitive prices to fulfill their requirement for raw materials. The price oforthodox green leaves is mostly determined by the price received by made tea in the SiliguriValue Chain/Market Analysis-Orthodox Tea 10