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

Table 1 Impact of organic transitionOrganic conversionEstimated Calculation1st year2ndyear3rd yearCertifiedDecline in Productivity High Medium Medium MediumIncrease in Price/kg received Medium Medium Medium HighIncreased in COP/kg High High High HighNote: High- 40% to 60%; Medium- 20% to 40%; Low- 0% to 20%(Certification is assumed to be received within 3 years).The above table shows that there will be a high decline in productivity in the initial years ofconversion to organic and hence the estimated cost of production is high. The cost ofproduction is also increased due to high labor requirements, additional costs of achievingcertification, and more organic input requirements. The estimated cost of certification per thefactory managers interviewed comes to around 3,000 to 5,000 NPR per year depending on thesite, area, and type of certification as well as the inspectors charges. Four to seven extraworkers are required to manage the field activities and paper work which is estimated toplace an extra cost of 4,000 to 6,000 NPR per year. However, the price offered for organic inconversion is more than the conventional ones. After achieving organic certification, the fullorganic product can receive even higher prices. Similarly, the cost of certification alsodecreases and the productivity increases compared to the initial years of conversion. Inconclusion, it can be said that though the conversion to organic in initial years is notprofitable, and even might have to bear loss, gradually the losses are recovered and thebusiness will become profitable in the long run.The increased cost in organic cropping can only be offset by ensuring increases inproductivity by the use of better organic manure and also ensuring premium price for greenleaves.Currently, a good quality Nepali organic tea receives an average price of 6 to 10 USD per kgin international markets whereas the conventional tea receives only 3 to 4 USD per kg and ismostly sold in Indian markets. For the organic specialty teas like white teas, silver tips, andgreen teas, the price received is 4 to 5 times higher than the normal grade tea. Therefore,organic tea production can provide two to three times increase in export value and thus canhave a positive impact throughout the whole value chain.2.2 World Market2.2.1 World Export of TeaWith an increased global consumption of tea, the world export of tea has also increased.Figure 7 presents the trend of world export of tea from 2001 to 2010 both in terms of value(USD in thousands) and quantity (tons).Value Chain/Market Analysis-Orthodox Tea 12