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Monday, 27 August, 2001, 16:19 GMT 17:19 UK
Indian tea at 'crisis' point
Calcutta tea seller
The once huge domestic market for tea is shrinking
Indian tea producers have warned that they are heading for crisis.

With prices of tea at their lowest point for three years - one kilo costs just $1.37 - and soft drinks replacing tea as the domestic drink of choice, they say their profits are shrinking.

Cheap imports from Indonesia, Kenya, Sri Lanka, Vietnam and China are also threatening domestic production.

"The state of the Indian tea industry at the moment is not too good," Umang Kaloria, president of the Tea Association of India told the BBC's World Business Report.

"Most companies are either making losses or maybe making marginal profits... the bulk of the industry is in trouble."

Domestic demand?

"It appears that domestic consumption in India is not growing as fast as it used to in the past two years," he said.

"The main reason for this decline is the increased advertising spend by Coke and Pepsi.

"The tea industry certainly cannot spend the type of money that Coke and Pepsi can spend," he said.

However, they are planning to join forces with the Tea Board and the Commerce Ministry to promote tea.

Export market

India's vast domestic market has helped sustain its tea producers and grow their profits.

"Exports have never been the main focus in India, because we have always exported about 20% to 25% of our production. We have always relied more on our domestic market... India has always been a residual supplier in the export market," he added.

His view is that it is difficult for India to compete with countries such as Kenya and Sri Lanka, where labour costs are lower.

Chances are that competition will get tougher in the Indian market.

Indian tea producers could also face more competition from companies keen to target their local market.

This market is protected by India's import duties, which are expected to eventually fall under pressure from the World Trade Organisation.

Umang Kaloria, Tea Association of India
"The bulk of the industry is in trouble"
Jaghoman Singh Raju, Indian Tea Board
"We have competed very successfully"
See also:

27 Jul 01 | Business
Darjeeling tea growers at risk
16 Aug 01 | UK
Do you get free tea?
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