Asia (China and India)

Title: Development, Production and trade of organic tea (Phase II)

Objective: The project aims at developing the technology, skills and systems of organic tea production. It would include the development of appropriate technology for the establishment of new, and the conversion of existing, tea areas to organic tea farms. The project also aims at the development of acceptable international standards for the export of organic tea and the establishment of an internationally accepted certification mechanism in both countries. The project includes an assessment of the demand for organic tea exports and the development of appropriate export strategies.

Rationale: The rationale for a project to support the production of organic tea is dependent on two mutually reinforcing factors that have influenced the market. On the demand side, there has been a significant growth in the demand for organic agricultural products in general, which have been further influenced to a considerable degree by the attack of mad cow and other similar diseases in particular. Organic tea prices have reflected this increased demand through a premium on price that has varied quite significantly but generally maintained a differential of about 20-30 percent. On the supply side, overall tea prices have been sluggish and have actually declined over the last two decades due largely to substantial increases in production. Consequently, increasing the production of organic tea presents an attractive option for producers. However, three critical elements have constrained the conversion to organic tea. First, the technology for the production and conversion of normal tea to organic tea is evolving and needs further development, particularly in the context of the local ecology and environment. Second, the certification requirements, currently dependent on external sources, increase the costs substantially and almost entirely out of the reach of small producers. The third element is the fact that organic tea is still largely a niche market. There is the prospect of a substitution effect; the growth of the organic tea is likely to have a negative impact on the normal tea market. The implication of this is a need for an assessment of the global market on the basis of which appropriate national strategies could be adopted. The two countries together produce more than half the world’s production of tea. Although in export terms their contribution is just over 30 percent, it nevertheless represents a substantial source of foreign earnings for both. With sluggish prices and newer entrants into the market, both face a prospect of losing market shares. At the same time, both are already well on their way in the development of organic tea. Yet, despite having the technical and managerial infrastructure, both face similar constraints outlined earlier for further development.