According to the study, farmers in Koshi Province earn an average profit of Rs 30 per kilogram from orthodox tea.
This data comes from a study conducted by Nepal Rastra Bank, which examined the contribution of orthodox tea produced in Koshi to the national economy, as well as its potential and challenges in domestic and international markets.
The analysis reveals various findings based on the income and expenditure details obtained from the sampled farmers during Nepal Rastra Bank’s field survey. The average cost per kilogram for organic-certified farmers is Rs 45.16, while for uncertified farmers, it is significantly lower at Rs 24.72. In terms of income, organic-certified farmers earn an average of Rs 75.52 per kilogram, compared to Rs 48.44 for uncertified farmers. When considering household income, the average for organic-certified farmers is Rs 13,991, whereas uncertified farmers have an average household income of Rs 10,575. Finally, the profit per kilogram is higher for organic-certified farmers, with an average of Rs 30, while uncertified farmers earn an average profit of Rs 24 per kilogram.
In Koshi Province, a total of 100 orthodox tea processing industries are operating, comprising 21 organic-certified and 79 organic-uncertified industries.
In the fiscal year 2022/23, 78,38,946 kilograms of processed orthodox tea were produced. Among these, the share of organic-certified and uncertified orthodox tea was 11.9% and 88.1%, respectively.
The total investment in 84 orthodox tea industries participating in the study was Rs 368.74 million. Of this, 36.4% was from loans, while 63.6% was from equity capital. Only two industries had foreign investment.
The market price
According to the study, the internal market price for processed organic certified orthodox tea is Rs 941.60 per kilogram, and the international market price is Rs 801.51. For organic, uncertified orthodox tea, the prices are Rs 433.71 for the domestic market and Rs 408.31 for the international market.
On average, the per kilogram sale price for organic-certified and uncertified orthodox tea is Rs 823.14 and Rs 411.12, respectively.
Of the orthodox tea produced by the orthodox tea industry, 88.6% is exported to India and other third-party countries, while 11.4% is sold in the domestic market.
The export of organic-certified orthodox tea to third countries stands at 21.63%, while the export of organic uncertified orthodox tea to third countries is relatively low.
The sales revenue from processed orthodox tea amounts to Rs 2.57 billion, with 86.72% coming from exports. This indicates that the majority of the industry’s income is derived from international markets, and the economic success of the industry is highly dependent on exports.
In 2022/23, the average capacity utilization of the orthodox tea industries in Koshi Province was 56.21%. The main reasons for industries operating at lower capacity include a shortage of raw materials, irregular electricity supply, lack of technical and skilled manpower, and a decline in demand.
The return on investment (ROI) in organic certified and uncertified orthodox tea industries is 13.5% and 10.8%, respectively, showing that certified industries yield higher returns, as revealed by the study.
The profit-to-cost ratio for organic certified and uncertified industries is 1.22:1 and 1.18:1, respectively, indicating that the organic certified industry is more economically profitable, as pointed out by the study.
Status of profit
The findings of the study show that the gross profit margin percentage in sales revenue for organic-certified and organic-uncertified orthodox tea industries is 18.50% and 15.70%, respectively, while the gross profit margin percentage in total revenue is 17.87% and 15.53%, respectively.
The per-kilogram production cost of organic-certified and organic uncertified orthodox tea are Rs 695.62 and Rs 336.74, respectively, while the per-kilogram profit is Rs 151.87 for organic-certified tea and Rs 64.55 for organic uncertified tea.
Although the production cost of organic-certified tea is 100% higher than that of organic uncertified tea, the profit is 135% higher.
In the organic certified industry, an average of 44 people are employed per industry, while in the organic uncertified industry, an average of 24 people are employed per industry. Similarly, in orthodox tea farming, 2 people are employed per ropani.
In Koshi Province, the production of orthodox tea (tea leaves processed into tea) contributes only 0.05% to the total Gross Domestic Product (GDP), while its contribution to Koshi Province’s GDP is 0.33%.
“When the production quantity of orthodox tea increases by 100%, the export quantity increases by 94%, and when the export value of such tea increases by 100%, the export quantity increases by 69%,” the study states.
Among the farmers engaged in orthodox tea cultivation who were selected for the sample, only 7% have received agricultural subsidies from the government, while 88% of the farmers have received training.
The hypothesis that there is no difference in the per-kilogram green tea leaf sales income between farmers cultivating organic certified orthodox tea and organic uncertified orthodox tea has been rejected during the testing process.
Due to the recognition and quality gained through certification, organic-certified farmers can obtain a higher price per kilogram of green tea leaves, which has helped increase their sales income.
The study by the Nepal Rastra Bank includes a total of 84 orthodox tea industries and 42 orthodox tea farming households. The report was prepared by analyzing data obtained from the participating industries and farmers, as well as secondary sources.
