Tea and Sympathy
Little knowledge is often dangerous, in the hands of theoretical geniuses in the big bad world of everyday business reality, it can result in exposure and temporary political setback—for the poor, hapless masses at the receiving end of the various experiments, it can sometimes be terminally fatal. Tea constitutes a necessary part of the daily food consumption of a vast percentage of the poorer among the masses, among the more affluent it is almost an addiction, as addictions go it has no calorific value. Perhaps no other country in the world has a greater per capita tea consumption as Pakistan and since it is all imported, we are merrily drinking our foreign exchange away. Over the years the tea trade has become sophisticated and one single Multi-National Company (MNC), Lever Brothers, along with a handful of tea traders in Jodia Bazar have changed the taste of the Pakistani palate from cheap, low-grown tea available from Sri Lanka, Bangladesh, Indonesia and China to extremely expensive and mostly high-grown Kenyan tea. Grand strategy designed this imminently successful campaign, in a manner that though there has been the normal rise in average consumption the unit cost has gone up, even after inflation, three times. This has been a most cruel exploitation of an unwary public and we are paying through our noses while Brooke Bond and Liptons (the Lever Brothers’ entities in different names) as well as some Jodia Bazar tea merchants are laughing all the way to the bank. Since all the tea is imported, our foreign exchange reserves are dying (or dwindling).
Pakistan tea imports ranges from US$200 to US$250 million, after the addition of customs duties, taxes, etc this translates into about Rs.5,000 million worth of tea imported for annual consumption. Approximately Rs.3,000 million (or 60%) is marketed in packet teas and about Rs.2,000 million in the form of loose teas. Adding profit margin of about 20-30% to it, this becomes Rs.4,000 million and Rs.2,500 million for the tea packet industry and loose tea trade respectively. Fully 97% of the packet tea industry is in the hands of Lever Brothers through its two constituent subsidiaries, Brooke Bond and Liptons. It is in fact the only really existing MONOPOLY in Pakistan, in the packet tea business it has manipulated successfully to bankrupt almost all Pakistani-owned companies or reduced them to non-entities in the corporate sense. As the name suggests, the Monopoly Control Authority of Pakistan’s raison d’etre is to protect the vital interests of smaller entrepreneurs by stopping the creation of monopolies (particularly those foreign owned) and to restrict their potential to create problems for their competitors. As things stand it seems that this Government institution has better things to do than get into problems with a powerful (and generous) Multi-national Company (MNC).
The tea import policy annunciated by the then Government in March/April 1988 was extremely reasonable in theory as it tried to bring into balance the burgeoning one-way trade traffic with Kenya to a mutually beneficial position while rationalising the tea trade with our traditional partners, Bangladesh and Sri Lanka. An added benefit would be to link a non-productive import to a mix of traditional/non-traditional exports, pushing our non-traditional exports to diverse regions. While the ideas were mostly directly lifted from THE NATION, “Of Mangoes and Tea”, December 1987, theory got lost in actual implementation because the intricacies of the tea trade were lost on the inexperienced planners who were expecting everything to fall into place automatically. The result has been confusion worse confounded as the “Mount Olympus-type” ruling did not take hold and has now resulted in severe tea shortages bang in the winter season. When you copy from one person it is called cheating, when you copy from many it is called research. Sometimes when you plagiarize an idea, you should be careful in the practical implementation of the same because there can be no substitute for experience.
Bazaar trade has a nasty habit of making a point felt acutely and since tea is a mass habit and the PPP has come up as a government of the masses, the shortage of tea in the market during the height of the winter season has been jointly designed by the solitary MNC and the tea traders, taking advantage of the utter failure of the Indonesian and Kenyan STAs, in order to once and for all times overturn the government effort in this respect and to influence future policy in such a manner that it allows them free rein in importing extremely expensive tea from Kenya, with more than triple the average commissions secreted abroad and windfall profits in local trading. These commissions/windfall profits are much much more than that obtainable from Bangladesh, Sri Lanka, Indonesia or China, which still are handled by a large number of the less-than-avaricious smaller tea traders who continue the traditional trade without resorting to the more exotic methods of extorting profit practiced by their less scrupulous colleagues. When you add the fact that the MNC owns and/or manages many tea gardens in Kenya, the mixture is perfect for draining the country’s economy of foreign exchange, in small measure no doubt, but enough to make it felt. At the moment things are relatively cosy for the Tea Cabal, since the matter of shortage is of sufficient importance that the PM is herself concerned about it and in all probability one can expect populism to influence decisions in their favour, populist governments finding it extremely hard to take hard decisions which do not go down well in the streets and can cause mass resentment with acute potential of snowballing.
A populist decision in the tea trade would be a great tragedy for the people of Pakistan because it would be a signal that we are now prisoners in the hands of special interest groups and/or powerful lobbies, who can then manipulate economic policies according to their whim and will. In this respect, it would be much more feasible to design appropriate mechanism whereby Pakistan stands to make some benefit out of the addiction of tea consumption among its masses.
A broad all-encompassing tea import policy can be envisaged by (1) apportioning the percentage of tea to be imported under STAs and free trade in a 70:30 ratio respectively (2) apportioning respectively the percentage of teas both under the STAs and free trade among our former traditional partners in the tea-growing countries e.g Sri Lanka 30%, Bangladesh 20%, China 10%, Indonesia 10%, Kenya 10%, Miscellaneous 20% (3) having concurrent STAs including tea as a major import component with such countries that will honour the STAs, i.e, those countries which are in the same financial crunch as we are e.g Bangladesh and Sri Lanka (4) have MNCs pick up the import obligations for countries such as Kenya (5) encourage Lever Brothers to disinvest their holdings in Pakistan further and (6) give adequate incentive to Pakistani tea packeting companies by giving them across-the-board tax benefits for a number of years so that they can compete with the Lever Brothers monopoly in the tea packet market in Pakistan.
It is rumoured that the Trading Corporation of Pakistan (TCP) may be allowed to import tea on its own accord. This must rank as one of the worst ideas of the last decade and smells of our Economic Chameleon Extraordinary’s fine hand in a delayed action sequence. TCP does not have an adequate local marketing infrastructure and would fall prey to many of the pitfalls in the tea trade starting from the selection of teas to be imported, the warehousing, etc ending with the price it should be marketed at and where a specific type of tea can be distributed. It is not TCP’s mandate to be in the tea business, however if the Director General Defence Purchases (DGDP) opts for getting its requirements (about 2,000 MT annually) through the TCP, then it could be a feasible proposition. TCP’s role in tea should be confined to picking up 0.25% commission on FOB value in the STAs for the privilege of providing a conduit for export/import under various STAs. That should keep them reasonably happy.
It is very easy for populist governments to fall prey to commercial blackmail, with mass popularity being hostage to the issue. For the short term, the peoples’ mood may be darkened without easy access to their favourite addiction but in the long term, the plunder and loot of the country’s till being manipulated by one single MNC and a handful of unscrupulous traders will be avoided. Essentially it seems to be a typically no-win situation, the PM has all our sympathy as she makes a tough decision.
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