ECO Report Final

Critical Analysis of Tea Industry in Bangladesh from Managerial Economic Perspective
Prepared for: Professor Dr. A. K. M. Saiful Majid Course Instructor Managerial Economics (E501)
Prepared by: Hasan Shams,Roll No: 32 Mahran Muhammad Fadlullah,Roll No: 37 Abu Shafin Mohammad MahdeeJameel, Roll No: 41 Batch-MBA 45 (Day) Section: A
Institute of Business Administration University of Dhaka June 03, 2012
Letter of Transmittal
June 03, 2012. Dr. A. K. M. Saiful Majid Professor Institute of Business Administration, University of Dhaka. Subject: Submission of Research Proposal. Dear Sir, Thank you for giving us the opportunity to prepare a report on Critical Analysis of Tea Industry in Bangladesh from Managerial Economic Perspectiveas per the requirement of the course E-501: Managerial Economics.Being the students of Business Administration, it has been more of an opportunity for us to be able to work on this report. The knowledge and experience that we gained while collecting information and preparing the report is surely going to benefit us when we will enter the corporate world. We look forward to receiving your kind evaluation of the research report. Sincerely, Hasan Shams (Roll: 32) Mahran Muhammad Fadlullah (Roll: 37) Abu Shafin Mohammad Mahdee Jameel (Roll: 41)
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Executive Summary
The demand of tea is increasing at a very fast rate due to various factors. Production is also increasing but not as fast as the demand. Demand for tea depends on factors such as Tea price, Disposable Income, Demographic Profile of consumer, Population, Season etc. Production depends on factors such as Tea Price, Price of input factors, Technology, Weather etc. The price elasticity of demand for tea is moderately elastic. The price elasticity of supply is also elastic in the long run. The demand curve of tea downward sloping and the supply curve of tea is upward sloping which reflects the law of demand and law of supply respectively. Bangladeshi tea market consists of five types of suppliers- (i) Sterling Companies (ii) National Tea Company (iii) Bangladesh Tea Board (iv) Bangladeshi Private Limited Companies (v) Bangladeshi Proprietors. Sterling companies and BPLC together produces 75% of total tea. Government, Brokers, Banks and Exporters are important stakeholders of tea market in Bangladesh. Tea market of Bangladesh is highly competitive. This industry has a very high barrier of entry and rivalry among companies is also very high. Since the tea is sold in an auction the bargaining power of the buyers are not very high. Bargaining power of suppliers are high. Threat of substitute products is low. Government does not regulate this industry. However new taxes have been introduced on imported tea to encourage local buyers. At the moment government is giving incentives to establish new tea estates. Since its a very competitive market, there is mistrust between the competitors they are not able to play a cooperative game. Game theory discusses the strategic decisions firms make in a competitive market and their probable consequences. A hypothetical situation has been considered where Sterling companies and Bangladeshi PLCs are the only competitors in the tea market. If any of these companies reduce price, they will end up in realizing higher market share but lower profit. If they cooperate they can maintain their regular profit.But due to mistrust theyre forced to decrease prices.
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Acknowledgements
It is the Almighty Allah who enabled us to successfully complete the term paper on Critical analysis of Tea Industry in Bangladesh from Managerial Economic Perspective. A large number of individuals have helped directly & indirectly to prepare this report. We are grateful to them. We would like to thank people who participated in our survey. This survey gave us a good insight about the tea consumers mentality.
Especially, we are grateful to our honorable Supervisor Professor Dr. A. K. M. Saiful Majid to find some time from his very busy schedule and give us accurate direction about the paper preparation. Without his active co-operation the preparation of this report couldnt have been completed.
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Table of Contents
1. 1.1 1.1. 1.2. 1.3. 2. Introduction .......................................................................................................................................... 8 Origin................................................................................................................................................. 9 Scope ................................................................................................................................................. 9 Background ....................................................................................................................................... 9 Limitations....................................................................................................................................... 10 Objectives............................................................................................................................................ 11 2.1. Broad Objective........................................................................................................................... 12
2.2 Specific Objectives ............................................................................................................................ 12 3. 4. Literature Review ................................................................................................................................ 13 Methodology....................................................................................................................................... 16 4.1 4.2 4.3 Conceptual Framework ............................................................................................................... 17 Formulation of Objectives........................................................................................................... 17 Data Collection ............................................................................................................................ 17 Primary data source ............................................................................................................ 17 Secondary data source ........................................................................................................ 17
4.3.1 4.3.2 4.4
Data Analysis ............................................................................................................................... 17 Qualitative Analysis ............................................................................................................. 17 Quantitative Analysis .......................................................................................................... 18
4.4.1 4.4.2 4.5 5.
Data Interpretation ..................................................................................................................... 18 Analysis ............................................................................................................................. 19
Demand 5.1 5.2 5.3 5.4 5.5 5.6 5.7
Tea consumption in Bangladesh ................................................................................................. 20 The Annual Demand Trend of Tea in Bangladesh ....................................................................... 20 Factors affecting the Demand of Tea .......................................................................................... 21 Development of Demand Function ............................................................................................. 22 Demand Forecast ........................................................................................................................ 23 Demand Curve ............................................................................................................................ 24 Shift in Demand Curve ................................................................................................................ 24
6.
Supply Analysis .................................................................................................................................... 25 6.1 6.2 Factors Affecting Supply ............................................................................................................. 26 Supply Trend ............................................................................................................................... 26 Page | 5
6.3 6.4 7.
Supply curve ................................................................................................................................ 27 Shift in Supply Curve ................................................................................................................... 28
Elasticity .............................................................................................................................................. 30 7.1 7.2 The price elasticity of demand .................................................................................................... 31 The price elasticity of supply....................................................................................................... 31
8.
Market Structure................................................................................................................................. 32 8.1 Key Stakeholders in the Market .................................................................................................. 33 Sterling Companies: ............................................................................................................ 33 National Tea Company: ....................................................................................................... 33 Bangladesh Tea Board:........................................................................................................ 34 Bangladeshi Private Limited Companies: ............................................................................ 34 Bangladeshi Proprietors: ..................................................................................................... 34 Government: ....................................................................................................................... 35 Brokers: ............................................................................................................................... 35 Banks: .................................................................................................................................. 35 Exporters and Internal Buyers: ........................................................................................... 35
8.1.1 8.1.2 8.1.3 8.1.4 8.1.5 8.1.6 8.1.7 8.1.8 8.1.9 8.2 8.3 8.4 8.5
Intensity of Competition ............................................................................................................. 35 Distribution System ..................................................................................................................... 36 Porters Five Forces Model in the context of Tea Industry in Bangladesh ................................. 37 Barriers to Entry .......................................................................................................................... 37 Scarcity of Land: .................................................................................................................. 38 Brand Loyalty: ..................................................................................................................... 38 Economies of Scale: ............................................................................................................ 38 High Investment: ................................................................................................................. 38 Unavailability of Skilled Workers: ....................................................................................... 39 Government Regulations: ................................................................................................... 39
8.5.1 8.5.2 8.5.3 8.5.4 8.5.5 8.5.6 8.6 8.7
Rivalry among Established Companies ....................................................................................... 40 Competitive Structure:................................................................................................................ 40 Low Switching Cost: ............................................................................................................ 41 Product Differentiation: ...................................................................................................... 41
8.7.1 8.7.2 8.8 8.9
Exit Barriers: ................................................................................................................................ 41 The Bargaining Power of Buyers ................................................................................................. 42 Page | 6
8.9.1 8.10
Purchase Volume of Buyers: ............................................................................................... 42
The Bargaining Power of Suppliers ............................................................................................. 43 Number of Suppliers: .......................................................................................................... 43 Differentiated Product and Switching Cost: ....................................................................... 44
8.10.1 8.10.2 8.11
Threat of Substitute Product ...................................................................................................... 44 Low Switching Cost: ............................................................................................................ 44 Customers Loyalty: .............................................................................................................. 44 Income level of customers: ................................................................................................. 44 Taste and Preferences:........................................................................................................ 44 Frequency of Consumption: ................................................................................................ 45
8.11.1 8.11.2 8.11.3 8.11.4 8.11.5 9.
Government Policies for Tea Industry ................................................................................................ 46 9.1 9.2 9.3 9.4 Bangladesh Tea Board................................................................................................................. 47 Price Control: .............................................................................................................................. 48 Tax: .............................................................................................................................................. 48 Government Incentives............................................................................................................... 48 Game Theory................................................................................................................................... 49 Ten Principles of Microeconomics and Its Implication on Tea Production..................................... 52 Cost of Production .......................................................................................................................... 57 Different Types of Cost58 Production Function58 Manufacturing Process59
10. 11. 12. 12.1 12.2 12.3 13. 14.
Conclusion ....................................................................................................................................... 60 References60
Appendix ..................................................................................................................................................... 61 A. THE TEA ORDINANCE, 1977 ............................................................................................................ 62
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1. Introduction
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1.1
Origin
This project proposal titled Critical Analysis of Tea Industry in Bangladesh from Managerial Economic Perspective has been proposed for Dr. A. K. M. SaifulMajid, Course Instructor, Managerial Economics, as a partial requirement of the course.
1.1.
Scope
We have used this study to find out present situation of the tea market which includes the demand supply equilibrium, demand supply scenario, market structure, problems and potentialities of the distribution channel. Furthermore this study analyzed the government policies regarding the tea industry of the country along with trade policies, annual budget provision of the market and price controlling of the government etc.
1.2.
Background
Tea is a major cash crop of Bangladesh, as well as one of the most popular drinks. It is also one of the major exportable commodities of the country. In the form of employment generation, earning foreign exchange and balancing trade deficit it plays an important role
Figure: Major tea producing regions in Bangladesh in the economy. The industry employs about 1,50,000 ethnic people (with about 5,00,000 dependents) living in far flung areas of the country. A total of 163 tea gardens produce approximately 60 million kilograms of tea annually (Bangladesh tea Board). Roughly about 25% all tea produced in the country are exported annually to countries like Pakistan, UAE, Kazakhstan, Uzbekistan, India, Poland, Russia, Iran, and UK, while the rest are sold in the local market. The total export earning is around 20 million US dollars. While the share of total foreign currency earning from tea has dropped substantially in recent years, the demand for tea in the local market has gone up significantly in the same time period. In
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last 10 years demand of tea had been increased quite sharply in local market taking the tea consumption to 48 million kg per year.
1.3.
Limitations
While analyzing the tea market of Bangladesh, some limitations have arisen. To do an analysis of Bangladeshi Tea industry the entire Tea export procedures, auctions, history and current situation of Bangladesh Tea, Its production, major competitors, Tea consumptions, World Tea Export must be analyzed. Because of time constraint we may have to focus on the data readily available from Bangladesh Tea Board. Expected limitations may arise due to unavailability of information or lower sample size during surveys. Due to the limited time frame, a comprehensive study that analyzes all economic factors comprehensively has not been possible.
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2. Objectives
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2.1.Broad Objective
To analyze the current state of tea industry in Bangladesh To relate different managerial economic theories with real life scenarios.
2.2 Specific Objectives

1. To know about the demand-supply condition of Tea in Bangladesh. 2. To learn about the production factors associated with tea production. 3. To relate different economic theories (Elasticity, Game theory, etc) to the Bangladeshi tea industry. 4. To analyze the government policies to govern tea industry (including taxes and incentive plans)
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3. Literature Review
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Literature Review
In the international code of botanical nomenclature the name for tea plant is Camellia Sinesis O.Kuntz. The generic name Camelia is derived from Camel or Camellus. Tea is made from the young leaves and unbroken leaf buds of tea plants. After plucking the leaves these are dried up, broken and processed and then brewed up. Liquor of this brewed leaves is taken as drink. Tea has been cultivated from many centuries. Tea breaks down into three basic types; Black, Green and Oolong. More than 90% of tea produced in Bangladesh is Black tea which has been fully fermented and yields a hearty flavored, amber brew. Some of the popular Black teas include English Breakfast, Darjeeling and Orange Peoke. Green tea skips the oxidizing steps; it has more delicate taste and is light green in color. Oolong tea, popular in China, is partly oxidized and is crossed between black tea and green tea in color and taste. While flavored teas evolve from these three basic teas, herbal teas contain no true leaves. Herbal teas are created from the flower berries, peels, seeds, leaves and roots of many different plants. Tea is a prestigious and century old traditional plantation industry of Bangladesh. It is a steady foreign exchange earner. Tea cultivation in Bangladesh started in 1840 in Chittagong as pilot cultivation with some china plants from Shibpur, Calcutta Botanical Garden and some seeds from Assam, India. The first tea garden in Bangladesh area was established by the British rulers in 1857 at Malnicherra of Sylhet district in the eastern part of the country. Currently 163 tea gardens are operating in 115,820.33acres of land producing about 47 million kgs of tea per year. The tea gardens are concentrated mainly in greater Sylhet district. About 90% of teas are produced in Sylhet, Moulovibazar and Hobigonj districts. The approximate annual income from export of tea industry is $6.34 million. Bangladeshi tea is exported to about 26 countries of the world. The major importers are Pakistan, Iran, UK, Oman, UAE, East European countries and so on. There are five types of ownership in tea garden. Sterling companies-28 tea estates Bangladesh Tea Board- 3 tea estates National Tea Company- 13 tea estates Bangladeshi Private Limited Companies-61 tea estates Propriety- 58 tea estates Page | 14
The government decision to enable the mass of connecting public to participate in the ownership of 90 estates which were owned and managed by the government, the National Tea Company Limited was incorporated with the register of joint stock companies in 1978 with an authorized capital of tk 5 Crore divided into 500,000 ordinary shares of tk 100 each. The company owned initially 9 gardens, later 5 more gardens have been added to the fleet by acquisition to make the number 14. Later Bangladesh tea research institute was established, it is the scientific institute of Bangladesh Tea Board. The role of BTRI is to investigate and innovate methodologies for solution of problems relating to growing and manufacturing of tea. At present Bangladeshi tea has gained reputation in the international market in respect of color, strength and taste. Contributions for such achievement can be attributed to some extent to the Bangladeshi tea rehabilitation project which makes modernization and rehabilitation of the tea processing factories etc. Bangladesh tea industry and its trade is mainly in the Private sector, owners control directly their production and quality. Tea traders and exporters who are registered with the tea board and the tea traders association operate tea trading and its exports. Generally the producers offer their tea through Chittagong and London auctions. There is close cooperation between the producers, brokers, traders and exporters. For regulation and control of tea production and its trade, Bangladesh Tea Board was constituted by the government in 1951 and was reconstituted in 1977.
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4. Methodology
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4.1
Conceptual Framework
The first step in conducting a research is choosing an appropriate research topic. A research topic should not be too broad, it should be of interest to the researcher and it should have available data resources. Considering these facts a topic has been selected i.e. Critical Analysis of Tea Industry in Bangladesh from Managerial Economic Perspective. Tea is one of the most important non-alcoholic beverage drinks in Bangladesh and also a major source of income for the national exchequer. This topic will cover the various economic aspects of Tea industry in Bangladesh.
4.2
Formulation of Objectives
Objectives of a research should provide satisfactory answer to the research questions. It also helps to decide the scope of the study. Broad objectives have been formulated which are followed by consequent specific objectives to answer the research questions.
4.3
Data Collection
Collection of relevant and accurate data is crucial for the successful completion of a research. For this research, both primary and secondary data has been collected.
4.3.1 Primary data source
We have conducted a survey of consumers to find out about the demand situation for tea industry.
4.3.2 Secondary data source
We have included information from various sources such as book, published journals, articles, web pages etc. For information regarding tea supply, we had to depend on information provided by Bangladesh Tea Board.
4.4
Data Analysis
Data collected from different primary and secondary sources will be classified into two broad categories: (i) Qualitative data (ii) Quantitative data. To perform analysis based on these categories of data the best fitted techniques will be applied.
4.4.1
Qualitative Analysis
Elasticity Porters 5 forces model Game Theory

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Govt Policies
4.4.2 Quantitative Analysis
Demand forecast Demand and supply trend analysis
4.5
Data Interpretation
Data interpretation is the process of assigning meaning to the analyzed information and determining the conclusions, significance, and implications of the findings. Special emphasis has been given on this part to make sure that the research responds to the research questions clearly and thoroughly.
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5. Demand Analysis
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5.1
Tea consumption in Bangladesh
World consumption of tea is estimated to be 3,437 million Kgs in 2006. This estimate is based on the assumption that all teas retained in the producer countries and all teas imported for consumption in the importing countries have been consumed during a year. Among the countries India has become the highest total consumer of tea consuming 771 M. kgs followed by China consuming 745 M.Kgs. Bangladesh ranks 14th in terms of single country total consumption of tea in 2005 consuming 53 M.Kgs internally. As of 2005, world per capita consumption of tea is 0.57 kg (20 oz) whereas per capita consumption of tea in Bangladesh is 0.36 kg (13 oz). Bangladesh ranks 65thin terms of per capita consumption of tea.
23 28 39 48 38 27 31
22 24
15 21
19 India 438 798 China Russia Rest of CIS Japan 872 United Kingdom Turkey Pakistan U.S.A.
42
41 53 71 36
104 117 99 134 130 134 79 175
Bangladesh
Figure1: Major Tea Consuming Countries in the World [Source: http://www.teaboard.gov.bd]
5.2
The Annual Demand Trend of Tea in Bangladesh
Tea is supplied in the internal market in three ways (i) buying tea from the auction paying 15% VAT on the auction value known as internal account buying, (ii) buying tea from the auction for export at nil VAT known as external account buying and subsequently transferring to the internal account and (iii) tea supplied directly from the tea estates with prior permission of the Tea Board.
Year Quantity (in m. Kg.) 2000 38.79 2001 36.95 2002 41.5 2003 37.44 2004 43.32 2005 43.3 2006 40.51 2007 46.27 2008 52.12 2009 53.74
Table1: Annual Demand of Tea in Bangladesh (in m. Kg)

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60 50 40 Annual Demand 30 (in m. Kg) 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Year
Figure 2: Demand Trend of Tea in Bangladesh
5.3
Factors affecting the Demand of Tea
Demand is the desire or willingness of the people with the required ability to purchase goods and services at a particular price. The demand for tea depends on various factors. These factors include: 1. Price: Tea is a convenience product. Convenience products are inexpensive, purchased frequently and there is little effort needed to purchase them. Demand of tea is fairly inelastic with response to change in price in short period. But in the long run the demand for tea changes inversely with a corresponding change in price. 2. Disposable Income: Disposable income is total personal income minus personal current taxes. Disposable income refers to the income available for consumption and savings purposes. Change in disposable income affect the consumption of tea trivially since the retail unit price of tea is low. 3. Demographic Profile of Consumer: Demographic profile of consumer affects the demand for tea significantly. Tea is relatively more popular among the older age group. Again, people who are health conscious prefer tea over other non-beverage drinks.
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4. Price of Complementary Goods: A complementary good is a good with a negative cross elasticity of demand. This means a good's demand is increased when the price of another good is decreased Sugar, Milk, and Lemon are complementary to Tea. That means when the price of these goods increases it affects the demand of tea negatively. 5. Price of Substitute Goods: A substitute good is a good with a positive cross elasticity of demand. This means a good's demand is increased when the price of another good is increased. Coffee and soft drinks are substitute goods of tea. That means an increase in the price of these goods tend to increase the demand of tea. 6. Population: Population is another important factor that influences the demand of tea. Here Population refers to the number of people consuming tea. As the population increases the demand of tea also tend to increase. 7. Season: Although tea is consumed all around the year, the demand of tea in winter season is usually higher than that of tea in summer.
5.4
Development of Demand Function
In general, the quantity demanded of tea is the function of all the factors affecting the demand of tea. Thus, the demand function of tea is: Q (Tea) = f (Price, Disposable Income, Consumer Demography, Price of Complementary Goods, Price of Substitute Goods, Population, Season) Based on the factors affecting demand the demand function can be expressed more specifically as follows: Quantity demanded of tea, Q (Tea) = a1P + a2I + a3CG + a4 SG + a5POP + a6S Where P= Price of Tea I= Income CG= Price of Complementary Goods SG= Price of Substitute Goods POP= Population
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S= Season The terms a1, a2, a3, a4, a5, a6are called parameters of demand function. a1, a2, a3, a4 represent price elasticity of demand, income elasticity, cross price elasticity of complementary goods and cross price elasticity of substitute goods respectively.
5.5
Demand Forecast
Annual consumptions represent the actual demand of tea. We calculated the forecasted demand of tea using the Exponential Smoothing technique based on the actual demand.
Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 Actual Demand (in m.kg) Forecasted Demand (in m.kg) Deviation (%)
36.95 41.5 37.44 43.32 43.3 40.51 46.27 52.12 53.74
38.79 37.69 39.97 38.45 41.37 42.53 41.32 44.29 48.99
-4.98% 9.19% -6.77% 11.23% 4.45% -4.98% 10.70% 15.02% 8.84%
Table 2: Forecasted Demand of Tea Based on these time series data we developed a liner equation for the forecasted demand of tea which is as follows: Forecasted Demand of Tea (in m. kg,) QD = 34.75+1.12t That means other thing remaining the same the demand of tea is likely to increase by 1.12 m.kg with response to change in time.
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5.6
Demand Curve
The demand curve of tea is drawn below based on the average price (Tk./Kg.) and quantity demanded of tea from the year 2002 to 2008:
Year 2002 2003 2004 2005 2006 2007 2008 Demand (in m. Kg.) 41.5 37.44 43.32 43.3 40.51 46.27 52.12 Average Price (Tk./Kg.) 57.1 65.89 62.68 68.45 78.23 92.02 121.84
Table 3: Demand and Average Price of Tea
5.7
Shift in Demand Curve
Shift in demand curve of tea occurs when any factor(s), except price that affect the demand of tea changes. For example if the price of a substitute good of tea increases the quantity demanded of tea will increase and vice-versa. As a result the demand curve of tea will shift to the right.
D2
D1
Price
D3
Quantity Demanded Figure 4: Shift in Demand Curve of Tea
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6. Supply Analysis
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6.1
Factors Affecting Supply
Supply represents the total amount of goods or services offered by potential sellers for sale at a particular time and at a given price. The supply of tea depends on the factors described below: Price: The supply of tea is inelastic with response change in price in the short- run since its not possible for the producer to change the production capacity overnight. But in the long-run, the supply of tea changes positively with a given change in price. Price of Input Factors:Price of input factors of tea production such as land, labor, capital, fertilizer etc. are negatively related with supply of tea. If the prices of input factor increase, the cost of tea production will increase and producers will realize less profit. Hence supply of tea will decrease. Technology: Technology is positive related with supply of tea. If an advance technology is employed for tea production that reduces dependency on labor or reduces the cost of tea production in any other way, the supply of tea will increase. Expectations:If tea producers expect that the price of tea will increase in near future, they may hold some of their current production into storage andsupply less to the market today. Thus expectation of price increase and supply of tea are inversely related. Weather: If the weather remains favorable for tea production the supply of tea will increase and vice-versa.
6.2
Supply Trend
Year 1985 1990 1995 2000 2002 2003 2004 2005 2006 2007 2008 Supply (in m.Kg.) 43.29 46.16 47.67 53.15 53.62 58.3 56 60.14 53.41 58.19 58.66
Table 4:Yearly Supply of Tea in Bangladesh
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70
60 50 Annual 40 Supply (in m.Kg.) 30 20 10

0
1985 1990 1995 2000 2002 2003 2004 2005 2006 2007 2008 Year
Figure 5: Supply Trend of Tea
6.3
Supply curve
The supply curve of tea is drawn below based on the average price (Tk./Kg.) and quantity supplied of tea from the year 2002 to 2008:
Year 2002 2003 2004 2005 2006 2007 2008 Average Price (Tk./Kg.) 57.1 65.89 62.68 68.45 78.23 92.02 121.84 Supply (in m.Kg.) 53.62 58.3 56 60.14 53.41 58.19 58.66
Table 5: Average Price and Supply of Tea
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Supply
P r i c e
140 120 100 80 60 40 20 0 53.62 56.00 58.30 60.14 53.41 58.19 58.66 Quantity Supplied
Supply
Figure 6: Supply Curve of Tea
6.4
Shift in Supply Curve
Supply curve shifts when any factor, except price that affect the supply changes. For example if the prices of input factors of tea increase, the cost of tea production will increase as a result the supply of tea will decrease and vice-versa. Therefore, the supply curve of tea will shift to the right. S
3
S1 Price S2
Quantity of tea
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Equilibrium Point:The price of tea is determined by the market forces of demand and supply. Price of tea refers to the equilibrium point where the demand curve and supply curve intersect each other. An equilibrium point refers to a point where the quantity demanded is matched by the quantity supplied at a given price. When the demand or supply or both change, the equilibrium point also changes. If the proportionate change in demand is more than the proportionate change in supply the equilibrium point shift to the upper right direction and vice-versa.
E2 S2 S1
Price
E1
D2
D1
Q1
Q2
Quantity
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7. Elasticity
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Elasticity is a measure of the responsiveness of the quantity demanded or quantity supplied to one of its determinants.
7.1
The price elasticity of demand
The price elasticity of demand is a measure of how much the quantity demanded of a good responds to a change in the price of the good, computed as the percentage change in quantity demanded divided by the percentage change in price.Price elasticity of demand depends on a number of factors. These factors, along with their applications on the tea industry are discussed below: 1. Availability of close substitutes: Tea, as a beverage, has a close substitute in the form of coffee. In the present time, tea is cheaper than coffee in Bangladesh, as a cup of tea costs less than a cup of coffee. Moreover, consumption of tea or coffee is a matter of personal preference. Even then, significant increase in the price of tea would drive consumers away from tea and to coffee. In this regard, demand for tea is moderately elastic. 2. Necessities vs Luxuries: Tea can be classified as a necessity for some people, while it's a luxury for others. For examples, a lot of drivers take tea during nightlong drives to keep them awake. On the other hand, for some poorer households, tea is bought or served only on occasions. In this regard, demand for tea is neither fully elastic like that of luxury goods, nor totally inelastic like that of necessary goods. In this regard, thee demand is somewhat moderately elastic. 3. Definition of the market: Tea has a level of elasticity due to that fact that it is a narrowly defined market. Within the beverage industry, tea can be easily replaced by carbonated beverages, juices etc. This is one of the main factors behind the price elasticity of tea. 4. Time horizon: If we consider a long time horizon, before the introduction of coffee and carbonated beverages, demand for tea was fairly inelastic, as it did not have many close substitutes, besides homemade lemonades. However, with the recent increase in the popularity of other beverages, elasticity in the demand of tea is bound to increase.
7.2
The price elasticity of supply
On the other hand, price elasticity of supply, measured as the percent change in quantity supplied divided by the percent change in price, depends on the following factors: 1. Flexibility of seller: In case of tea, the production capacity of sellers are quite limited, as there is no way to quickly increase the production capacity of a tea garden. Thus this factor has minimal impact on the price elasticity of tea supply 2. Time Horizon: However, with time, new tea gardens can be cultivated, as has been the case with new gardens being grown on the panchgar region. Thus in the long run, sellers have introduces some price elasticity in supply
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8. Market Structure
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History of Bangladesh Tea Industry dates back to 1840 when a pioneer tea garden was established on the slopes of the hills in Chittagong where the Chittagong Club now stands. First commercial tea garden was established in 1857 at Mulnichera in Sylhet. During the partition in 1947, Bangladesh (the then East Pakistan) owned 103 tea estates, covering 26,734 hectares of tea plantation with annual production of 18.36 M.Kg. with an yield of about 639 Kg. per ha. Home consumption was around 13.64 M. Kg. upto 1955. After that home consumption went up rapidly and Government imposed 3% mandatory extension of tea area per year in 1961. Ten years later by 1970, tea area was extended to 42,658 hectares and production was incrased to 31.38 M.Kg. During liberation war in 1971, our tea industry suffered colossal damages which resulted in poor management, high vacancies, insufficient inputs, dilapidated factory machinery, inadequate maintenance etc. leading to lower yield and poor quality of tea. But the industry soon got a big push on behalf of the government through a massive development program (BTRP-1980-92) with the financial and technical assistance of the British ODA and EEC and production increased to 60.14 million kg. with per/ha. yield of 1150kg. in 2005.
8.1
Key Stakeholders in the Market
163 tea estates are managed by five different categories of managements

(i)Sterling Companies (ii) National Tea Company (iii) Bangladesh Tea Board (iv) Bangladeshi Private Limited Companies (v) Bangladeshi Proprietors
8.1.1 Sterling Companies:
Sterling companies refer to the companies those are owned by foreign investors. In early 1990s, a total of 12 sterling companies were in tea business. They owned 26 gardens, all located in Maulvibazar and Habiganj district. At present four sterling companies own 27 estates and account for 45% of the total tea production.The four foreign companies are James Finlay, Duncan Brothers, Deundi Tea Company and New Sylhet Tea Estate.
8.1.2 National Tea Company:
National Tea Company Ltd. has been formed in the year 1978 under the Companies Act , 1913 , as a Public Limited Company. It is a Joint venture of the Government and the General Public.The Company started with 9(nine) A-class tea estates all of which are situated in the Sylhet division. The tea estates are: Patrakhola, Kurmah, Champarai, Madanmohanpur,
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Madabpur, Jagadishpur, Teliapara, Chundeecherra and Lackatoorah. At present it owns 13 tea estates and accounts for 8% of the total tea production.
8.1.3 Bangladesh Tea Board:
Bangladesh Tea Board owns and operates three estates .These estates produce 3% of the total tea production in Bangladesh.
8.1.4 Bangladeshi Private Limited Companies:
Tea companies those are operated by Bangladeshi companies fall under this category. These companies own and operate 61 tea estates and produce 30% of the total production.
8.1.5 Bangladeshi Proprietors:
58 tea estates are owned by Bangladeshi sole proprietors. These estates produce 13% of the domestic production. Management wise Land use & production (2008)
Category of No. of Tea Management Estates Sterling co. BTB NTC Deshi co. Propriety Total Small Holdings Grand Total 163 28 3 13 61 58 163
Grant Area (ha.)
Tea Area (ha.) 20,247.04 1,435.07 5,599.80 17,107.08 9,430.33
Production (2008)
Yield (Kg./ha.) 1,310 1,138 790 1,041 856 1,086 699
39,386.02(34%) 2,559.39(2%) 11,279.95(10%) 40,652.05(35%) 21,656.00(19%)
26,520,787(45%) 1,632,764(3% ) 4,424,755(8%) 17,804,393(30%) 8,074,997(13%) 58,457,696 200,827
115,553.41(100%) 53,819.32 286.92 286.92
115,820.33(100%) 54,106.24
58,658,523(100%) 1,084
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8.1.6
Government:
Government of Bangladesh is a key stakeholder in tea market. Government monitors and (if necessary) regulates the tea market through the Bangladesh Tea Board (BTB). The main functions of the Board are to monitor, control and promote the sale and export of tea; to conduct scientific research through its research wing Bangladesh Tea Research Institute (BTRI) in order enhance the quality and productivity of tea produced in Bangladesh; to register tea estates and grant license toplanters, manufacturers and other dealers engaged in the business of tea and to take any necessary measure in the best interest of the tea industry of Bangladesh.
8.1.7 Brokers:
The auctioning company (i.e. The Broker) which is the pivot of the auction system comprises professionals who combine multi faceted talents such as Tea Tasters, Valuers, Quality Controllers, Auctioneers act as independent arbitrators and consultants between Buyers and Producers and in their relationship with a host of ancillary service organizations such as Warehouses, Transport Carriers, Banks, Insurers etc.At the beginning of each new season Producers nominate Brokers for the disposal of their crops through Chittagong auctions. The Broker charges 1% of the sale price as Brokerage and also collects an additional 1% as Tea Cess levied by the Bangladesh Tea Board on all producers. Brokers facilitate the supply of tea and arrange the sale of tea. They also prove after sales services such as ensuring the delivery of tea to the exporters and internal buyers and also ensure realization and payment of sale proceeds to Producers
8.1.8 Banks:
Banks help tea exporters with advances against shipping documents. Banks also play an important role in tea production by providing loan to tea producers for the smooth operation of production process.
8.1.9 Exporters and Internal Buyers:
Exporters sell the tea bought from auction center in the international tea market. On the other hand, internal buyers or wholesalers sell tea in the domestic market through retailers.
8.2
Intensity of Competition
The domestic tea market of Bangladesh is highly competitive. There are a large number of tea producers in the market. There are 163 tea estates in Bangladesh. Sterling companies dominate the market by providing 45% of the total tea production. Sterling companies also have the highest yield (1188 Kg/Ha.). The 2nd dominant forces are the Bangladeshi private limited companies those constitute 30% of the domestic tea production with a yield of 1006 Kg./Ha.
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These companies own and operate the highest number of tea estates (61). The competition is intense among the existing firms in the market because of low switching cost. As a result buyers can frequently switch among the various producers which reduce the bargaining power of tea producers. Another important reason behind stiff competition is that tea is such type of product that is difficult to differentiate.
8.3
Distribution System
Marketing of tea is the process of selling manufactured tea in bulk from tea estates to the buyers through Chittagong Auction who sell it in the local market or export it to other countries either in bulk or in packets. Some of the teas are also sold at estate level with prior permission of Bangladesh Tea Board either directly to overseas buyers or to the internal traders. Tea Auction is held on usually every Tuesday at Chittagong, a major port city with sufficient warehouse and port facilities and well connected by road, railways and air. Tea Traders Association of Bangladesh organizes the weekly tea auction in Chittagong through the appointed tea brokers of Bangladesh Tea Board Tea is supplied in the internal market in three ways (i) buying tea from the auction paying 15% VAT on the auction value known as internal account buying, (ii) buying tea from the auction for export at nil VAT known as external account buying and subsequently transferring to the internal account and (iii) tea supplied directly from the tea estates with prior permission of the Tea Board.
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8.4 Porters Five Forces Model in the context of TeaIndustry in Bangladesh
Fig: Porters Five Forces Model
8.5
Barriers to Entry
If the threat from new entrants into the product category is high, the attractiveness of the industry diminishes. On the other hand, if the risk of new entry is low the firms in the industry can take the advantage to raise price and earn greater profits. The strength of the competitive force of potential rivals is largely a function of the height of barriers to entry that make it costly for firms to enter an industry. High entry barriers keep potential competitors out of an industry even when industry returns are high (Hill & Jones, 2002). In case of teaindustry of Bangladesh following factors can be considered as the influential sources of barriers to entry:
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8.5.1
Scarcity of Land:
Tea is an agricultural product and the production volume, quality etc. depend on the nature, climate, rainfall etc. (Islam, 2008). Tea is grownat only 80-300 feet above sea level. The main tea growing areas in Bangladesh lie to the East of the Ganga-Jamuna flood plain - in the hilly areas bordering India. Most of the tea grows in Sylhet, the North East part of the country. Tea is also grown in Chittagong and the Chittagong hill tracts. The fact that tea is grown only in selected lands around the country, it serves as a barrier for new entrants and thus increases the attractiveness of the industry.
8.5.2 Brand Loyalty:
Brand loyalty is the outcome of years of presence in the market with reputation as a supplier of quality products which, in turn, calls for product innovation through superb R&D, momentous promotion and continuous focus on customer choice. Brand loyalty make it difficult for new entrants to enter into the industry and reduces threat of entry by potential competitors since they may see the task of breaking down well established consumer preferences as too costly. (Hill & Jones, 2002). In the Tea industry of Bangladesh, large buyers like Unilever, M.M. Ispahani, HRC etc. are found to have loyalty to the tea of certain gardens - such as Kazi &Kazi, Madhupur, Longla, Kaliti, Nalua, Phooltola, Daragaon, Deundi, Noyapara, Amrail, Shamshernager, Karimpur, Habibnagar, Baraoora, Sathgaon, Luskerpur, Rajkie, Rasidpur, New Samanbagh, Rajghat etc. Over the years these gardens have built a strong brand image because of their quality, appearance and liquor of tea. (S. Islam, Personal Communication 14 March 2009). The loyalty of the huge buyers towards these gardens make it difficult for new entrants to enter in the industry and thus it reduces the threat of entry by potential competitors.
8.5.3 Economies of Scale:
The cost advantage associated with large volume of output is called economies of scale. If this cost advantage is significant, a new entrant faces the dilemma of either entering on a small scale and suffering a significant cost disadvantage or taking a very large risk by entering on a large scale and bearing significant costs of capital. Cost reduction through mass production of standardized tea and spreading of fixed cost such as land, building, factory, administrative expenses, employee welfare, etc over a large production volume of tea are the two most important sources of scale economies in the context of tea industry in Bangladesh.
8.5.4 High Investment:
Entering the tea industry in Bangladesh requires a high initial investment, often costing as much as Tk.10,00,000,00 /-. It also takes a significant amount of time before firms start seeing this money pay off in terms of profit. Hence, the investment into the tea industry is a long-term investment and this serves as an immense deterrent fornew entrants. (S. Islam, Personal Communication 14 March 2009).
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8.5.5
Unavailability of Skilled Workers:
Tea garden workers are from different ethnic origin and belong to certain ethnic groups. Many of them came from India and settled here. They live in groups and dont move or migrate in large groupsbecause of their lifestyle. As a result, some gardens have labor surplus and others have labor shortage. Shortage of labor seriously hampers production and processing activities. In cases, the gardens with scarcity of labor may hire labor from gardens with excess supply but at a higher rate. Both labor shortage and surplus lead to increased cost of production. Gardens which have excess labor need to incur cost for those additional labors which shrink their profitability. On the other hand, gardens with paucity of labor also need to incur cost either in the form of disruption in production activities or higher hiring cost. (S. Islam, Personal Communication 14 March 2009).
8.5.6 Government Regulations:
Government regulations sometimes add up to barriers to entry in many industries. However, there is no as such restriction observed in case of tea industry in Bangladesh. Rather the Government provides incentives, such as, loan at a lower interest rate from banks, particularly from Krishi Bank to invest in the industry. (S. Islam, Personal Communication 14 March 2009).
The table below summarizes the impact of the factors affecting the barriers to entry from the view point of an existing firm. In the assessment column, a Plus sign (++) indicates that the factor contributes positively to the attractiveness of the industry, while a minus sign ( - ) indicates that the factor impacts negatively to the attractiveness of the industry.
Fig: Impact of Factors Associated with Barriers to Entry

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8.6
Rivalry among Established Companies
Weak rivalry amongst the established firms offers an opportunity to raise prices and earn greater profits. On the contrary, strong rivalry leads to price wars and higher cost of doing business which ultimately limit the profitability and growth prospect of the firm. The following factors are seemed to have contribution in determining the extent of rivalry in Bangladesh Tea Industry.
8.7
Competitive Structure:
Competitive Structure refers to the number and size of distribution of companies in an industry. Structure vary from fragmented to consolidated and have different implications for rivalry. A fragmentedindustry consists of large number of small and medium size firms -none of which is in a position to dominate the industry while a consolidated industry consists of small number of large firms. Most commodity type products which are hard to differentiate results in fragmented industries that eventually depress industry profits due to price war among the rivals. (Hill & Jones, 2002). Bangladesh tea industry is a fragmented industry consists of five categories of producers such as, (i) Sterling Companies, (ii) National Tea Company (NTC), (iii) Bangladesh Tea Board (BTB), (iv) Bangladeshi Private Limited Companies (BPLC) and (v) Bangladeshi Proprietors. Following chart indicates the size of land and production volume of large, medium and small size producers in the tea industry of Bangladesh.
Fig: Ownership-wise Land and Yield

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Based on the production and the size of the estates, Sterling Company gardens and Private Limited Company gardens are the large gardens; Proprietary and National Tea Company gardens are medium sized while North Bengal and Tea Boards gardens are the small firms in Bangladesh tea industry.
8.7.1 Low Switching Cost:
Low switching cost increases the rivalry in the industry as the buyers can switch between the suppliers. Tea is difficult to differentiate which allows the buyers to switch between producers at a low switching cost. However, sometimes switching from the existing suppliers may tax the buyers in terms of problems in timely delivery, payment etc. The reputed buyers like Unilever (Bangladesh) Ltd, M.M. Ispahani Ltd. and HRC usually purchase the produce of Sterling Company gardens for their appearance, liquor, and quality. If these companies want to switch between suppliers they may have to compromise with the quality. However, the switching costs are very fractional as the quality of packaged tea marketed by the buyers depends on the blending of different types of tea from different gardens rather than the raw tea.
8.7.2 Product Differentiation:
Tea is a commodity type product which is difficult to differentiate. However, certain gardens, particularly, the Sterling Companies couldmanage to differentiate their tea in terms of quality, appearance andliquor owing to their state of the art technology, better inputs, skilledworkers and professional management. As a result, Sterling gardens get higher prices for their produce in comparison to others.
8.8
Exit Barriers:
Exit barriers are economic, strategic and emotional factors that induce firms in an industry to continue even in the face of low return. If exit barriers are high companies may turn out to be locked into an unprofitable industry. (Hill & Jones, 2002) In the tea industry of Bangladesh, high fixed cost or higher investment in plant, garden, equipment etc could constitute the barriers to exit for any firm. However, as there is scarcity of land for tea production, companies are in a position to sell off their gardens at a much higher rate than their investment. Increasing demand of teaboth in local market and international market attract the new investors to invest in tea industry and acquire garden, which reduce the exit barriers to quit from the industry. In the period of last two governments, many gardens were sold at rates more than double the invested amounts. However, no investor is found to have interest about firms which require extensive rehabilitation both in fields and factories. So these gardens find it difficult to quit from the industry.Thus based on the above discussion, the table below summarizes the impact of the factors affecting the rivalry among established firms on the attractiveness of the tea industry in Bangladesh.
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Fig:Impact of Factors Associated with competition amongEstablished Companies
8.9
The Bargaining Power of Buyers
The buyers may be the customers, individual or organizations who ultimately consume the products or they may also be the organizations that purchase for resell to the end users. Buyers can be viewed as a competitive threat when they are in a position to demand lower prices and/or better services which, in turn increase the costs of doing business. On the other hand, when the buyers are weak, a firm can raise its prices and earn greater profits, thus making the industry more attractive. (Porter, 1990) In case of tea industry in Bangladesh, the companies that purchase tea from auctions to market it either in local or export market can be considered as buyers. The following factors can influence the bargaining power of buyers for the case of Bangladesh Tea Industry.
8.9.1 Purchase Volume of Buyers:
When the buyers purchase in large quantities in such circumstances buyers can use their purchasing power as leverage to bargain forprice reduction. (Hill & Jones, 2002) Even though many different companies purchase tea from auctions in large volume to meet their local and export demands, the auction system restricts the buyers from using their purchasing power for price reduction. The following table indicates the purchase volume of some large and small buyers in 2007-2008.
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Fig:Volume of Purchase through auctions (2007-08)
8.10 The Bargaining Power of Suppliers

Suppliers can be viewed as threat when they are able to either forceup the price that a company must pay for its inputs or reduce the quality of the inputs they supply, thereby diminish the firms profitability. On the other hand, when suppliers are weak, the firm enjoys an opportunity to force down prices and demand higher input quality. As with buyers, the ability of suppliers to make demands on a firm depends on their power relative to that of the buyer. (Hill & Jones, 2002). The following factors affect the bargaining power of suppliers.
8.10.1 Number of Suppliers:
When the inputs required are available only to a small number of suppliers then the suppliers have more bargaining power and are in aposition to raise price and/or offer less quality of product or poorservices. With respect to the tea industry, the suppliers are fragmented and consist of large number of small, medium and big size suppliers of different inputs including hardware, lubricants, fertilizers, insecticides, pesticides, medicines, C.I. Sheets, petroleum, tractors, bearings, machinery and spares, MS rod and sheets etc. So the industry structure limits the power of suppliers and almost every area they have to compete based on aggressive bidding.
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8.10.2 Differentiated Product and Switching Cost:
Suppliers offering differentiated products point to high switching cost for buyers. In such cases firms (buyers) depend on the suppliers and consequently suppliers have the benefit of having more bargaining power over buyers. (Porter, 1990). Buyers in the tea industry in Bangladesh can switch between suppliers easily as there are large number of suppliers of inputs. The extent of differentiation is also limited. But there are some suppliers of inputs such as fertilizers, insecticides, pesticides, and medicines who could differentiate their products in terms of quality and brand image. Switching from those suppliers to others involve high switching cost in the form of poorer quality and inconsistency of delivery. These suppliers have more bargaining power over buyers. Examples of these suppliers include Chattral Hardware Store, General Hardware Stores, S.A. Enterprise, Hossain Enterprise (general hardware), KAFCO, Azim and Co. (fertilizers), Syngenta Ltd (insecticides and pesticides), TSA Enterprise Ltd (Machinery) etc.
8.11 Threat of Substitute Product

Products from one business can be replaced by products from another. If the firm produces commodity product that cannot be differentiated easily, customers can switch away to a competitors product with less consequences. On the contrary, there may be a distinct penalty for switching if product is unique or essential for customers business. (AICC, 2004). The following factors can influence the threat of substitute for the tea industry:
8.11.1 Low Switching Cost:
When it is easy for a customer to switch to a substitute product at a less or no switching cost substitute product poses greater threat (ICMBA, 1999). However, tea is a low cost product compared to potential substitutes like coffee and soft drinks. Switching from tea to coffee for would involve higher monetary cost and thus the threat of substitution is limited.
8.11.2 Customers Loyalty:
When customers have low level of loyalty and price is the primary motivator, the threat of substitutes is greater (ICMBA, 1999). Being a traditional drink, loyalty of consumers towards tea in comparison to other drinks is higher. Besides, if price is considered as the primary motivator, consumers are likely to be more loyal to tea as it is relatively cheaper.
8.11.3 Income level of customers:
Consumers of all income groups cannot consume the other substitutes like coffee, soft drinks etc. due to the higher monetary cost. Higher income segment of the market may be habituated or loyal to other substitutes, but tea has its everlasting appeal to the mass people.
8.11.4 Taste and Preferences:
Changing the taste and habit of customers is very difficult. Over time, the people of Bangladesh became habituated to tea and for a large population it has become a necessity. This is very difficult to change and hence the threat from substitutes is lower.
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8.11.5 Frequency of Consumption:
Frequency of tea consumption is also high among the consumers compared to other substitutes. The higher cost and nature of other drinks make them expensive to be consumed as frequently as tea is. This limits the threat of substitutes and creates opportunities for the tea industry to earn greater revenue.
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9. Government Policies for Tea Industry
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9.1
Bangladesh Tea Board
To govern the the Tea industry in Bangladesh, there is an independent governing body known as Bangladesh Tea Board (BTB). Bangladesh Tea Board is a statutory body constituted under the Tea Ordinance 1977 to regulate, control and promote the cultivation and sale of Tea in Bangladesh. Tea industry in this part of the sub-continent was controlled by the Indian Tea Cess Act, 1903 till partition in 1947. An eleven member Pakistan Tea Board with a five member Pakistan Tea Licensing Committee was constituted in 1951 under the Pakistan Tea Act, 1950. This Act was repealed by the Tea Ordinance 1959 and an eleven member Tea Board with the provision of a five member Tea Development Committee was constituted. After the independence of Bangladesh, Tea Ordinance, 1977 was promulgated constituting Bangladesh Tea Board of three whole time members with the provision of an Advisory Committee to be formed by the Government with not more than twenty five members. Later the members of the Board were raised to eleven by the Tea (Amendment) Ordinance, 1986.The Head Office of the Board was in Dhaka till it had been transferred to Chittagong in 1984. The main functions of the Board are as under :

To regulate, control and promote the cultivation, sale and export of tea. To control and improve the quality of tea. To conduct comprehensive scientific and technological research to raise productivity of tea and improve its quality. To register tea estates with the Board and grant licenses to the planters, manufacturers and other dealers engaged in the business of tea. To assist establishing new tea gardens and improving productivity of existing tea gardens. To undertake welfare measures for tea garden laborers and employees. To undertake, acquire or manage any tea concern or to take such measures in the interest of the tea industry as directed by the Government, from time to time.
There is also a research wing of BTB known as the Bangladesh Tea Research Institute (BTRI). BTRI is engaged in conducting comprehensive scientific, technological and economic research for the Tea Industry. It has provision for 182 personnel including research and technical staffs. It was initially established by the Board in 1957 at its present location in Srimongal district as Research Station to provide technical support to the Tea Industry and subsequently was converted into a full-fledged Research Institute in 1973. Now it has three major research departments with six divisions as underDepartment of Chemistry- comprising Soil Chemistry and Biochemistry Divisions. Department of Crop Production- comprising Botany and Agronomy Divisions. Department of Pest Management-comprising Entomology and Plant Pathology Divisions.It has two more research divisions namely, Tea Technology Division and StatisticsEconomics Division.
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9.2
Price Control:
The Government of Bangladesh usually does not control the price of tea. The price depends on open market. But there are measures in place to control the price of tea in Bangladesh (if needed). Tea (Control of Prices, Distribution and Movement) Ordinance, 1960 states that The Chairman may, from time to time, by notification in the official Gazette, fix the maximum prices up to which any variety of tea may be sold by (a) a blender, (b) an importer, (c) a wholesaler, (d) a retailer, or (e) any other person or class of persons, and no person shall sell or resell tea at prices higher than the prices so fixed. So if needed the chairman of BTB can fix a ceiling price for wholesale price of tea. Tea is sold at an weekly auction in the countrys sole auction centre, in the main port city Chittagong, where most of it is picked up by domestic buyers.
9.3
Tax:
Bangladeshs Tax Authority has imposed a 25 per cent duty on imports of tea to safeguard local industry. Previously there was no such duty on tea imports. The country has become a net importer of tea after previously ranking as the worlds fifth-largest exporter in 1990s. Bangladeshi buyers import tea from India, Kenya and Vietnam due to competitive pricing. A fourth of Bangladeshi tea is of poor quality and that prices of good tea are higher compared with those of other tea-producing countries. Local blenders import high quality tea to create a higher quality blend. This new tax has increased the price of tea though it has given a good opportunity to the small local growers.
9.4
Government Incentives
Panchagarh is the new frontier for Bangladeshi tea industry. Hundreds of Panchagarh citizens, who lived in utter miseries due to abject poverty for years together, are now changing their fate and achieving self-reliance by earning wages as plucking workers in the dozens of tea gardens at the officially recognized third Tea Zone of the country. There Bangladesh Tea Board has been providing necessary trainings to the selected farmers and per hectare subsidy of Tk 14,000. Due to this gov. incentives the cultivation of tea is increased and the prices are lowered.
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10.Game Theory
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Game theory is a method of studying strategic decision making. More formally, it is "the study of mathematical models of conflict and cooperation between intelligent rational decision-makers." According to game theory, if competitors cooperate with each other, all the parties would be better off. But due to lack of trust, cooperation is not always possible.
Fig:Ownership-wise Land and Yield From this figure we can understand theres a large number of tea producers in Bangladesh. So its a very competitive market. The smaller growers are always trying to outperform the largeer growers in terms of price and quality. So itsalmost impossible to play a co-operative game in this market. Even if the large players like the Sterling companies (James Finlay, Duncan Brothers, Deundi Tea Company and The New Sylhet Tea Estate) play the co-operative game the other competitors might outcompete them. Hypothetically let us assume BPLC and Sterling Companies are acting as two main competitors. They control 75% of the total tea production. Now to gain market share they have begun a price war. We can see that for both the dominant decision is to decrease prices. This will increase their market share but will decrease their profits. If they could cooperate they could maintain their normal profit. But due to mistrust theyre forced to decrease prices.
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BPLC Decrease Price Dont Decrease Price BPLC Market Share Decreased Market Share Increased Market Share Increased Dont Decrease Price BPLC Market Share Increased Market Share Sterling Market Unchanged Sharing Profit Share Decreased Market Shared Sharing Profit BRAC Bank Making All the profit Unchanged Sterling Market Share Increased
Decrease Price Sterling Companies
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11.Ten Principles of Microeconomics and Its Implication on Tea Production
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Principle # 1: People Face Tradeoffs

The first lesson about making decisions is summarized in the adage: There is no such thing as a free lunch. To get one thing that we like, we usually have to give up another thing that we like. Making decisions requires trading off one goal against another.
Implication on Tea Production

The producers of tea engage in tea production in order to earn profit. But instead of tea they could have produced something else or they could have engaged themselves in some other business.
Principle # 2: The Cost of Something Is What One Gives Up To Get It

Because people face tradeoffs, making decisions requires comparing the costs and benefits of alternative courses of action. In many cases, however, the cost of some action is not as obvious as it might first appear. The opportunity cost of an item is what one gives up to get that item.

As it has been discussed earlier, the producers of tea could have engaged in some other agricultural production. The revenue that could have been earned from that production is the opportunity cost of tea production.
Principle # 3: Rational People Think at the Margin

Decisions in life are rarely black and white but usually involve shades of gray. Economists use the term marginal changes to describe small incremental adjustments to an existing plan of action. Margin means edge, so marginal changes are adjustments around the edges of what someone is doing. Individuals and firms can make better decisions by thinking at the margin. A rational decision maker takes an action if and only if the marginal benefit of the action exceeds the marginal cost.

Tea producers can take production decision based on this principle. They should go for increased production only when marginal revenue exceeds marginal cost.
Principle # 4: People Respond To Incentives

Because people make decisions by comparing costs and benefits, their behavior may change when the costs or benefits change. That is, people respond to incentives.
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If the price of tea increases other things remaining the profit of tea producers increases. The producers may respond to this incentive by increasing tea production.
Principle # 5: Trade Can Make Everyone Better Off

Countries as well as families benefit from the ability to trade with one another. Trade allows countries and firms to specialize in what they do best and to enjoy a greater variety of goods and services.

By trading tea, the tea producing countries are earning money. On the other hand, the tea consuming countries are satisfying their demand for tea. As a result tea producing countries achieve specialization and reduce the cost of tea production. Therefore tea consuming countries can buy tea at lower cost. Hence by trade both countries are better-off.
Principle # 6: Markets Are Usually A Good Way to Organize Economic Activity

In a market economy, the decisions of a central planner are replaced by the decisions of millions offirms and households. Firms decide whom to hire and what to make. Households decide which firms to work for and what to buy with their incomes. These firms and households interact in the marketplace, where prices and self-interest guide their decisions. At first glance, the success of market economies is puzzling. After all, in a market economy, no one is looking out for the economic well-being of society as a whole. Free markets contain many buyers and sellers of numerous goods and services, and all of them are interested primarily in their own well-being. Yet, despite decentralized decision-making and self-interested decision makers, market economies have proven remarkably successful in organizing economic activity in a way that promotes overall economic well-being. In his 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations, economist Adam Smith made the most famous observation in all of economics: Households and firms interacting in markets act as if they are guided by an invisible hand that leads them to desirable market outcomes.

In the tea industry, price is determined by the market forces i.e. demand and supply. Price represents how much tea needed by the consumers and provide producers the signal how much tea should be produced.
Principle # 7: Governments Can Sometimes Improve Market Outcomes

Although markets are usually a good way to organize economic activity, this rule has some important exceptions. There are two broad reasons for a government to intervene in the
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economy: to promote efficiency and to promote equity. That is, most policies aim either to enlarge the economic pie or to change how the pie is divided. The invisible hand usually leads markets to allocate resources efficiently. Nonetheless, for various reasons, the invisible hand sometimes does not work. Economists use the term market failureto refer to a situation in which the market on its own fails to allocate resources efficiently.

Government can improve the market condition by setting the maximum selling price of tea or the minimum salary of tea laborer if necessary.
Principle # 8: A Countrys Standard Of Living Depends on Its Ability to Produce Goods and Services
What explains these large differences in living standards among countries and over time? The answer is surprisingly simple. Almost all variation in living standards is attributable to differences in countries productivitythat is, the amount of goods and services produced from each hour of a workers time. In nations where workers can produce a large quantity of goods and services per unit of time, most people enjoy a high standard of living; in nations where workers are less productive, most people must endure a more meager existence. Similarly, the growth rate of a nations productivity determines the growth rate of its average income. The fundamental relationship between productivity and living standards is simple, but its implications are far-reaching. If productivity is the primary determinant of living standards, other explanations must be of secondary importance. The relationship between productivity and living standards also has profound implications for public policy. When thinking about how any policy will affect living standards, the key question is how it will affect our ability to produce goods and services. To boost living standards, policymakers need to raise productivity by ensuring that workers are well educated, have the tools needed to produce goods and services, and have access to the best available technology.

Since tea is a major cash crop of Bangladesh, therefore if the production capacity and profitability of tea industry increases, the economic condition and in turn the standard of living in Bangladesh will be positively affected.
Principle # 9: Prices Rise When the Government Prints Too Much Money
What causes inflation (an increase in the overall level of prices in the economy)? In almost all cases of large or persistent inflation, the culprit turns out to be the samegrowth in the quantity of money. When a government creates large quantities of the nations money, the value of the money falls.
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If the money supply in the country increases inappropriately, the cost of input factors of tea production will also increase. As a result the price of tea will also increase.
Principle # 10: Society Faces a Short-Run Tradeoff between Inflation and Unemployment
If inflation is so easy to explain, why do policymakers sometimes have trouble ridding the economy of it? One reason is that reducing inflation is often thought to cause a temporary rise in unemployment. The curve that illustrates this tradeoff between inflation and unemployment is called the Phillips curve,after the economist who first examined this relationship. The Phillips curve remains a controversial topic among economists, but most economists today accept the idea that there is a short-run tradeoff between inflation and unemployment. This simply means that, over a period of a year or two, many economic policies push inflation and unemployment in opposite directions. Because prices are sticky, various types of government policy have short-run effects that differ from their long-run effects. When the government reduces the quantity of money, for instance, it reduces the amount that people spend. Lower spending, together with prices that are stuck too high, reduces the quantity of goods and services that firms sell. Lower sales, in turn, cause firms to lay off workers. Thus, the reduction in the quantity of money raises unemployment temporarily until prices have fully adjusted to the change.
Implication in on Tea Production

Reduction in the quantity of money supply raises unemployment temporarily. This can affect the tea production in two ways: Firstly, the producers may sack some laborers or they may keep the existing laborers at a reduced wage.
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12.Cost of Production
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12.1 Different Types of Cost

The amount that the firm receives for the sale of its output is called its total revenue. Industry revenue is the aggregate of firm revenues. When the total profit of a firm is calculated total cost is subtracted from total revenue. Total cost of a firm includes two types of cost: explicit cost and implicit cost. Explicit costs are input costs that require an outlay of money by the firm for example in case of tea producing firm, explicit costs are wages of laborers, rent or purchase price of land etc. On the other hand, input costs that do not require an outlay of money by the firm are called Implicit cost. For example, the land used for tea production could have been used for some agricultural production. The revenue that could have been earned from such production is the implicit cost of tea production. Economic profit represents the difference between total revenue and total cost, including both explicit and implicit costs. Whereas accounting profit represents the difference between total revenue and total explicit cost. As a result, economic profit is always less than the accounting profit since it includes both types of cost.
12.2 Production Function

Production function is the relationship between quantity of inputs used to make a good and the quantity of output of that good. The production any good or service depends on several factors such like land, labor and capital. Land represents naturally-occurring goods such as water, air, soil, minerals, etc that are used in the creation of products. The payment for use and the received income of a land owner is rent. Labor represents human effort used in production. Labor can be classified as the physical and mental contribution of an employee to the production of the goods. The payment for labor is wages. Capital represents human-made goods (or means of production), which are used in the production of other goods. These include machinery, tools, and buildings. The classical economists also employed the word "capital" in reference to money. Money, however, was not considered to be a factor of production in the sense of capital stock since it is not used to directly produce any good. The production of tea depends on several factors as area of land used in production, number of labors employed, and quantity of fertilizer used.
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The production function of tea can be written as follows: Q(Tea) = f( X1LA+X2LB+X3FZ) Where LA= Area of land used in production LB = Number of labors employed in production FZ = Quantity of fertilizer used in production X1,X2,X3 are the coefficients of elasticity of these input factors to tea production. Labor cost is the per-unit cost of skilled and unskilled labor. The tea industry is labor intensive, with wages accounting for 25 to 30 percent of total costs.
12.3 Manufacturing Process

After Plucking, green leaves are transported to the factory for manufacture. The process of manufacturing comprises of the following stages: Withering i.e. moisture removal of about 10-15% (i.e. 65-70% wither) from leaf and bringing some chemical changes for optimum quality development. Fermentation i.e. oxidation process when tea etching i.e. polyphonals is degraded to desirable biochemical constituents named Theo Flavin (TF) and Thea Rubigin (TR). Drying i.e. moisture removal from oxidized leaf to 2-3% at dyer mouth level. Sorting i.e. grading of made Tea according to particles sizes and are given a grade name. These names are categorized, like: FP, FBOP, BOP, and GBOP, OF, FOF, PF, PD, RD, and CD (10 primary grades of CTC). Bangladesh Tea is shipped in chests, gunny bags or paper sacks of International standard bearing an original garden mark, bulked or blended. Care is taken to ensure that each consignment, however small, reaches its destination as fresh as it was when it left the garden.
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13. Conclusion
Tea is a major cash crop of Bangladesh. At present there are 163 tea estates in Bangladesh and 54,106.24 h.a. land is used for tea production. Tea consumption in Bangladesh is increasing gradually. Various factors affect the demand for tea such as Tea price, Income, taste preference of consumers, population etc. Factors that affect the supply of tea include Tea price, Price of input factors, technology, Weather etc. The five major categories of tea suppliers in Bangladesh are (i) Sterling Companies (ii) National Tea Company (iii) Bangladesh Tea Board (iv) Bangladeshi Private Limited Companies (v) Bangladeshi Proprietors. Besides the tea producing companies there are several other stakeholders in the tea market such as Government, Brokers, Banks, Exporters etc. There is intense competition in the tea industry of Bangladesh. The entry and exit barriers are high. Bargaining power of suppliers is high. Threat of substitute product is low. The Government of Bangladesh does not control the tea price. It regulates, Monitors and controls the tea market through the Bangladesh Tea Board.
14. References:
1. Principles of Microeconomics by Gregory Mankiw (4th ed.2006) 2. Tea Productions, Consumptions and Exports: Bangladesh by Tasnuba Nasir and Mohammad Shamsuddoha 3. Website of Bangladeshi Tea Board 4. Bangladesh Bureau of Statistics (BBS) Handbook 5. Glimpses of Bangladeshi Tea Industry by Ahmed Farid, Bangladesh Tea Board 6. National Tea Company by Khan Ameruzzaman, Bureau of Business Research, DU
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Appendix
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A. THE TEA ORDINANCE, 1977

(ORDINANCE NO. XXXVIII OF 1977)
[29th July, 1977]
An Ordinance to provide measures for the expansion of export of tea, to establish new tea gardens and rehabilitate derelict tea gardens and generally for the promotion of the tea industry, and for levying a cess on tea produced in Bangladesh and to provide certain other matters ancillary thereto.
WHEREAS it is expedient to provide measures for the expansion of export of tea, to establish new tea gardens and rehabilitate derelict tea gardens, and generally for the promotion of the tea industry, and for levying a cess on tea produced in Bangladesh and to provide certain other matters ancillary thereto;
NOW, THEREFORE, in pursuance of the Proclamations of the 20th August, 1975, and the 8th November, 1975, and in exercise of all powers enabling him in that behalf, the Vice-President, acting as President under Article 55 of the Constitution, is pleased to make and promulgate the following Ordinance :-
CHAPTER I
PRELIMINARY
Short title 1. This Ordinance may be called the Tea Ordinance, 1977.
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Definitions 2. In this Ordinance, unless there is anything repugnant in the subject or context,-
(a) Board means the Bangladesh Tea Board constituted under section 3;
(b) Collector means(i) in relation to tea exported by sea, land or air, the Collector of Customs appointed under section 3 of the Customs Act, 1969 (IV of 1969), and (ii) in all other cases, the officer appointed by the Government to perform the duties of Collector under this Ordinance;
(c) Chairman means the Chairman of the Board;
(d) estate means a tea estate and includes a tea garden or a part of tea estate or garden;
(e) export means to take out of Bangladesh by land, sea or air to any place outside Bangladesh;
(f) member means a member of the Board and includes the Chairman; (g) owner includes any agent of an owner;
(h) prescribed means prescribed by rules made under this Ordinance;
(i) tea means the commodity known as tea made from the leaves of the plant Camellia Thea or Camellia Sinnensis including adjacent tender stalks or green tea but excluding tea waste; and
(j) tea seed includes seeds, roots, stumps, cuttings, buds and any living portion of the plant Camellia Thea or Camellia Sinnensis which may be used to propagate that plant.
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CHAPTER II
BANGLADESH TEA BOARD
Establishment of the Bangladesh Tea Board 3. (1) As soon as may be after the commencement of this Ordinance, the Government shall establish a Board to be called the Bangladesh Tea Board.
(2) The Board shall be a body corporate by the name of the Bangladesh Tea Board, having perpetual succession and a common seal, with power to acquire, hold and dispose of property, both movable and immovable, and shall by the said name sue and be sued.
Constitution of the Board, etc namely:-
4. 1[ (1) The Board shall consist of the following members,
(a) a Chairman to be appointed by the Government;
(b) two whole time members to be appointed by the Government;
(c) Chairman, Bangladeshiyo Cha Sangsad, ex-officio;
(d) Chairman, Tea Traders Association of Bangladesh, ex-officio;
(e) Joint Secretary (Export), Ministry of Commerce, ex-officio;
(f) Commissioner, Chittagong Division, ex-officio;
(g) Chief Conservator of Forests, ex-officio;
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(h) one member to be appointed by the Government from among tea brokers;
(i) two members to be appointed by the Government from among tea planters.]
(2) The Chairman shall be 2[ a whole-time officer and the chief executive] of the Board and shall be responsible for the efficient management, control and conduct of the affairs of the Board.
(3) [Omitted by section 2 of the Tea (Amendment) Ordinance, 1986 (Ordinance No. XV of 1986).]
(4) 3[ An appointed member] shall, subject to the other provisions of this section, hold office for a term of three years, and shall be eligible for re-appointment.
(5) 4[ An appointed member] may, at any time, resign his office by notice in writing addressed to the Government:
Provided that no resignation shall take effect until it has been accepted by the Government.
(6) The Government may, at any time, by order in writing, terminate the appointment of any member without assigning any reason.
(7) [Omitted by section 2 of the Tea (Amendment) Ordinance, 1986 (Ordinance No. XV of 1986).]
(8) No act or proceeding of the Board shall be invalid merely on the ground of the existence of any vacancy in, or any defect in the constitution of, the Board.
Superintendence and control of the Board

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5. (1) The Board shall be subject to the superintendence and control of the Government and, in the discharge of its functions, shall be guided by such general or special instructions as may, from time to time, be given to it by the Government.
(2) The Government may cancel, suspend or modify, as it thinks fit, any act of the Board, and the records of the Board shall be open to inspection by any officer authorised by the Government in this behalf.
Meetings of the Board 6. (1) The affairs of the Board shall generally be conducted in accordance with the decision of the majority of its members.
(2) The decisions of the Board shall be taken at the meetings of its members; and to constitute a quorum at a meeting, the Chairman and 5[ any three other members] shall be present.
(3) At the meetings of the Board, each member shall have one vote and, in the event of equality of votes, the Chairman shall have a second or casting vote.
(4) The decisions of the Board shall forthwith be transmitted to the Government.
Functions of the Board 7. The functions of the Board shall be-
(a) to regulate, control and promote the cultivation and export of tea;
(b) to regulate and control the sale of tea;
(c) to fix grading standards of tea and provide for training in tea tasting;
(d) to take measures to improve the quality of tea;

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(e) to collect statistics from growers, manufacturers or dealers of tea or other persons on any matter relating to tea and tea industry;
(f) to organise and assist in special research connected with tea cultivation and tea industry;
(g) to promote co-operative efforts amongst growers;
(h) to undertake, assist or encourage scientific, technological, and economic research and maintain and assist in the maintenance of demonstration farms and manufacturing stations for promotion of tea and other economic crops;
(i) to issue registration of estates; and to grant licences to the owners of estates and to the manufacturers, brokers, tea waste dealers, persons dealing in tea as bidder, importer, wholesaler and retailer and persons engaged in the business of blending tea;
(j) to undertake such business, or to acquire, takeover or manage the business of such concern, as the Government may direct;
(k) to establish new tea gardens, to acquire and rehabilitate derelict tea gardens in accordance with such schemes as may be approved by the Government, and generally to render assistance to the existing tea gardens and to improve their production;
(l) to take measures for proper utilisation of the land available in the tea gardens in excess of the area under tea cultivation;
(m) to undertake welfare measures for tea garden labourers and employees; and
(n) to take such measures as may appear to it to be advisable in the interest of tea industry of Bangladesh and to perform such other functions as the Government may, from time to time, direct.
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Imposition of tea cess 8. There shall be levied and collected from the owners of estates, for the purposes of this Ordinance, a cess on all tea produced in Bangladesh at such rate not exceeding ten poisha for every Taka realised from the sale of tea as the Government may, by notification in the official Gazette, fix.
Application of proceeds of cess 9. (1) The proceeds of the cess after deducting the cost of collection, if any, shall be paid to the Board and shall be applied by the Board for meeting the expenses of measures taken in the performance of its functions, for payment of contributions to any international organisation connected with tea and for contributing towards a contributory provident fund constituted and maintained in such manner as may be prescribed for the benefit of the employees of the Board.
(2) The Board may, subject to any rules made in this behalf, borrow on the security of the cess for any purpose for which it is authorised under sub-section (1).
Grant and loans by Government to the Board 10. The Government may make grants or give loans from the Consolidated Fund to the Board to carry out its functions and may, subject to such conditions as it may impose, authorise the Board to give loans to any person, firm or company at concessional rates for the improvement and expansion of estates or tea factories and to borrow money from banks on the security of the assets of its gardens.
Keeping of accounts and audit and annual reports 11. (1) The Board shall publish annual reports and shall keep regular accounts of all moneys received and expended by it.
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(2) The accounts shall be audited every year by auditors approved in this behalf by the Comptroller and Auditor-General of Bangladesh and such auditors shall have power to disallow any item which has, in their opinion, been expended otherwise than for the purpose of this Ordinance.
(3) A statement of the accounts as audited together with a report on its activities shall be furnished by the Board to the Government as soon as possible after the end of each financial year.
CHAPTER III
POWERS OF THE BOARD
Constitution of Committees 12. (1) The Board may set up such number of Committees as may be considered expedient but not exceeding three for carrying out the purposes of this Ordinance.
(2) A Committee constituted under sub-section (1) shall function for such period and on such terms and conditions as the Board may decide.
Advisory Council 13. (1) The Government shall, in consultation with the Board, set up an Advisory Council consisting of not more than twenty-five members representing the interests of growers, exporters, blenders, brokers, tea dealers in Bangladesh and representatives of the Ministry of Commerce, Finance, Industries, Agriculture (Agriculture Division), Land Administration, Local Government, Rural Development and Co-operatives (Land Administration and Land Reforms Division), Health, Population Control and Labour (Labour and Social Welfare Division) and such other persons as the Government may think fit to appoint for the purpose of advising the Board in respect of matters of national interest concerning the production, trade and development of tea and such other matters as may be referred to it by the Board or the Government.
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(2) The members of the Advisory Council shall be appointed for such period and on such terms and conditions as the Government may determine.
(3) The Chairman, ex-officio, shall be the Chairman of the Advisory Council.
(4) The Advisory Council shall regulate its own procedure and may act notwithstanding the temporary absence of any member or the existence of any vacancy among its members.
Power to sell or transfer tea gardens 14. The Board may, with the previous approval of the Government, sell or transfer its tea gardens after they are established or rehabilitated to any Bangladesh national, firm or company.
Appointment of officials by the Board 15. The Board may appoint, on such terms and conditions as may be prescribed, such officers including a Secretary, advisers and employees for the efficient performance of its functions as may be deemed necessary.
Power to direct owners of estates to plant tea, etc 16. (1) The Board may, by general or special order, direct the owner of an estate to plant or replant tea on such minimum area in that estate every year as may be specified in the order and may, by the said order or by any other order, direct the manner in which tea shall be cultivated or rehabilitated.
Explanation.-An order regarding the cultivation or rehabilitation of tea may include directions as to the age up to which the tea bushes shall be allowed to continue, the manner in which tea shall be planted, or the extent to which the vacancies shall be permitted.
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(2) The Board may also, by general or special order, direct the owner of an estate to plant malakana, layback, rubber, eucalyptus or such other timber of economic value or raise such other crops like black pepper, lemon, citronella, coffee as may be considered expedient in the economic interest of the country in such a minimum area in that estate every year as may be specified in the order.
(3) Any owner of an estate or any director or secretary or other officer of a company, who fails to comply with any such direction issued under sub-section (1) or sub-section (2) shall be liable to pay a fine at the rate of Taka one thousand per acre of land every year in respect of which such default is made till such time as the default is made good.
(4) The amount of fine shall be computed by the Secretary of the Board and on such computation the Secretary shall issue notice to the defaulter to pay the said fine within thirty days of the said demand.
(5) Against the computation of fine an appeal shall lie to the Chairman if presented within thirty days of such demand.
(6) Subject to the decision on appeal, the amount computed by the Secretary shall be final and shall be realised as a public demand or as an arrear of land revenue.
Export allotment 17. (1) The Board may, by notification in the official Gazette, fix the export allotment of tea for each tea year, that is to say, a year commencing on the first day of January and ending on the thirty-first day of December.
(2) The export allotment fixed under sub-section (1) may be exported from out of tea purchased in tea auctions in such manner as the Board may, from time to time, determine.
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Tea auction 18. The Board may direct that all tea intended for export as well as for internal consumption other than those sold ex-gardens shall be sold in auction to be held for this purpose.
Export of tea 19. (1) All tea purchased in the auction other than those for internal consumption shall be exported by or on behalf of the purchasers within a period of four months from the date of the purchase and every such purchaser shall have the right to obtain an export licence required under section 20 for the quantity to be exported.
(2) The Board may, in special circumstances, permit a purchaser to export in lieu of tea purchased in auctions an equivalent quantity of tea purchased otherwise than in such auctions.
Control of export of tea and tea seeds 20. (1) No tea shall be exported except under a licence issued by or on behalf of the Board in such form and in accordance with such conditions as may be prescribed.
(2) No tea seed shall be exported except under a permit issued by or on behalf of the Board.
(3) The breach of the provisions of this section shall be punishable as if it were an offence under item No. 8 of section 156 of the Customs Act, 1969 (IV of 1969), and the provisions of section 157 and Chapter XVIII of that Act shall apply accordingly.
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Registration of contracts 21. The Board may, by general or special order, require any contracts or class of contracts for sale of tea for export to be registered with such organisation and in such manner as may be specified in the order.
Power to prohibit transport, storage or sale 22. The Board may, by general or special order, direct any person or class of persons not to transport, store, buy, sell or otherwise dispose of any tea or tea of a specified description except in such manner and under such conditions as may be specified.
Limitation of application of certain provisions of this chapter 23. Nothing in sections 17 to 22 of this Chapter shall apply to tea,-
(a) proved to the satisfaction of the Collector to have been imported into Bangladesh from any place outside Bangladesh,
(b) shipped as stores on board any vessels, in such quantity as the Collector considers reasonable having regard to the number of the crew and passengers, and the length of the voyage on which the vessel is about to depart, or
(c) exported as samples by post or as air freight in packages not exceeding twenty pounds avoirdupois in weight.
Prohibition to manufacture of tea except in a registered factory 24. No person shall manufacture tea except in a registered tea factory and no person shall possess, store, buy, sell, or agree to buy, or offer for sale, any tea except tea manufactured in such factory.
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CHAPTER IV
MISCELLANEOUS
Power to call for information, etc 25. (1) The Board may, for the purposes of this Ordinance, at any time, by notified order, direct such person or class of persons as may be specified in the order to maintain such accounts and furnish such returns or other information relating to their business of cultivation, production, manufacture, sale or purchase of tea to the Board or to such officer subordinate to the Board within such period, and giving such particulars, as may be specified.
(2) Any person authorised in this behalf by the Board or any member authorised by the Chairman in writing or any officer of the Board, may, at all reasonable times, enter any estate or any place or premises where tea or tea waste is manufactured, stored, kept or exposed for sale and may require the production for his inspection of any book, register, record or other paper kept therein and ask for any information relating to the cultivation, production, manufacture, storage or keeping for sale of tea or tea waste.
(3) Any person who obstructs or interferes in the due discharge of duties of such person, member or officer or who fails to produce documents or other materials on demand shall be punishable with imprisonment for a term which may extend to three years or with fine or with both.
Power to exempt 26. The Government or the Chairman may, by order, exempt any person or class of persons from the operation of all or any of the provisions of this Ordinance to such extent and subject to such conditions as may be specified in the Order.
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Penalties 27. (1) Any person who contravenes or fails to comply with any provisions of this Ordinance, except section 16 and section 20, or of any order or direction issued under this Ordinance shall be punished with imprisonment for a term which may extend to three years or with fine or with both.
(2) Where any person as aforesaid is a company or a body corporate, every director, manager, secretary, or other officer, and every agent and servant thereof, and in the case of an unlimited company or a company limited by guarantee, also any of its members, shall subject to the provisions of sub-section (3), be punishable as if he had contravened the provisions of this Ordinance.
(3) No such director, manager, secretary or other officer and no such agent, servant or member as is referred to in sub-section (2) shall be prosecuted under this Ordinance unless he has been given an opportunity by the Board to show cause, within such time as the Board may specify why he should not be prosecuted, and if it is made to appear to the satisfaction of the Board at any time before the institution of the prosecution that he has used all due diligence to enforce the observance of the provisions of this Ordinance and the orders and directions issued thereunder or that the offence has been committed without his knowledge or against his consent, the Board shall forbear further proceedings against him :
Provided that nothing in this sub-section shall prevent the Board from proceeding against him further if on discovery of new facts it sees reason to do so.
False statement 28. If any person,-
(a) when required by any order made under this Ordinance to make any statement or furnish any information, makes any statement or furnishes any information which is false in any material particular and which he knows or has reasonable cause to believe to be false or does not believe to be true, or
(b) makes any such statement as aforesaid in any book, account, record, declaration, return or other document which he is required by any such order to maintain or furnish, or
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(c) maintains double sets of books, accounts or any other records, in which the entries are not identical, he shall be punishable with imprisonment for a term which may extend to three years or with fine or with both.
Protection of action taken in good faith 29. No suit, prosecution or legal proceedings shall lie against the Board or any member thereof or any person acting on its behalf in respect of anything done in good faith under this Ordinance or any rules made thereunder.
Cognizance of offences 30. No Court shall take cognizance of any offence punishable under this Ordinance except on a report in writing of the facts constituting such offence made by the Board or a person authorised by the Board.
Special provision regarding fines 31. Notwithstanding anything contained in section 32 of the Code of Criminal Procedure, 1898 (Act V of 1898), it shall be lawful for any Magistrate of the first class specially empowered by the Government in this behalf to pass a sentence of fine exceeding one thousand Taka on any person convicted under this Ordinance.
Presumption as to orders 32. Where an order purports to have been made and signed by an authority in exercise of any power conferred by or under this Ordinance, a court shall, within the meaning of the Evidence Act, 1872 (I of 1872), presume that such order was so made by that authority.
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Power to make rules 33. The Government may, by notification in the official Gazette, make rules for carrying out the purposes of this Ordinance.
Power to make bye-laws 34. The Board may, with the previous approval of the Government, make bye-laws not inconsistent with this Ordinance and the rules made thereunder.
Repeal and savings 35. (1) Upon the establishment of the Bangladesh Tea Board under section 3, the Tea Ordinance, 1959 (Ord. XLVI of 1959), hereinafter referred to as the said Ordinance, shall stand repealed.
(2) Upon the repeal under sub-section (1),-
(a) the Bangladesh Tea Board constituted under the said Ordinance, hereinafter referred to as the dissolved Board, shall stand dissolved;
(b) all assets, rights, powers, authorities and privileges, and all properties, movable and immovable, cash and bank balances, funds of the dissolved Board and all other interests and rights in, or arising out of, such property, shall stand transferred to, and vested in, the Board;
(c) all debts, liabilities and obligations of whatever kind of the dissolved Board subsisting immediately before its dissolution shall, unless the Government otherwise directs, be the debts, liabilities and obligations of the Board;
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(d) all suits and other legal proceedings instituted by or against the dissolved Board before its dissolution shall be deemed to have been instituted by or against the Board;
(e) services of all officers, advisers and employees of the dissolved Board shall, notwithstanding anything contained in any contract or agreement or in the terms and conditions of service, stand transferred to the Board and they shall be deemed to be officers, advisers and employees of the Board appointed by it on the same terms and conditions of service as were applicable to them in the dissolved Board unless such terms and conditions are altered, not being to their disadvantage, by the Board.
1. Sub-section (1) was substituted by section 2 of the Tea (Amendment) Ordinance, 1986 (Ordinance No. XV of 1986) 2. The words a whole-time officer and the chief executive were substituted for the words the chief executive by section 2 of the Tea (Amendment) Ordinance, 1986 (Ordinance No. XV of 1986) 3. The words An appointed member were substituted for the words The members of the Board by section 2 of the Tea (Amendment) Ordinance, 1986 (Ordinance No. XV of 1986) 4. The words An appointed member were substituted for the words Any member by section 2 of the Tea (Amendment) Ordinance, 1986 (Ordinance No. XV of 1986) 5. The words any three other members were substituted for the words any other member by section 3 of the Tea (Amendment) Ordinance, 1986 (Ordinance No. XV of 1986)
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Critical Analysis of Tea Industry in Bangladesh from Managerial Economic Perspective

Institute of Business Administration University of Dhaka June 03, 2012

4.3.1 4.3.2 4.4

4.4.1 4.4.2 4.5 5.

Data Interpretation ..................................................................................................................... 18 Analysis ............................................................................................................................. 19

Demand 5.1 5.2 5.3 5.4 5.5 5.6 5.7

Supply curve ................................................................................................................................ 27 Shift in Supply Curve ................................................................................................................... 28

8.5.1 8.5.2 8.5.3 8.5.4 8.5.5 8.5.6 8.6 8.7

8.7.1 8.7.2 8.8 8.9

Exit Barriers: ................................................................................................................................ 41 The Bargaining Power of Buyers ................................................................................................. 42 Page | 6

Purchase Volume of Buyers: ............................................................................................... 42

8.10.1 8.10.2 8.11

8.11.1 8.11.2 8.11.3 8.11.4 8.11.5 9.

10. 11. 12. 12.1 12.2 12.3 13. 14.

Conclusion ....................................................................................................................................... 60 References60

2.2 Specific Objectives

Elasticity Porters 5 forces model Game Theory

Demand forecast Demand and supply trend analysis

Tea consumption in Bangladesh

104 117 99 134 130 134 79 175

Figure1: Major Tea Consuming Countries in the World [Source: http://www.teaboard.gov.bd]

The Annual Demand Trend of Tea in Bangladesh

Table1: Annual Demand of Tea in Bangladesh (in m. Kg)

Figure 2: Demand Trend of Tea in Bangladesh

Factors affecting the Demand of Tea

Development of Demand Function

36.95 41.5 37.44 43.32 43.3 40.51 46.27 52.12 53.74

38.79 37.69 39.97 38.45 41.37 42.53 41.32 44.29 48.99

-4.98% 9.19% -6.77% 11.23% 4.45% -4.98% 10.70% 15.02% 8.84%

Table 3: Demand and Average Price of Tea

Shift in Demand Curve

Quantity Demanded Figure 4: Shift in Demand Curve of Tea

Factors Affecting Supply

Table 4:Yearly Supply of Tea in Bangladesh

60 50 Annual 40 Supply (in m.Kg.) 30 20 10

Figure 5: Supply Trend of Tea

Table 5: Average Price and Supply of Tea

Figure 6: Supply Curve of Tea

Shift in Supply Curve

The price elasticity of demand

The price elasticity of supply

Key Stakeholders in the Market

163 tea estates are managed by five different categories of managements

Grant Area (ha.)

Tea Area (ha.) 20,247.04 1,435.07 5,599.80 17,107.08 9,430.33

Yield (Kg./ha.) 1,310 1,138 790 1,041 856 1,086 699

39,386.02(34%) 2,559.39(2%) 11,279.95(10%) 40,652.05(35%) 21,656.00(19%)

26,520,787(45%) 1,632,764(3% ) 4,424,755(8%) 17,804,393(30%) 8,074,997(13%) 58,457,696 200,827

115,553.41(100%) 53,819.32 286.92 286.92

8.4 Porters Five Forces Model in the context of TeaIndustry in Bangladesh

Fig: Porters Five Forces Model

Unavailability of Skilled Workers:

Fig: Impact of Factors Associated with Barriers to Entry

Rivalry among Established Companies

Fig: Ownership-wise Land and Yield

Fig:Impact of Factors Associated with competition amongEstablished Companies

The Bargaining Power of Buyers

Fig:Volume of Purchase through auctions (2007-08)

8.10 The Bargaining Power of Suppliers

8.10.2 Differentiated Product and Switching Cost:

8.11 Threat of Substitute Product

8.11.5 Frequency of Consumption:

9. Government Policies for Tea Industry