Commentary 1

Title of the article: Why Darjeeling tea may face extinction

Source of the article: The Economist

Date the article was published: Dec 6th 2022

Date the commentary was written: Dec 19th 2024

Word count of the commentary:

Unit of the syllabus to which the article relates: Microeconomics

Key concept being used: Scarcity

 Article
The Economist explains

Why Darjeeling tea may face extinction

Knockoff teas from Nepal are stealing global demand and
climate change is shrinking supply

Dec 6th 2022

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On december 7th tea estates in Darjeeling, a hill station in West Bengal straddling India’s border
with Nepal, will carry out the final full-moon harvest of the year. Illuminated by fire-lit torches
and moonlight, pickers will collect leaves and buds for a special white tea. They believe that the
planetary alignment during a full moon ensures a perfect harvest. Darjeeling, known as “the
champagne of teas” and beloved of the late Queen Elizabeth II, encompasses black, green and
white teas, all picked from the same bushes. Black teas are most common. The fine white tea
picked by moonlight can fetch up to $2,000 per kg from connoisseurs in Europe and East Asia.

The estates were created in the 19th century by the British Raj, which was desperate to reduce its
dependence on Chinese tea. They were sold to Indian families after independence. Now tea
growers in the region worry that trouble is brewing. Almost half of Darjeeling’s tea gardens face
bankruptcy, and the rest are haemorrhaging cash. The Tea Board of India, a regulatory body,
requested a $120m rescue package for the industry from the government in November,
highlighting the acute crisis facing Darjeeling tea. “We don’t know if our estate will survive
another three to five years,” says Sparsh Agarwal, the owner of the Selim Hill Tea Garden. How
have things got so bad?

Growers face two big problems. First, cheaper teas from Nepal have lured away customers. The
state of West Bengal enforces stricter worker protections and minimum wages for tea pickers
than Nepal does. As a result, production costs are considerably higher. Since 2017, when
region-wide strikes in Darjeeling caused tea production to plummet briefly, inferior tea from
Nepal has been illegally sold as Darjeeling at rock-bottom prices, according to an Indian
parliamentary report. Some is smuggled into India and relabelled or mixed with genuine
Darjeeling; yet more is exported directly from Nepal, but labelled as an Indian product. Around
20m kg of Darjeeling-labelled tea is sold each year; genuine Darjeeling estates produce less than
half that much.

Darjeeling tea is supposed to be protected by a geographic indication tag: it must be grown in the
Darjeeling and Kalimpong districts of West Bengal at an elevation of between 600 and 2000
metres. Only 87 of India’s tea gardens (which number more than 10,000) are licensed to produce
the stuff. The Indian government wants to step up checks at the porous Nepalese border to ensure
that Darjeeling-labelled packages actually contain pure Darjeeling tea. But geopolitics
complicates enforcement. Officials in New Delhi, India’s capital, do not want to violate a
free-trade agreement with Nepal, says an official from the Tea Board of India. That deal protects
the flow of Nepalese teas into India. It also helps India keep Nepal under its influence, amid
intense strategic competition with China.

The second problem is that climate change is shrinking yields from tea harvests. Over the past
two decades the annual harvest season has shortened by about a month, which means fewer
leaves to pluck and sell. In Kurseong, a district in Darjeeling, average temperatures have risen by
0.5°C and rainfall has dropped by 152cm in the same period, according to a study by the
Darjeeling Tea Research & Development Centre. Freak weather events, including summer-time
hailstorms and monsoon-season dry spells, have made yields still more unpredictable. The
chances of crop-killing pest infestations also goes up with rising temperatures. The average yield
per hectare in Darjeeling is about 350kg today, compared with 542kg in 2000, according to the
Indian Tea Association, an industry group.

Tea growers are desperate for a lifeline. Mr Agrawal worries that the government isn’t interested
in saving the industry. “They would rather let real-estate and hospitality investors convert our
estates,” he laments. The loss of Darjeeling tea would end a way of life for 55,000 growers and
pickers. Tea enthusiasts may want to stock up. ■

This article appeared in the The Economist explains section of the print edition under the
headline "Why Darjeeling tea may face extinction"
 Commentary

Darjeeling tea is an expensive and hard to grow type of tea in India, Nepal and West-Bengal. The
Tea Board of India requested a 120 million dollar rescue package (which is a form of subsidy)
from the government to prevent short run market decline and scarcity due to climate change and
to combat the black markets that have been forming in Nepal interfering with Darjeeling’s tea
sales. The economic aim is to reduce Scarcity currently affecting Darjeeling tea because of
harsher weather conditions making it harder to grow the tea leaves consistently and therefore
having to expend at a higher price selling point leading to a lower amount of sales and total
revenue.
Darjeeling tea is a premium quality tea often referred to as the “champagne” of tea leading to
high expenditure. The tea company used to sell Q1 amounts of tea at a P1 price when climate
change was not yet affecting the weather in Darjeeling. Due to the recent changes, Darjeeling
started only producing Q2 amount of tea at a P2 price selling point. Normally, this is fine in a
free market however, black markets have since formed selling tea at a lower price under a
different name making D lower in a market that is already failing.

The government has been tasked with implying a US$120m rescue package to allow for lower
prices and to regain the original demand in the short run and to build better production facilities
in the long run.

This diagram shows the effect the subsidy would have on the Darjeeling tea. The supply curve
will shift to the right from S1 to S1 - Subsidy = S2 and Q1 will shift to the right due to a lower
cost of production making the consumer surplus increasing allowing for a greater amount of
expenditure. P1 will also shift to the right because of the cost of production being lowered
meaning there is less amount of capital required to break even.

From a consumer’s perspective, this change is beneficial because the consumer surplus is
increasing which is positive as more consumers are willing and able to expend. From a
producer’s perspective, this is also beneficial because Darjeeling tea is an elastic luxury good
with substitutes and black markets so anytime its price changes, the demand curve shifts a lot.
From a government's perspective, tea in India is part of its culture and losing this market could
be detrimental. The article also states that India plans on keeping Nepal under its influence and
so letting them take over the tea market is a sign of weakness. Although the government loses on
capital due to supplying the subsidy, it makes up for it by removing illegal activities and keeping
its market afloat.

To evaluate this decision, overall it is a good intervention as producers were mixing in poor
quality tea with the premium version in order to stay at a normal production level. An important
detail to note is that climate change is increasing by the day and no amount of capital can solve it
nor protect from all of its consequences. Another point is that with the funds, it will take time to
implement more land, more labour and better quality technology therefore the production might
take too long before the market for Darjeeling tea internationally shuts down.

Furthermore, another limitation will be that if the subsidy is too effective, it will cause Darjeeling
tea to have a monopoly on the market which is unhealthy as other brands would have no more
revenue, killing the competition and making Darjeeling have reign over prices. It would also
cause the brand to receive a worse image if the tea is sold at a lower price than ever before
making it potentially less of a luxury good. Lastly, the subsidy could also cause overproduction
leading to even more scarcity as demand might become too high with the sudden price changes
due to the subsidy.

However, if the subsidy does prove beneficial towards India, the government might be more
prominent in giving subsidies to more natural and environmental markets making India more
allocatively efficient with its huge land and raw materials improving scarcity as if all the
resources are handled properly, India can become a leader in many markets.