Abstract

Tata Tea Limited (TTL), is the second

largest tea company in India. It has a
significant presence in over 35
countries. Branded teas contribute
88% of the consolidated turnover of
the group, with the remaining 12%
coming from bulk tea, spices and
investment activities. In 2000, TTL
had acquired Tetley a major UK tea
manufacturer. Analysts had expressed
doubts as to whether the deal would
create value.

Three years after the takeover, things seem to be improving. But there are still
concerns as to whether TTL can service the huge debt burden resulting from the
deal and whether the synergies projected before the merger can be realised. The
case deals with all these aspects along with a detailed picture of how the acquisition
actually took place and how the integration is being managed.

Introduction

Tata, a strong player at home, became a global competitor with this acquisition.
It was dubbed the acquisition of a global shark by an Indian minnow. Literally, it was. Tata
Tea, a mere $114 million company that sold commodity tea, acquired the global brand Tetley
for $450 million, three times its size. In many ways, the audacious acquisition of the Summer
of 2000 has defined the growth of Tatas and of India Inc.
Indeed the Tetley acquisition was almost the clarion call. Almost prophetically, Tata Sons
chairman Ratan Tata said, "It is a bold move and I hope that other Indian corporates will
follow". India Inc did follow. The biggest hunter, Tata Sons, has since acquired over 36
global corporations, investing nearly $30 billion and Indian companies have marched with
the beat, acquiring since then over 400 companies across domains from steel to textiles, from
aircraft to toolkits, unleashing the Indian entrepreneurial spirit backed by the world's largest
free market democracy. The rush had rationale and gutsy articulation.
Videocon chairman Venugopal Dhoot, who acquired the world's largest picture tube
company, Thomson, explained, "We may not be a borderless world yet, but costs and
competition have no borders". Embedded in that remark was the recognition of the fact that
Indian companies would be able to retain market shares at home only if they took the battle to
global marts. Anand Mahindra, deputy chairman and managing director of Mahindra, put it
simply, "You are not safe at home unless you are globally competitive". The move not only
brought access to technology, managerial systems and market share, but also kindled the
interest of global financial players in India. And the benefits are all there to see. All the Tata
companies together earned just around $9 billion in 2000 when Tata Sons acquired Tetley.
Today, Tata Sons' net revenue is in excess of $71 billion, of which two-thirds is from
overseas operations. Globalisation is best reflected in the national accounts. India's GDP
rocketed from $467 billion in 2000 to $1.3 trillion in 2009, taking the per capita income to
over $1,000. Once Indian companies had tasted blood, there was no stopping them. Even as
the world shivered postmeltdown, Indian companies were the first to go hunting. Indian IT
companies have invested $1.8 billion in 47 deals.
Sunil Mittal placed $24 billion on the table to create a telecom behemoth by buying South
African MTN, Mukesh Ambani's Reliance Industries Limited was out punting nearly $10
billion for Dutch petrochemical company LyondellBasell and Mahindras are scouting for an
aerospace company. As the architect of the first big acquisition Krishna Kumar of Tata Sons
puts it, "If you want to be a strong player, you can't not be a global player". India Inc and
Economy India have both learnt that.

6
1.
INTRODUCTION
Earlier, after a pitched battle among the MNC's in the domestic arena, not many Indiantea
manufacturing companies thought of going global. Devour competitors and
destroycompetition - the mantra that the global conglomerates had been chanting so far, had
notgone well with the Indian counterparts.But fortunately, that doesn’t remain the prerogative
anymore. The war-averse domesticcompanies are shedding their inhibitions. The roles have
undoubtly changed. And, afterfighting in out in the global commodities arena, it is time now
for a global teacup.Taking a plunge in the global tea war in the year 2000 was India’s
corporate tea giantTata Tea. Though it was not an easy decision to make, that to when the
competitor wasno less than a stature of Unilever, a global food and beverage behemoth, but
the Tata Teahad little choice - shape up or be swapped. It chose the former. And, what else
could have been a better vehicle than Tetley for Tata tea to take on the might of global tea
giants likeLever and Hillsdown.The expansion took place through the acquisition of another
tea giant from the UK-Tetley. Tata tea finally tasted victory on March 10, 2000 when it
bought Tetley for astaggering INR 2,135 crore (305 million sterling). Such a deal had never
been heard orseen before in the Indian Corporate world. What makes this deal special is the
fact that it

7is the first ever LBO (Leveraged Buy Out) by any Indian company. In fact, this
alsohappened to be the largest ever cross-border acquisition by an Indian company.

AN OVERVIEW OF TATA TEA LIMITED

TATA Tea was set up in 1964 as a joint venture with a UK based James Finlay andCompany
to develop value added tea. From a mere share of 3% in the mid 70's to becomeIndia's second
largest tea producer, Tata tea has come a long way. (www.tatatea.com)The operations of Tata
tea and its subsidiaries focus on branded product offerings in tea but with a significant
presence in plantation activity in India and Sri Lanka. The Tata tea brand leads market share
in terms of value and volume in India and has been accorded the‘super brand' recognition in
the country.Tata tea also has 100% export oriented unit manufacturing instant tea in the state
ofKerela, which is the largest such facility outside the United States.
 42
6. CASE STUDY
6.1. AN OVERVIEW OF TATA TEA LIMITED
TATA Tea was set up in 1964 as a joint venture with a UK based James Finlay andCompany
to develop value added tea. From a mere share of 3% in the mid 70's to becomeIndia's second
largest tea producer, Tata tea has come a long way. (www.tatatea.com)The operations of Tata
tea and its subsidiaries focus on branded product offerings in tea but with a significant
presence in plantation activity in India and Sri Lanka. The Tata tea brand leads market share
in terms of value and volume in India and has been accorded the‘super brand' recognition in
the country.Tata tea also has 100% export oriented unit manufacturing instant tea in the state
ofKerela, which is the largest such facility outside the United States.

6.2. AN OVERVIEW OF TETLEY

In 1837, two brothers, Edwards and Joseph Tetley started to sell tea and became sofamous
that they set up as tea merchants. In 1856, in partnership with Joseph Ackland,they set up
“Joseph Tetley and Co., wholesale tea dealers”.Tea was rationed during World War II, it was
not until 1953, just after rationing finished,that Tetley launched the tea bag to the UK and it
was an immediate success. The rest, as

they say, is history. The tea bag had captured the public’s imagination and desire
forconvenience. Within 10 years it revolutionized how Britons drank their tea and the
oldfashioned tea pot had given way to making tea in a cup using a tea bag.1974 Tetley Tea
Company was bought by J Lyons who merged it with the Lyons tea business to form Lyons
Tetley. 1978 Allied Breweries acquired J Lyons’ Businesses thenas Allied Domecq sold them
in the 1990s. The Tetley Group was created in July 1995,when a group of investors bought
what was then the world-wide beverage business fromAllied Domecq. On 10th March 2000,
The Tetley Group was sold to Tata Tea Limited,one of the world’s largest integrated tea
businesses.

6.3. THE HISTORY OF TATA TEA’S MERGER AND ACQUISITION DEALS

Taking a plunge in the global tea war in the year 2000 was India’s corporate tea
giant Tata Tea. Though it was not an easy decision to make, that to when the
competitor was no less than a stature of Unilever, a global food and beverage
behemoth, but the Tata Tea had little choice - shape up or be swapped. It chose the
former. And, what else could have been a better vehicle than Tetley for Tata tea to
take on the might of global tea giants like Lever and Hillsdown

. But that has not come to it easily. After a long drawn out battle first with Schroder
Ventures, followed by a bitter retreat in 1995, and then with Sara Lee, Tata tea finally
tasted victory on March 10, 2000 when it bought Tetley for a staggering INR2,135
crore ( 305 million sterling). Such a deal had never been heard or seen before in the
Indian Corporate world. What makes this deal special is the fact that it is the first
ever LBO (Leveraged Buy Out) by any Indian company. In fact, this also happened
to be the largest ever cross-border acquisition by an Indian company.

But more than the temptation was the urgency to perform, which caused a storm in
Tata Tea's cup. Glaring in the face were , and still are , the factors such as fall in
exports to Russia, growing competition in the domestic market, and above all the
emergence of competitors from Sri Lanka and Kenya, which the tea major could
have afforded to overlook at the cost of its own peril. Surely the deal could have not
come at a better time than this

The buy-out which Tata tea masterminded, would pitchfork it to a position where it
can rub shoulders with global behemoths like Unilever and Lawrie. The deal gives
Tata Tea an instant access to Tetley’s worldwide operations, including new territories
and product categories for both Tat Tea and Tetley.The combined turnover of Tata
Tea was estimated to be worth INR2800-2900 crore and would put it at the second
position in the global arena.

BLENDING WITH PERFECTION

With a reserve of just over around INR400 crore in the year 1999-2000, it could not
have been possible for Tat Tea to go for such a gigantic acquisition on its own. Or,
even bringing such a colossal debt upon its own books could have meant putting
enormous pressure on the bottom line. So it went for Leveraged Buyout. The deal
was structured in such a way that although Tata tea retains full control over the
venture, the debt portion of the deal does not affect its balance sheet. The deal was
tied up through a leveraged buyout based on Tetley’s assets so that Tata Tea's
gearing is not impaired as a result of it. Tata Tea created a Special Purpose
Vehicle(SPV) - christened as Tata Tea(Great Britain) - to acquire all the properties of
Tetley. The idea of the SPV essentially was to ensure that Tata Tea's balance sheet
does not suffer additional funding costs, while at the same time, allowing it to benefit
from the acquisition of the international brand. The SPV had then capitalized at 70
million pounds out of which Tata Tea had contributed 60 million pounds, which
included 45 million pounds raised through its GDR issue. The US subsidiary of the
company, Tata Tea Inc., had contributed the balance 10 million pounds. The SPV
had leveraged the 70mn pounds equity 3.36 times to raise a debt o 235mn pounds
to finance the deal
The entire debt amount of 235 mn pounds comprised of 4 tranches whose tenor
varied from 7 to 9.5 years, with a coupon of around 11%, 424 basis points over the
LIBOR. Of that, the Netherland-based Rabobank had provided 215 mn pounds while
venture capital funds Mezzanine and Schroders each contributed 10mn pounds. The
debt was divided into four tranches, namely - A, B, C and D. While A, B, C were
senior term loans, tranch D was a revolving loan that takes the form of recurring
advances and letters of credit. Of the four tranches , the money from tranches A and
B was meant for funding the acquisition, while tranches C and D were meant for
capital expenditure and working capital requirements respectively.

Tranch A was a 110 million pounds loan scheduled to retire in 2007 this year through
semi-annual installments. Tranch B was a 25 mn pounds loan which is also maturing
this year in 2007 and would be paid back in two equal installments at the end of 7.5
years and 8 years respectively. Tranch C was a 10 million pound loan, maturing in
2008 and would also be paid in two equal installments at the end of 7.5 and 8 years
respectively. Tranch D was a 20 million pound loan which was made available
through advances, letters of credit, overdrafts and is due to retire also this year.
The debt was raised against Tetley's brands and physical assets. The valuation of
the deal was done on the basis of future cash flows that the brand was expected to
generate in the foreign market as well as the synergy and benefits that Tata Tea was
expected to receive. Though the actual cost of the Tetley takeover comes through
271million pounds, Tata tea spent 9 million pounds on legal, banking and advisory
services and another 25 million pounds for Tetley's working capital requirements
and additional funding plans , thereby swelling the total acquisition cost to 305 million
pounds. Since entire securitization was based on Tetley's operations, Tata Tea's
exposure was limited to the equity component only that was 70 million pounds only.

6.5. THE CHALLENGES

The challenges before the Indian tea companies were manifold in the last decade.
And it is not an exaggeration to say that their honeymoon with Russia was over then;
the vigor seemed to be out of the cup for most of them. Rising competition from
African nations such as Kenya and Malawi, where production of tea is new and
expanding, posed potential threats to tea exporters from India. Progressive
dismantling of quantitative restrictions had put the margins further under pressure.
Adding to the woes was the fact that the Indian tea exports to Russia had been
continuously declining. In fact the exports to Russia fell drastically over the last
decade
In 1999, the exports were around 87million Kg, which was almost half of 160 million
Kg exported in 1989. The overall export also fell substantially. During the last fiscal
itself, the exports saw much volatility. The total exports fell of tea fell from 27,839 ton
recorded in August 1999 to 9,766 ton in February 2000. The litany of woes of the tea
players also stems from the fact that the traditional user markets like the UK and
Ireland where Tea consumption, historically, had been very high, however , actually
has been showing a decline in the tea consumption. As per the rough estimate, The
UK and the Ireland accounted for one-third of the world’s tea consumption in 1955.
However their share in tea consumption currently is around 5% only. Though , the
popularity of tea has been growing rapidly in developing countries like China, India ,
Pakistan and the Middle-Eastern countries, the worrying factor is that the traditional
savior of Indian Tea companies, Russia, is no more an assured market for it

. The Tea consumption which grew rapidly in the erstwhile USSR in the eighties has
actually declined after its disintegration. In developed countries such as USA,
Canada and Japan also the consumption is quiet stagnant. In recent years, the tea
prices have falling worldwide because of an oversupply in production. While world
market prices in real terms have declined the cost of production, on the other hand,
has increased steadily thereby putting pressure on the producer’s margins.
Moreover, big buyers like Russia, Iran and Iraq have become inactive due to political
reasons. Above all, the fact that Sri Lanka is selling tea to Russia at far lower prices
than India, has also been causing major concerns
. It has to be mentioned that tea prices show a great variation due to enormous
diversity of quality and unlike coffee, there is no single world market for tea, and
prices are subject to strong fluctuations. Though, given India's major share in the
world tea production (around 30% of world tea production in 1995), it might be
expected that this would give the country a key position in establishing tea prices,
but this is not the case. And, although the quality and quantity of the Indian tea crop
has some effect on tea prices, the impact is limited. The fact is that what is of far
importance is the economic relationships and the power of transitional companies.
And these apart, the premium that Indian tea commanded in the past has also been
gradually eroded through the quality of improved African teas. Which means, to ward
of the challenge from African countries like Kenya and Malawi, marketing campaigns
have to be built up quiet aggressively and that could be easier said than done. All
these, no doubt, have caused much storm in the teacup of domestic tea majors
including biggies like Tata Tea and HLL
6.6. FLAVOUR OF SYNERGIES
In the backdrop of the difficult domestic scenario and dwindling exports to Russia is
was not difficult to conclude what prompted Tata Tea to go for an acquisition, that
too at such a mammoth scale. As far as the scale of acquisition is concerned it could
be said that nothing less than this kind of acquisition could have been meaningful for
the company. That is because the domestic market comparatively growing at a
better rate than the other developed markets, 3% versus 1%, and rival HLL having
benefits of access of access to parent Unilever's latest technology in product
innovation, development and packaging, it could have been a difficult task for Tata
Tea to go on its own to develop such technologies and to face the competition. With
the threats of imports from rival companies looming large, its woes could have
aggravated even further.

The major driving force behind Tata Tea- Tetley deal was the fact that Tetley fitted
perfectly into Tata Tea's globalization drive and could be a perfect launch vehicle to
achieve greater synergies in the global arena. This seems understandable because
of the three major factors:
•

The acquisition brought with it a greater market penetration.

•
This helped Tata Tea's operating efficiency, as Tetley's operating margins were
superior in comparison to Tata Tea, 20% vs 14% in 1999-2000.
•

The acquisition would have resulted in instant expansion of product lines of Tata
Tea- Tetley combine. The synergies that would have accrued to the combine entity
as a result of the deal were supposed to be quiet significant. On the one hand, while
Tata Tea was supposed to get access to Tetley's strong brands and its worldwide
distribution network and about INR1900 crore of sales, on the other hand, Tetley
was supposed to benefit from Tata Tea's competencies in managing plantations and
processing units. Tata Tea though didn’t have expertise in blending and branding. It
was here that the acquisition was coming handy to Tata Tea, as Tetley had proven
expertise in the area of product innovation and in sourcing tea from auction houses
and which also was a major blending and packaging company and owns a host of
well-known international brands which the latter can leverage

. Tea is usually exported at a relatively early stage in the production chain and
blending and packing, the most lucrative part of the tea trade, is mostly done by the
tea companies in the buyer country. The large profits therefore don’t accrue to the
tea producing countries. The big money is made abroad. In Europe, 30% to 50% of
the consumer price of tea goes to blending, packaging, materials and promotion. It
was there that the acquisition would help Tata Tea to take advantage of the existing
scenario by virtue of Tetley’s proven skills an blending and branding, not to mention
exotic packaging, which too fetches higher premiums. Also, many producers try to
sell processed tea bags or repacked consumer units, but the export of ready-for-use
tea is often hampered by poor market information and the absence of funds for
expensive marketing strategies. It could be rightly said then that the deal was
supposed to bring together the two companies, one of which was the largest
integrated tea company (Tata Tea) in the world, while the other world's largest brand
(Tetley). Together they make a world-class
52integrated outfit. But the rival Unilever was not far behind either. In fact, it became
even more aggressive after the Tata Tea- Tetley deal came through. The Unilever
through its Indian outfit HLL acquired Rossell Industry's tea gardens, and stepped up
efforts to vertically integrate its operation by acquiring some more tea garden in India
and African nations like Kenya, Uganda and Mozambique. The deal was supposed
to facilitate downstream segment also. Tata Tea has over 60 tea gardens in India
and Sri Lanka, besides its own blending and packaging units. Tetley on the other
hand, buys tea from the major auction markets of the world and processes them to
be sold under its own brands like Earl Grey , English Breakfast and Traditional
Afternoon - in the US, Canada UK and Australia. Both the companies were
supposed to streamline their downstream operations quite efficiently thereby cutting
the costs. Tetley plans to give special thrust to the US market, which has been fast
emerging as a growing tea market, with consumers shifting from coffee to tea due to
health reasons. This is turn was thought to help Tata Tea to push greater volumes in
the instant tea segment, where it had so far struggled to get a strong foothold. In the
domestic market, on the branding and packaging front, there has been a major
strategic shift towards brand consolidation. In fact, with increase in the value added
segments over the years, the share of this segment has risen quite significantly. The
value additions, through changes in the product forms, branding, consumer
awareness and delivery systems, which has been part of the winning tool in the
international markets was bound to be replicated in the Indian markets too. And it
was there that the Tata Tea - Tetley combine's wider product portfolio downstream
would compliment the upstream synergies. As while, Tata Tea catered primarily to
the lower end of the market segment, Tetley had presence in the premium segment.
Apart from that, adding to Tata Tea's brand strengths in developing packaged tea
was Tetley's well-entrenched presence across a wider range of categories such as
decaffeinated, herbal, lemon tea, and tea bags, etc. As far as other major benefits
from the deal were concerned, the domestic company can benefit from the
standardized management practices including quality performance norms and
consumer focus of Tetley, the world leader in tea bags. This was supposed to be
more so when new products are envisaged for the Indian markets. On the other
hand, Tata Tea's strong R&D base and expertise in tea cultivation and
manufacturing was immensely helpful to Tetley. Post-acquisition, the decision was
that the two organizations work under a unified global strategy. The combine
strengths were thought to be helpful to create opportunities to expand sales in both
the existing and new markets and realize synergies. Apart from that, the two
companies’ breadth of experience and vertical integration was equipping them to
compete anywhere in the world and that assumed importance in the context of WTO,
which would terminate tea import curbs under its predetermined timeframe
. The joint buying power and commercially relevant use of tea produced by Tata Tea
was also supposed to facilitate cost control. Also among the other immediate
priorities was the strategy to increase tea bag sales in East Europe and to improve
upon the currently token presence of Tetley in the packet tea segment. On the
product size, Tetley proposed to promote the draw size string bags in a bigger way,
because of the higher margins and planned to replace all the round tea bags
cartons with an innovative soft-pack format then. Another area that Tata Tea was
eyeing was the private label tea business in the UK. Tetley which holds sway over
the market, with 6 out of every 10 retailers sourcing tea from it to sell under their own
brand names, was a perfect launch vehicle to push greater volumes into that highly
lucrative segment, more so when its exports to the Russian markets had been had
been on a continuous decline. The key reason why the private label was lucrative
was that there were no marketing costs attached to it. That meant, by sourcing tea
directly from its 26,000, hectares of gardens, or from the auction markets, Tata Tea
would be able to boost its margins. Surely the deal could not have come at a more
opportune time than that one for Tata Tea The acquisition impact on Tata Tea's
presence in the global tea trade aside, Tata-Tetley ltd., the already existing joint
venture between the two companies, was seen aligned with the group’s international
operations. Equally significant was the domestic company's plan to open an instant
tea factory in South India, which was improved for the instant tea shipments to the
US, where Tetley had a major presence. Tata tea hoped to garner greater market
share and stave off the competition, riding on Tetley's strength.
10
Acting swiftly, Tata Tea initiated a comprehensive operation restructuring of the
world's second-largest tea company, in a bid to move a step closer to unseating
Unilever Plc. The restructuring took forms of the broader plan to venture out into new
market in East Europe, Russia, the CIS and West Asia through both the joint venture
and franchise. route. The move was critical to increasing the UK based transitional
earnings potential as Tata Tea had leveraged the company’s future cash flows to
fund the 271 million pound acquisition. As part of the recast plan, Tetley, which had
the world’s single largest tea brand, was shifting its focus from black tea to higher
value added products like green tea, flavored tea and herbal tea
GLOBAL SCENARIO
The tea industry worldwide in the last decade was going through a phase of
transition. And, over the past few years many new development have taken place.
The spate of mergers and acquisitions, in the tea industry, had touched the Indian
shore in a big way. And it was the awakening call that got a prompt response and
witnessed the coming of the world's two tea giants, Tata Tea and Tetley, together.
Surely, there was a flavor of uneasiness in everyone's cup of tea. The following
factors could throw a light on some of the reasons for this uneasiness and that
concerned one and all in the tea industry worldwide

57not-so-stringent labor laws, but also enjoy superior crop-yield and cheaper labor
12
. The UK is the second largest importer of tea after the Russian federation. In 1995,
the UK imported around 1.36 lakh tons of tea, around 135 of total tea imports. This is
more than that imported by the rest of Europe. Which means that any changes in the
UK market would, therefore, have a direct impact on producers? But this traditionally
staid market is currently undergoing considerable change. The demand of tea has
been slowly bur steadily been falling as customers have been switching to coffee
and especially to soft drinks. Nevertheless, tea is still the most preferred and number
one drink there and thw world tea major's have been fighting hard to maintain market
share and stimulate the demand. Total demand for tea was estimated at 2.7 bn kg in
1998, which is growing at about 2% p.a.
2) Competing For The Global Tea Cup
The world over, there has been a discernible trend towards consolidation of the
existing tea plantation in the hands of a few large corporates, stemming from the
compulsions of production and economies of scale This had been in the form of
estates and companies being bought over by larger estates to have a larger corpus
of tea. Most tea companies had been sharply redefining their scales of production
costs and are being looked at more closely. And this trend is expected to continue in
future too, in the wake of increased competitiveness which would compel companies
to go for a complete reorganization of production parameters be its machinery, leaf
handling, plucking standards, and configuration in drying technology, etc. Even
today, the tea industry worldwide is highly concentrated in the hands of a very few
firms like Unilver, Hillsdown Holdings, Lawrie Group, James Finlay, The Cooperative
Wholesale Society , Tata Tea, etc. And above all, the concentration of the industry is
such that the top three firms have a 60% share of the market of the UK, 9% in
France, 67% in Germany and 66% in Italy. These companies enjoy tremendous
bargaining power over the others in terms of pricing. This could be gauged from the
fact that though the prices of tea is largely determined by supply and demand , large
tea companies such as Unilever and Tetley have tremendous influence on supply
and demand and thus on the price fixing process As far as market concentration is
concerned, this too is extremely high and around 90% of the western trade is in the
hands of seven transnational’s and almost 70% of the world tea production is sold by
transnational’s. The market power is a major determinant at tea auctions. With their
buying policy, these companies strongly influence both price movement and the
demand for certain qualities of tea. While on one hand, their ownership of both
plantations and processing factories give them the advantage of horizontal
integration, on the other hand, they also have the vertical integration as they control
transportation companies, shipping agencies and so on. This concentration of
59 power, with companies sometimes controlling the entire production process from
tea shrub to tea bag, offers ample scope for manipulation
13
. Transnational giants can afford such auctions thanks to their high degree of
flexibility, their buffer stocks and their speculative auctions.
3) Demand Pattern
Shifts in the consumption of demand for tea in the developed importing countries
have had unfavorable effects on aggregate export earnings from tea. The increasing
use of tea bags and soluble instant tea effectively reduces the quantity of tea
needed per cup and also raises the demand for plain cheaper tea at the expense of
that of high quality. Tea bags, alone, account for about 10% of the volume of world
production. Factors that seem to have stimulated consumption of instant tea include
its ease of use as a cold drink and growing prevalence of vending machines. It is
these changes in the consumption patterns of tea that contribute to the decline in tea
prices.
4) Changing Faces Of Tea
Tea has undergone a shift in its image in many markets. There has been a shift in
the production form from hot to cold, from the conservative to the flavored, from
sheer cup page to convenience. And, it is the transnational tea companies that have
cashed in on this trend Tea bags, the most common form of value-addition, dominate
the world market. Almost 75% of the UK tea drinking population prefers tea bags,
tagged, round and pyramid shaped bags for a convenient brew. Tetley remains the
market leader in tea bags right from its inception way back in the 40's.
14
Significant innovations have been introduced in the instant tea segment also. It has
been most preferred form tea drink in the US, so far. Recently, the European
markets have also evinced interest in instant tea. Product innovations have
continued with introduction of iced tea, specialty tea, and gourmet tea in the ready-
to-drink market. In the US, this category has grown by leaps and bounds. Flavored
tea is also fast catching up the fancy of both tea drinkers and makers as well, in the
western markets.
5) Gatt (WTO) Impact on World Tea Economy
 In the last decade there has been a lot of hue and cry over the WTO impact,
especially in the domestic market. But the domestic industry's fear about one of the
major implications of GATT Treaty (which was in the form of reduction in import
tariffs) does not seem to have much substance. It was to be mentioned there that
WTO required member nations to reduce import duty by 24% from the existing rates,
by 2005. Among the importing nations, Pakistan and Egypt have high import duty of
45%. The developed nations (UK, USA) already have nil duty and therefore, require
a special license. The impact on Indian domestic industry would have been
negligible. Tariff reduction was likely to cause higher
61imports by Pakistan, Iran, Iraq and Egypt. India and other exporting countries
were supposed to benefit from free trade and lower trade barriers. According to a
rough estimate done in 1999, the consumption was supposed to grow at 3.3 % p.a.
in the developing nations and at 1% p.a. in the developed nations, till the year 2005.
Developing countries share in the world consumption was estimated to rise from
63% to 72