China wades into tea wars brewing in the Himalayas

Chinese tea buyers are disrupting a heated trade spat between Nepal and India that has brought counterfeit Darjeeling into the teapots of unsuspecting consumers.

Indian tea estates have come under severe pressure due to an onslaught of cheaper Nepalese tea that traders have been happy to repackage as Darjeeling, the “champagne” of premium teas grown just over the Nepal-India border.

India has historically accounted for nearly all of Nepal’s tea exports, meaning Darjeeling tea makers have found it hard to compete with the cheaper leaves flooding the market. Now, with China emerging as a bigger buyer of Kathmandu’s wares, industry insiders say the pressure on India should go down.

Ever since the Tibetan border was reopened and tariff-free trade expanded in 2022, Nepalese tea trade with China has soared.

According to data from the Nepalese ministry of commerce, the amount of tea sold in the fiscal year ending in 2023 more than doubled to 15.7 tonnes compared with 7.3 tonnes in 2019-2020, the year before China’s zero-Covid policy halted Nepal-China commerce.

Traders say that sales are on track to go up again this year.

“Nepal has a chance at a new lucrative market in China,” said Nishchal Banskota, founder and owner of the Nepal Tea Collective. “[The trade clashes] are an economic issue and this should provide some relief.”

Nepal being able to trade more tea with China “is good for Nepal and means that Darjeeling may not be as threatened”, said Jeni Dodd, head of tea importing company Jeni Dodd Tea.

The tea industries of Nepal and India have been intertwined for six decades. India is the largest producer of black tea in the world with an annual output of 1.3mn tonnes. It also receives most of Nepal’s output, with 90 per cent of Nepal’s tea exported to India in 2023, according to the UN Food and Agriculture Organization and the OECD.

“Nepalese tea leaves have traditionally been plucked in Nepal, and then processed in India, where there were already factories and machinery,” said Joydeep Phukan, secretary of the Tea Research Association, an Indian organisation that supports global tea production. 

But the economic landscape has shifted, as Chinese buyers have boosted Nepal’s burgeoning industry and costs for Darjeeling producers have rocketed.

China’s black tea producers primarily serve its large domestic tea market, with only 7 per cent of its product exported, according to the UN FAO. But amid rising demand, traders have been looking for new sources of both green and black tea cultivated to Chinese standards, with many turning to Nepal.

“China is playing a crucial role in providing tea machinery to the tea industry in Nepal. Along with the tea machinery, the tea manufacturers in Nepal are trained to make [Chinese-style] teas,” said Phukan.

While costs have gone down for Nepalese farmers, they have increased for Indian estates. India’s stronger labour laws have required estate owners to pay workers fairer wages, and climate change has started to decrease overall tea yields at a faster clip than more mountainous Nepal.

In 2023, Darjeeling’s shrinking tea estates produced 6,180 tonnes of Darjeeling tea, down 11 per cent from the previous year.

Sparsh Agarwal of Selim Hill Tea Garden, a Darjeeling tea estate, estimates that the cost of production in Nepal is a third of the cost in India due to different labour requirements. “The Darjeeling tea producers are not able to compete with Nepal producers,” he said.

Competition came to a head during the pandemic, when a worker strike in Darjeeling left a gap in the market and China’s closure of its border pushed Nepalese and Indian tea farmers into more fierce competition.

Under pressure from large buyers to keep prices low and maintain supply, Indian tea sellers began blending cheaper Nepalese tea with Darjeeling, putting even more stress on Darjeeling’s moribund estates.

“Conservatively, I would say 25 per cent of Darjeeling sold today is really mixed Nepal and Darjeeling leaves,” said Vivek Lochan, a seller of both Indian and Nepalese teas.

The use of Nepal leaves motivated members of Indian parliament to call for an import ban on Nepalese tea in 2022. The Tea Board of India — the government body in charge of the tea industry — also briefly enacted a ban on blending teas in 2022, only to walk it back under pressure from large tea companies.

Tea sellers say that increased appetite from China is set to lessen tensions between Darjeeling and Nepalese growers.

In April 2023, the Chinese foreign ministry stated that “tea . . . [will be] an important bond connecting China [and Nepal],” after Kathmandu and Beijing expanded their free trade agreements.

Trade is set to get a further lift with the opening of a new road connecting the tea growing regions in western Nepal with Tibet this year.

“More and more Chinese buyers are coming each week. And they are helping us set up banking [in Renminbi], so we can trade more easily in the future,” said Tara Adhikari, a Nepalese tea seller.

According to data from the Nepalese ministry of commerce, Chinese buyers are also paying more for Nepal’s leaves. In the year to date, Chinese buyers are paying on average 1,600 Nepalese rupees per kilogramme, as compared to 200 Nepalese rupees per kilogramme by Indian buyers.

“Indian traders demand a much lower price for Nepal’s leaves. Chinese trades are offering more . . . this will decrease the sales of [counterfeit Darjeeling] to India,” said Gaurab Luitel of the National Tea and Coffee Development Board, Nepal’s government body responsible for the tea industry.

Still, the amount of tea trade between China and Nepal, while growing, pales in comparison to India’s current near monopoly on Nepalese imports. And China’s support for Nepalese growers may cut costs even further, causing more problems for Darjeeling producers in the long run.

“The main issue facing the entire tea industry is that tea costs too much to make, and customers do not want to pay more for it,” said Brandon Friedman, CEO of Rakkasan Tea, a direct to consumer tea company.

“If you have bigger factories that mass produce [Nepalese] tea, that could be an issue [for Darjeeling].”

Additional reporting by Susannah Savage