Abstract:
A few countries produce most of the world’s output of tea and
coffee. Therefore, the major exporting countries are likely to exercise
market power, which implies that exporters have some control over the
prices that they receive. Does India exercise market power in the export
markets for tea and coffee or is she simply a price taker? The present
paper explores this question by estimating the pricing-to-market (PTM)
model for India and other selected exporting countries. The results are
generally consistent with the price discriminating behaviour in the
export market, which implies that the major exporters indeed hold market
power. The analysis suggests significant market power for India and Sri
Lank in ‘bulk black tea’. In the case of ‘black tea in immediate packing’,
a more value added category, Sri Lanka exercises a much greater market
power than India. That the exporters of plantation products, like tea and
coffee, are not passive price takers in the international market but are
capable of influencing the prices that they receive is a finding that has
important implications for policy. The government may find a strategic
motivation for intervening in support of exporters engaged in (imperfect)
competition with foreign suppliers. The government and commodity
boards may initiate policies and institutional structures (for example,
promotion of geographical indication of origin as a tool of product
differentiation, innovative marketing, promotional campaigns, branding,
labelling, advertising etc) with a view to maintaining and strengthening
the market power of Indian tea and coffee in the export markets
