COMPETITIVE STRUCTURE OF PLANTATION COMMODITY EXPORTS:

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