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MICROECONOMICS ASSIGNMENT

STUDY OF ISPAHANI MIRZAPORE TEA


With PRACTICAL APPLICATIONS

Prepared For: Professor Shaiful


Majid
IBA, University of Dhaka

Prepared By: Group # 4


Syeda Salwa Bakht, Roll- 65
Nazmul Khan, Roll- 66
Farhan Khaled, Roll- 109
Naseef-Us-Sakib, Roll- 110

BBA- 19th, Section- B


IBA, University of Dhaka
Date of submission: 21/11/2011

TABLE OF CONTENTS:

1. Executive Summary
2. Introduction
2.1 Origin of the Report
2.2 Objective
2.3 Methodology
2.4 Limitations
3. Product and Market Background
3.1 Product and Market History
3.2 Current Market Structure
4. Ispahani Mirzapore Tea: The Company from an Economic Perspective
4.1 The Tea Market in Light of Economic Principles
4.2 Government Policies and Regulations
4.3 Trade
4.3.1 Level of Exports
4.3.2 Comparative and Absolute Advantage
4.4 Supply and Demand
4.4.1 Elasticity
4.4.2 Factors influencing Demand and Supply of Tea
4.5 Complementary and Substitute Goods
5. List of Figures
6. List of Tables
7. List of Abbreviations
8. Conclusion

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1. Executive Summary:
Ispahani Group of Companies is the pioneer in the field of tea in Bangladesh. It currently
has a 50% market share in the branded tea market and over 80% market share in the
branded tea-bag market of Bangladesh. Thus, it can be said that the tea market of
Bangladesh is oligopolistic. There are a total of 163 tea estates in Bangladesh. The
production of Ispahanis tea gardens is 4% of the total tea produced in Bangladesh every
year. 25% of all the tea produced in the country is exported. The export earnings from tea
till October 2011 were around $560,000 which is higher than most tea exporting
countries. MMI alone has exported 84000 kilograms of tea in the 2010-11 financial
periods. Bangladesh has a comparative advantage of low cost, cheap labor and favorable
climate over the tea importing countries. Tea industry faces two types of taxes, VAT &
Sales Tax. A 15% VAT has been levied on the tea sold for in Bangladesh, while a 2%
sales tax has been levied on the sale of tea in auctions at the tea board premise. In
addition to that, new firms enjoy 10 years of tax holiday. Also there is no tax for 100%
export oriented tea businesses in order to foster export of tea as a cash crop. The demand
for Ispahani Mirzapore Tea is price elastic. The brand also holds a positive income
elasticity of demand. Supply of the product is inelastic in the short run and inelastic in the
long run. There are various factors other than price which affects the demand and supply
of Ispahani Mirzapore Tea. For e.g. expectations, cost of raw materials, taste, weather,
etc. Since tea is the most popular drink in Bangladesh, Ispahani does not consider coffee
brands as a possible competitor or substitute. Seylon tea (Abul Khair Group), Finlay (The
Condolidated Tea and Lands), Lipton Taaza (Unilever, Bangladesh) and HRC Clevedon
(H.R.C Syndicate Ltd.) are Ispahani teas competitors. The company has an intense
distribution network of over 300 sales centers under 12 zonal offices in Chittagong,
3

Dhaka, Dhaka North, Bogra, Barisal, Comilla, Khulna, Kushtia, Mymensingh, Rangpur,
Dinajpur and Sylhet.

2. Introduction
2.1 Origin of Report
This report of making a practical analysis on any organization based on
Bangladesh was assigned to us by Professor Shaiful Majid of Institute of
Business Administration, University of Dhaka.

2.2 Objective
The objective of the report is to relate the various economic tools, formulas
and theories with the real market structure. The report is to show what we
learned in our Microeconomics course and to link our theoretical
knowledge with the company of our choice which in this case is Ispahani
Mirzapore Tea.

2.3 Methodologies
This was an informative, research based study for which we depended
heavily on the internet. We browsed through various websites, read various
studies on Bangladeshs tea market to extract necessary information about
Ispahani Mirzapore Tea and the Bangladeshi tea market. The official
website of the Bangladesh Tea Board was a very useful source of
information.
4

In addition, we also went to Ispahani Ltds office at Motijheel and talked to


the companys marketing manager, Md. Ismail Hossain to get a greater
insight of the company and its whereabouts.

2.4 Limitations
The main problem while preparing this report was unavailability of data.
We

really did not have much information about Ispahani Mirzapore Tea.

Most of the information required for this report like price changes, demand
for the product, cost of production, etc is considered confidential by the
company itself. Ispahani Mirzapore Teas website was not of much help.
Limited time was also a setback. Since the members in this group had
never worked together before, the members also faced communication
problems.

3. Product and Market Background


5

3.1 Product and Market History


Tea is the most popular drink in Bangladesh. It is also one of the major exportable
commodities of the country.
The major players in the production and marketing process of tea are the producing
firms

(gardeners), the tea brokers and organized buyers like, tea traders and exporters

who buy tea in the form of an industrial good. Tea is plucked from the gardens and
processed in the manufacturers' factories. Chests and packages of tea are then sent to the
brokers who then use their in-house tea tasters to grade the tea, determine its
quality and set a base price. Brokers also arrange to send tea leaf samples to potential
buyers to help them determine their bidding price. The actual buying and selling takes
place at an auction arranged by the brokers typically once in a week
History of Bangladesh Tea Industry goes back to 1840 when a pioneer tea garden was
established on the slopes of the hills in Chittagong. The first commercial tea garden was
established in 1857 at Mulnichera in Sylhet. During the partition, Bangladesh owned 103
tea estates, covering 26,734 hectares of tea plantation. In 1961, Government imposed
mandatory extension of tea area by 3% per year. By 1970, tea area had risen to 42,658
hectares.

M.M. Ispahani Limited is a Bangladeshi industrial conglomerate. This company has won
the Bangladesh Business Awards in the Enterprise of the Year category in 2003. The
history of Ispahani group dates back to 1900 when Mirza Mohammad Ispahani
6

established the Calcutta office of M.M. Ispahani and Sons. It was


converted to a private limited company in 1934. The corporate
office was moved to Chittagong in 1947 after the partition of
British India. Now it has corporate offices in Chittagong, Dhaka
and Khulna.
Mirza Mohammad

3.2 Current Market Structure


There are 163 tea estates in Bangladesh. MMI owns 4 tea estates: Mirzapore, Ghazipore,
Zarreen (all based in the district of Sylhet) and Neptune (based on Chittangong). These
gardens produce approximately 2.5 million kilos of tea per annum, which is slightly over
4% of the total tea production of Bangladesh. The average yield per hectare is over 1800
kilos; one of the highest yields achieved nationally. Each of the tea gardens has factories
equipped with modern tea manufacturing machinery. The tea produced is of high quality
and sells at a premium at the Chittagong Tea Auction. Among the 163 tea gardens in
Bangladesh, Ghazipore, Mirzapore, Zarreen and Neptune are consistently in the list of
top ten tea gardens for the highest auction price achieved.
It is the largest tea trading company in the country and dominates the domestic tea
market, capturing approximately 50% of the national branded tea market and 80% of the
branded tea-bag market. Thus, it can be said that Ispahani Mirzapore Tea is a Monopoly
in the branded tea market of Bangladesh. Ispahani Tea is renowned all over Bangladesh
and its best selling brands such as Mirzapore Best Leaf and Mirzapore Double Chamber
Tea Bags are household names. However, the bulk tea market is oligopolistic. In this
case, Seylon tea (Abul Khair Group), Finlay (The Condolidated Tea and Lands), Lipton
Taaza (Unilever, Bangladesh) and HRC Clevedon (H.R.C Syndicate Ltd.) are Ispahani
teas competitors. The company has an unrivalled distribution network of over 300 sales
centers under 12 zonal offices in Chittagong, Dhaka, Dhaka North, Bogra, Barisal,
Comilla, Khulna, Kushtia, Mymensingh, Rangpur, Dinajpur and Sylhet.
7

MMI has a mass marketing strategy in general. However, it specifically targets the upper
and lower middle class population of the country.

4. Ispahani Mirzapur Tea: The Company from an


Economic Perspective

4.1 The Tea Market in light of Economic Principles


Among the 10 principles of economics, 3 of them are totally in sync with the tea market
of Bangladesh and MMI itself.
Firstly, Trade can make everyone Better Off. Roughly about 25% of all the tea
produced in the country is exported to countries like Pakistan, UAE, Russia, Poland,
India and UK. The export earnings from tea till October 2011 were around $560,000
which is higher than most tea exporting countries. MMI alone has exported 84000
kilograms of tea in the 2010-11 financial periods.

Bangladesh has a comparative

advantage of low cost, cheap labor and favorable climate over the tea importing
countries. While the tea importing countries are able to fulfill their demand for tea
through trade, Bangladesh is earning a substantial amount of foreign currency and
contributing to solve unemployment issues in Bangladesh. This tea trade thus is making
everyone better off.
Secondly, Markets are usually a Good way to Organize Economic Activity. The selfregulating power of a free market is good way to organize economic activities. The main
component of a markets invisible hand is price. Price is the key factor which balances
out the two market forces: Demand and Supply. Price influences the demand and supply
of the Bangladeshi tea market to a great extent. MMI as a company knows how much to
produce depending on the price and the tea consumers also know how much tea to
demand based on tea price. However, since all actors of a free market economy are set to
maximize their own benefits, the government has to intervene. Thus, the tea market or
MMI does not completely coincide with the Laissez-Faire condition. Price does play a
vital role in organizing economic activities in the tea market. However, it differs from a
free market economy since there is government intervention in the form of Bangladesh
Tea Board. All members in this board are appointed by the government itself. All
companies, including MMI, are to trade in the tea market under the tea board. This brings
us to our third principle overlapping the Bangladeshi tea market and MMI.
9

Thirdly, Governments can sometimes Improve Market Outcomes. Government


intervention is often required even in a free market economy. Actors of a free market, i.e.
the buyers and sellers always want to maximize their own benefits. This sometimes leads
to negative externalities. The Governments role is to reduce these negative externalities.
As mentioned earlier, the Bangladesh Tea Board is practically run by the Government.
The main functions of the Board are as under:
To regulate, control and promote the cultivation, sale and export of tea.
To control and improve the quality of tea.
To conduct comprehensive scientific and technological research to raise
productivity of tea and improve its quality.
To register tea estates with the Board and grant licenses to the planters,
manufacturers and other dealers engaged in the business of tea.
To assist establishing new tea gardens and improving productivity of existing tea
gardens.
To undertake welfare measures for tea garden laborers and employees.
To undertake, acquire or manage any tea concern or to take such measures in the
interest of the tea industry as directed by the Government, from time to time.
The above points actually show how there is government intervention in every
aspect of tea trade, production, workers, etc.
All the above functions would result in various improvements in the tea market.
These would control the negative externalities caused by a free market economy.
MMI abides by all the rules and regulations set by Bangladesh Tea Board.
Apparently, Ispahani Mirzapore Tea is of the finest quality. MMIs workers receive
comparatively higher wages and greater benefits. As mentioned earlier, their
factories are well equipped and their tea gardens are extremely productive.

10

4.2 Government Policies and Regulations


Bangladeshi Government tries to provide rules & regulations aimed at supporting the
industry while at the same time protecting market competitiveness & the interest of the
nation as a whole.
Bangladesh has a few laws & procedures that are required to be observed by the parties
engaged in this business. These are:
1. The Tea Ordinance (Ordinance No. XXXVII of 1977; amended in 1986, the current
law);
2. Bangladesh Cha Sramik Kallyan Fund Ordinance, 1986 Ordinance No. LXII of 1986.
Bangladesh Tea Board carries the responsibility of carrying out the laws & regulations of
the Bangladeshi Government. The Tea Ordinance is intended to establish the current
institution & outline its authority & the method of exchange in the tea industry, which in
Bangladesh, like most other countries is freely held Auctions at the Tea Board premise
in Chittagong city.
Tea industry faces two types of taxes, VAT & Sales Tax. A 15% VAT has been levied on
the tea sold for in Bangladesh, while a 2% sales tax has been levied on the sale of tea in
auctions at the tea board premise. In addition to that, new firms enjoy 10 years of tax
holiday. Also there is no tax for 100% export oriented tea businesses in order to foster
export of tea as a cash crop.
Earlier this year, the government of Bangladesh levied an extra 5% income tax on the
income generated by tea sale which provoked the traders to stop trading in protest & the
government reversed their decision within a short time

11

4.3 Trade
4.3.1 Level of Exports
Name of the
Exporters

Abul Khair
Consumer
Products Ltd
Ahmed
Trading
Azad
Enterprise Ltd.
DuncanBrother
s(BD) Ltd
EliteInternatio
nal Ltd
H.R.C.
Syndicate Ltd
Haji Ahmed
Brs.
M.M.Isphahani
Ltd.
Monir Sha &
Sons
Mukut Tea Co.
OTHERS
Shaw
Wallace(BD)
Limited
The
Condolidated
Tea & Lands
Unilever(BD)
LTD.
TOTAL

Export for the year 2010-11


Loose Tea Packet
Total
Tea
Qt Value Qt Valu Qty
y (FOB y e
)
(FO
B)
10 2,178 0
0
10

Export for the year 2009-10


Loose Tea
Packet
Total
Tea
Value Qty Value Qt Valu Qty
(FOB
(FOB y e
)
)
(FO
B)
2,178 0
0
10 1,37 10
0

Value
(FOB
)

18

20

3,266

20

3,559

0
0

18

3,973

20

3,97
3
0

20

12 14,29 0
0
1
21 18,59 0
9
6
0
0
84

38 10,06 75
1
17 4,168 16

0
20,7
24
21,1
25
4,57
4
0
0

0
0
10 23,47
1
0

0
0

45 57,15
8
1

2,09
5

96 129,9 19
3
15
7

52,4
91

1,370

3,26
6
3,55
9
0

120 14,29 271 41,13 0


1
4
219 18,59 51 7,484 0
6
84 20,72 50 7,578 10
4
1
113 31,18 0
0
92
6
33 8,742 0
0
0

0
0

271 41,13
4
51 7,484

21,1
45
21,5
44
0

151 28,72
3
92 21,54
4
0
0

0
0
101 23,47
0

376
10,6
98

11 1,942
104 16,27
1

418 67,81
1

360 56,64 0
7
12
1,1 182,4 1,7 265,2 30
60
06
77
31
0

360 56,64
7
2,0 327,1
77
89

521 70,64
7
48 6,791

9
49

1,566 2
5,573 55

462 59,24 418 67,81


6
1
0

61,9
58

521 70,64
7
48 6,791

Table1: Quantity- 000 kg, Value 000 Tk.


In table 1, the quantity exported by various companies in the last 2 years is shown.

YEA
R

200506
200607
200708
200809
200910
201011
201112

LOOSE TEA
QN AV.PRI
TY
CE
PER
KG
(US$)
3,45
1.28
2
4,35
1.18
0
10,2
1.30
24
5,82
1.87
2
1,77
2.18
7
963
1.90
170

2.48

VALUE
IN
THOUS
AND US
$)
4,417

VALUE ADDED TEA


QN AV.PRI VALUE
TY
CE
IN
PER
THOUS
KG
AND US
(US$)
$)
204
2.14
436

5,115

478

2.30

1,101

13,251

574

2.23

1,281

10,872

329

2.59

852

3,879

300

3.02

906

1,827

197

3.77

742

422

39

3.82

149

TOTAL
QN AV.PRI
TY
CE
PER
KG
(US$)
3,65
1.33
6
4,82
1.29
8
10,7
1.35
98
6,15
1.91
1
2,07
2.30
7
1,16
2.21
0
209
2.73

VALUE
IN
THOUS
AND US
$)
4,853
6,216
14,532
11,724
4,785
2,569
571

Table2

Table 2 shows the Annual Tea export of tea. Regardless to say, tea is a major commodity
earning foreign exchange currency for the country and contributing to improving
Bangladeshs balance of payments.

13

4.3.2 Comparative and Absolute Advantage


(I) Absolute Advantage: Absolute Advantage refers to the higher output to input ratio any
producing unit has (specially a national economy or part of it) over its competitors.
Due to inefficient utilization of available resources, Bangladeshi tea industry has lost its
absolute advantage and has a very poor output to input ratio.
In Sri Lanka, for example, the production of tea per acre of land is close to 2100 kg per
annum; while in Bangladesh its only around 1100 kg. Also our labor productivity is very
much an issue as their appalling living conditions & low wages force down their true
potential.
(II) Comparative Advantage: Comparative Advantage is the advantage a competitor
has over some other rival in terms of incurring lower opportunity cost while producing
the same amount of output.
In Bangladesh, the factors used in tea production give us a degree of comparative
advantage. The land used in tea production is hilly & unsuitable for anything other than
tea production & artificial forest nurturing, though tea production has more economic
benefit as forest resources such as trees & animals require an extended period of time to
be developed enough to yield economic benefit & the price derived from them after that
does not exceed that of tea.
Also the tea workers traditionally have been engaged in this occupation as a family
tradition because the ancestors of modern Bangladeshi tea workers were brought by the
British from South India as plantation workers.
This lifelong association with tea production fosters & enhances their skill in tea
cultivation & production, which in turn provides a comparative advantage as their skills
in this business gains more economically than it would have should the labor force was
made to work somewhere else where they have little or no skills.

14

Because they are not currently trained to engage in other trades, however, they are
specialized in producing tea, and as the great economist Adam Smith observed,
specialization increases productivity & skill of average worker.
Due to factual inadequacy, an in depth analysis of an individual Ispahanis comparative or
absolute advantage could not be figured out.

4.4 Supply and Demand


4.4.1 Elasticity
Elasticity: A measure of the responsiveness of quantity demanded or quantity supplied to
one of its determinants. Price and Income are the most important determinant here.
Price Elasticity of Demand: A measure of how much the quantity demanded of a good
responds to a change in the price of the good, computed as the percentage change in
quantity demanded divided by the percentage change in price.
As we have seen, the price of tea has increased significantly over the years. Despite that,
the overall demand of tea has been increasing. As a matter of fact demand of tea in the
domestic market has increased so much that Bangladesh had to decrease the amount of
tea they exported in order to meet the growing domestic demand for tea. This proves that
the Demand for Tea is Inelastic.

P1
Price

e1

e
S

D
Q

D1
Q1

Quantity

15

Figure1: In the above figure, an overall shift in demand from D1 to D2 and a price rise of
P1 to P2 has taken place. The equilibrium shifts from E1 to E2.

But the scenario is quite different when we are talking about a specific tea manufacturing
organization. In this case we are not talking about the overall demand of the market but
the individual quantity demanded. Thus, if Ispahani limited increases its price, it will
surely face a fall in its demand. The reason behind this is that, there are substitutes of
Ispahani Mirzapore Tea. From this we can conclude that Price elasticity of Demand of
MMI is elastic.
Price

P1
P
Q2

Q1
Quantity Demanded

Figure2: The figure above shows what would happen if Ispahani decided to increase it
prices. Suppose Ispahani decided to increase its price from P1 to P2. Then the quantity
demanded would move from Q1 to Q2.

Income Elasticity of Demand: Its the responsiveness of changes in quantity demanded


to the changes in individual income.

16

In the overall tea market, demand for tea would rise with increasing income in the short
run but would be stable in the long run since at one point the question arises that how
much they can consume. In short, the demand is elastic in the short run and inelastic in
the long run in response to income.
Ispahani Mirzapore Tea belongs to the branded tea market and can be termed as a normal
good since it has a positive income elasticity of demand. The demand for Ispahani
Mirzapore tea rises with increasing income. With rising income, the demand for inferior
goods such as bulk tea would fall since it has a negative income elasticity of demand.
People would switch to branded, packaged tea. Since Ispahani Tea has oligopolistic
power (around 50%) in the branded tea market, it is more likely that consumers with
increasing income would switch to Ispahani Mirzapore Tea.

D1

Price

Quantity Demanded
Figure3: In the figure above, we can see that a rise in income would lead to an increase
in demand for tea causing a shift in the demand curve to the right from D to D1.

Price Elasticity of Supply: A measure of how much the quantity supplied of a good
responds to a change in the price of the good, computed as the percentage change in
quantity supplied divided by the percentage change in price.

17

The key determinant related to the elasticity of supply is the time period considered for
production. Since tea is an agricultural product its supply cannot be increased right away
in the short run. Therefore the supply of tea is price inelastic in the short run and price
elastic in the long run.
Ispahani Mirzapore teas supply has increased over the past few years due to various
factors including rising prices. So it can be said that Ispahanis supply of tea has proved
to be price elastic in the long run.
Price

S
P1
P

Quantity Supplied
Figure4: The figure above illustrates Ispahanis elasticity in the short run. In the short
run, supply is inelastic. Thus, even large changes in price are unable to increase quantity
supplied.
Price

P1
P

Q1

18

Quantity supplied

Figure5: The above figure illustrates that supply is elastic in the long run and thus the
quantity supplied is increasing in accordance to the increase in price. As price increase
from P to P1, quantity supplied increases from Q to Q1.
Even though Ispahani had failed to properly utilize the opportunity of rising prices in the
short run, but they are able to supply more by the next harvest and auction bids in the
long run.

4.4.2 Factors Effecting Demand and Supply


Factors influencing Supply of Tea in Bangladesh:
1. Input Price & Cost of Production: In Bangladesh, the input prices of tea production are
relatively low. As such, the market has secure viability & potentiality in term of
profitability. Cheap imported labor (yielded by South Indian laborers hired by the British
in the 19th century & their current descendents) & land has helped in boosting tea
cultivation in this country. Also government supports (like Tax Holidays) also helps the
new firms in controlling their costs to certain extent.
Like any other manufacturers in the Bangladesh tea industry, MMI enjoys all its benefits.
However, MMIs cost of production is comparatively higher than the other manufacturers
because they provide their laborers with relatively higher wages. This in fact has a
positive impact on their productivity since higher wages leads to greater efficiency and
higher productivity.
2. Taste: In Bangladesh, most of the people prefer tea as a refreshment item & it has
become a part of Bangladeshi Culture to drink tea in family & professional life. As a
result, Tea market has attracted a host of firms interested in capturing the opportunity
created by this national trend.
MMI has several packages (tea bags, mini packs, big liquor packs, etc.) to satisfy the
extensive and diverse taste range of the Bangladeshi consumers. MMI is the one of the
pioneers of the Bangladeshi Tea Industry. They can use their impeccable brand image to
influence the taste of consumers.
3. Expectations: Supplier expectation has important bearings on the determination of
quantity supplied in the market. In Bangladesh, cultural association & the addictive effect

19

of tea has made its demand almost fully inelastic, which causes supplier expectation to be
positive in terms of market attractiveness.
MMI invests a lot in research and development and market analysis. This helped them to
predict the huge production fall in 2008 which led to the fall in tea market supply in
2009. Thus, in order to reduce scarcity in the domestic market, Ispahani reduced its
exports such that there is enough stock for the domestic market.
4, Number of sellers: In the Bangladeshi market, there a handful of sellers who produces
tea in their own gardens & supplies the product into local & international market. It helps
to prevent surplus supply & rapid falls in price.
Currently, the domestic market share of Ispahani is really high and so is its retail
distribution network. In addition, MMI being a matured company can take financial risks.
Thus, it is very easy for MMI to give tough competition to other manufacturers in the
weekly auctions.
5. Transportation: The tea producing areas in the country are connected by extensive
network of rail & road links, making it possible to transport the products to local markets
easily & cheaply. The British Government had rail lines made to link these areas with the
rest of country when they pioneered the tea business in this country in the late 19 th
century.
The Transportation network of Ispahani is an efficient one that helps them to maintain
control over their operation in a well-organized form.
6. Weather: The production of tea is totally dependent on weather for the success of the
harvest. The production of tea declined in 2008 for bad weather & subsequently the
supply decreased while the price increased to all time high level in 2009. Later in 2010,
the effect of another wave of bad harvest in 2009 was countered by importing foreign tea.
Ispahani was able to counter any negative effect of such phenomenon by successful
strategy.

S1

Price

20

Quantity Supplied
Figure6: In the figure above we can see that the supply curve S (quantity supplied in
2007) had shifted to the left to S1 (quantity supplied in 2008) due to unfavorable weather.
8. Miscellaneous: Other factors such as government support for tea industry provides
incentives to the producing firms to advance the industry. Also the near inelasticity of tea
makes price a factor with negligible & insignificant consequences on tea consumption.
Factors influencing the demand of Tea in Bangladesh:
1. Social Trend & related inelasticity: Consumption of tea has become a social &
cultural element of this nation; as a result, tea has a stable, incremental, nearly
inelastic market demand.
MMI targets upper and lower middle class families. It markets Ispahani Mirzapore
Tea as a product to be consumed with family. Its marketing strategies are intertwined
with the Bangladeshi culture.
2. Preference: People in this country prefer tea over other possible substitutes for a range
of reasons, mostly because of its timeless significance in the national psyche. This
helps maintaining & a stable base of consumers whose market share of consumption
is significant enough to sustain the industrys domestic operation.
The brand image of Ispahani Mirzapore Tea is such that most consumers prefer the
product to any other in the branded tea market. In addition, Ispahani Mirzapore Teas
intense advertisement campaigns also influence consumer preference.
3. Number of buyers: Bangladesh is a small country but still boasts a huge population
eager to consume ever more amount of tea. This helps inducing the suppliers to
continue supplying by making the market more lucrative, which in turn sustains the
market. The tea industry is expanding 5% annually despite the increasing price. And
the market share of Ispahani Limited is increasing by 15%. This increase in market
share is mostly due to the fact that, even though the individual consumption of tea has
decreased (because of the increase in price) but the total consumption of tea has
increased over the years.
4. Price of related goods: The most significant related goods of tea in Bangladesh are
sugar & milk. In response to the increasing price of these items, consumers who are
unwilling to pay the extra money for complements has opted to remove them from the
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recipe & drink liquor tea (without milk & sugar).


Nowadays, there seems to be an increase in the number of health conscious people. Also
many of these people are opting for liquor based tea instead of traditional milk & sugar
mixed tea. For this reason, the demand for tea has not been affected by the increase in
price of the goods traditionally used as complementary to tea.
Ispahani has captured the opportunity created by this change in consumer behavior by
utilizing its highly popular tea bag package.
Apart from these complementary goods; there is a popular perception that Coffee is a
substitute to tea. But the statistics indicate that that product occupies a minute position in
the market of non-soft drink beverages, at around 1% and is in no position to cause any
significant threat to the tea industry. As a result, Ispahani doesnt recognize coffee to be a
competing product & hasnt taken any measure to counter coffee market demand by any
means. The reason underlying this decision of the Ispahani management is that they
perceives tea as an integral part of Bangladeshi culture & as such believes that its
implausible to assume that a foreign commodity with low market share can become
competitor so quickly.
5. Seasonal Variation: During the winter season, demand of tea rise up to 10-15% from
the normal trend. This has important bearing of the marketing strategy of Ispahani
Limited. In order to ensure extra sales and to enjoy the benefits of the season to its utmost
potential, Ispahani introduced cart sale ready -made tea last year.

D1

D2

Price

Quantity Demanded
Figure7: In the figure above, D1 represents the demand for tea throughout the year.
During the winter demands increases and shifts to the right to D2.
On the other hand, the opposite is true for summer, when demand slides downward.
Particularly during the first 2 weeks of April when the first heat wave of summer usually
hits Bangladesh.
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D1

D2

Price

Quantity Demanded
Figure8: The figure describes the massive fall in demand during the month of April
which causes a shift in the demand curve to the left from D2 to D1.
Other than this, the sales of tea face a stiff decline during the month of Ramadan. In order
to counter this decline in sales, Ispahani Limited introduces different promotional
campaign. For instance, last year Ispahani Limited had started a campaign that offered
extra amount of tea for every purchase.
6. Miscellaneous (Income, Price & Related issues): In Bangladesh, the cost of tea
consumption is only a very small proportion of income of the consumers; as a result price
increase has little impact on the consumption behavior among the tea consumers. This
relationship between income & price as well as existing lack of inelasticity has a positive
effect on the market, because it counters the possibility of a rapid decrease in demand &
correlated fall in price.

4.5 Complementary and Substitute Goods


Despite the rise in the price of tea complements such as milk and sugar in the past few
years, the overall demand for tea has been increasing. This is mainly because of the rising
popularity of liquor tea.
MMI does not consider coffee as a strong substitute of tea in the Bangladeshi market.
Nescafe is the prevalent coffee brand in Bangladesh. Despite Nestls various
promotional campaigns, coffee is not as popular as tea in Bangladesh. However, in the

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international market, Ispahani Mirzapore Tea has to compete with renowned coffee
brands like Nescafe and Folgers and also coffeehouse chains like Starbucks.

4. List of Figures:
Figure 1 shows the price elasticity of Demand of the Bangladesh tea market
Figure 2 shows the price elasticity of demand of Ispahani Mirzapore
Figure 3 Income elasticity of demand for Tea
Figure 4 Price elasticity of supply of Tea in the short run
Figure 5 - Price elasticity of supply of Tea in the long run
Figure 6 Weathers impact on demand
Figure 7 Demand for Tea during the winter
Figure 8 Demand for tea during April

5. List of Tables
Table 1 - EXPORTERS & EXPORT FOR 2010-11 AND 2009-10
Table 2 - ANNUAL EXPORT

6. List of Abbreviations:
MMI- Mirza Mohammad Ispahani
P- Price
D- Demand
S- Supply
Q/ Qty- Quantity
e- Equilibrium
VAT- Value Added Tax

7. Conclusion
All in all, the tea market of Bangladesh is a flourishing market where Ispahani Mirzapore
is doing excellent business. MMI is a matured company which has been ruling the
Bangladeshi tea market for ages. However, they should continue investing on research
and development in order to increase the productivity and efficiency. Considering
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Ispahanis high market share, their production is not that high such that it can suffice both
the domestic and international market. Thus, MMI should consider increasing the number
of tea estates and making their current tea estates more efficient. The report gives a clear
insight of the current tea market structure. If the company wants to rule the tea market,
they have to increase supply in order to meet up with the increasing demand. Leaving out
some small but necessary adjustments of the company, Ispahani Mirzapore Tea is here to
stay.

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