MICROECONOMICS ASSIGNMENT

STUDY OF ISPAHANI MIRZAPORE TEAWith 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:

Page

1. Executive Summary 3

2. Introduction 4

2.1 Origin of the Report 4

2.2 Objective 4

2.3 Methodology4

2.4 Limitations5

3. Product and Market Background6

3.1 Product and Market History6

3.2 Current Market Structure6

4. Ispahani Mirzapore Tea: The Company from an Economic Perspective9

4.1 The Tea Market in Light of Economic Principles9

4.2 Government Policies and Regulations11

4.3 Trade12

4.3.1 Level of Exports12

4.3.2 Comparative and Absolute Advantage14

4.4 Supply and Demand15

4.4.1 Elasticity15

4.4.2 Factors influencing Demand and Supply of Tea19

4.5 Complementary and Substitute Goods23

5. List of Figures24

6. List of Tables24

7. List of Abbreviations24

8. Conclusion25

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, 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. 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

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.

Mirza Mohammad IspahaniM.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 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.

3.2 Current Market StructureThere 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. 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 self-regulating 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. 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.

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

4.3 Trade 4.3.1 Level of ExportsName of theExportersExport for the year 2010-11Export for the year 2009-10

Loose TeaPacket TeaTotalLoose TeaPacket TeaTotal

QtyValue(FOB)QtyValue(FOB)QtyValue(FOB)QtyValue(FOB)QtyValue(FOB)QtyValue(FOB)

Abul Khair Consumer Products Ltd102,17800102,17800101,370101,370

Ahmed Trading00183,973183,97300203,266203,266

Azad Enterprise Ltd.00000000203,559203,559

DuncanBrothers(BD) Ltd00000052170,6470052170,647

EliteInternational Ltd000000486,79100486,791

H.R.C. Syndicate Ltd12014,2910012014,29127141,1340027141,134

Haji Ahmed Brs.21918,5960021918,596517,48400517,484

M.M.Isphahani Ltd.008420,7248420,724507,57810121,14515128,723

Monir Sha & Sons3810,0617521,12511331,186009221,5449221,544

Mukut Tea Co.174,168164,574338,742000000

OTHERS00000091,5662376111,942

Shaw Wallace(BD) Limited10123,4700010123,470495,5735510,69810416,271

The Condolidated Tea & Lands45857,15142,09546259,24641867,8110041867,811

Unilever(BD) LTD.00000036056,6470036056,647

TOTAL963129,91519752,4911,160182,4061,777265,23130061,9582,077327,189

Table1: Quantity- 000 kg, Value 000 Tk.In table 1, the quantity exported by various companies in the last 2 years is shown.

YEARLOOSE TEAVALUE ADDED TEATOTAL

QNTYAV.PRICEPER KG(US$)VALUEIN THOUSAND US $)QNTYAV.PRICEPER KG(US$)VALUEIN THOUSAND US $)QNTYAV.PRICEPER KG(US$)VALUEIN THOUSAND US $)

2005-063,4521.284,4172042.144363,6561.334,853

2006-074,3501.185,1154782.301,1014,8281.296,216

2007-0810,2241.3013,2515742.231,28110,7981.3514,532

2008-095,8221.8710,8723292.598526,1511.9111,724

2009-101,7772.183,8793003.029062,0772.304,785

2010-119631.901,8271973.777421,1602.212,569

2011-121702.48422393.821492092.73571

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.

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. 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 ElasticityElasticity: 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 e1Price P e S D D1 Q Q1 Quantity 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. 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. D D1Price

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.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 S P1 P Q Q1 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 SupplyFactors 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 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 19th 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 S Price

Quantity SuppliedFigure6: 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 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 D2Price

Quantity DemandedFigure7: 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.

D1 D2Price

Quantity DemandedFigure8: 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 GoodsDespite 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 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 MirzaporeFigure 3 Income elasticity of demand for TeaFigure 4 Price elasticity of supply of Tea in the short runFigure 5 - Price elasticity of supply of Tea in the long runFigure 6 Weathers impact on demandFigure 7 Demand for Tea during the winterFigure 8 Demand for tea during April5. List of TablesTable 1 - EXPORTERS & EXPORT FOR 2010-11 AND 2009-10Table 2 - ANNUAL EXPORT

6. List of Abbreviations:MMI- Mirza Mohammad IspahaniP- PriceD- DemandS- SupplyQ/ Qty- Quantitye- EquilibriumVAT- Value Added Tax

7. ConclusionAll 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 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.

16