Darjeeling is known for its calm and serene hills, its spectacular views, its tea gardens, and is a popular tourist destination in India. The state is currently witnessing a political unrest that has affected trade and tourism drastically. An indefinite strike called by the Gorkha Janmukti Morcha (GJM) to demand a separate state has led to the suspension of operations at tea estates in the region. The chaos has hurt the Darjeeling tea industry. “The industry has already incurred a direct loss estimated at more than Rs150 crore,” said Darjeeling Tea Association Chairman, Binod Mohan. Work has come to a standstill at all the 87 tea gardens in the Darjeeling hills. The tea gardens in Darjeeling employ 55,000 workers and around 500,000 people directly or indirectly depend on the tea industry for a living.
Darjeeling tea has a global market but its “second-flush” season, which accounts for 40% of its annual revenue, has been crippled by the revived stir for a separate state of Gorkhaland. This particular variety of Darjeeling tea has historically been of very high quality and is almost entirely exported. While Darjeeling tea is a niche product catering to specific markets, the reduced availability of second flush Darjeeling tea is likely to lead to some substitution of such tea with tea from different geographies. Darjeeling usually has five flushes in a year. The second flush, from late May/early June to early July, produces a very premium quality of tea and fetches high realisations in the export markets. According to ICRA, the second flush typically contributes to around 20-25% of the total tea produced in Darjeeling, but the revenue contribution is much higher, given its premium nature. The impact of the loss of export volumes for Darjeeling tea on the domestic supply-demand situation is expected to be limited as it has limited domestic demand. Moreover, with an annual production of 9 mkg, Darjeeling accounts for only 0.8% of the domestic production.
Kaushik Das, Vice President and Sector-Head, Corporate Sector Ratings, ICRA Limited, said, “For Darjeeling teas, a plucking cycle of five to six days is followed. Timely plucking of fine leaves contributes to the overall quality of the tea produced during this period. Thus, the lack of plucking activity over the past 20 days is expected to have an impact on the production volume as well as the tea quality, even when operations re-start. This in turn is likely to impact the export performance of Darjeeling teas.”
According to ICRA, this year the weather patterns have been favourable, leading to good quality and increased production in the first flush. Initial indicators for the second flush were also positive, with average auction prices for Darjeeling tea in the first week of June increasing from Rs 346.6/kg in 2016 to Rs 360.66/kg in 2017 (y-o-y growth of 4%). But the leaf plucking and processing activities have been suspended since the second week of June, due to the political strife in the region. “This damage will have a cascading effect taking several years to reverse and will cause the already struggling industry to suffer huge financial losses,” added Binod Mohan.