February , 2020
India’s tea industry is in crisis
16:48 pm

Kishore Kumar Biswas

After water, tea is the leading beverage to be consumed globally. India has been one of the most important
tea producing countries. At present, it produces the second largest amount of tea - 1325 million kg per year - after China. An industry analysis titled ‘Performance of Tea Industries in South India – A Comparative Analysis’ by four Vellore
Institute of Technology (VIT) researchers published in the International Journal of Pure and Applied Mathematics, (Volume 119) states that Indian tea was globally famous but after the globalisation process, Indian tea was not able hold
on to its market share, globally.

Since then, many small tea producing countries like Kenya and Sri Lanka have started dominating the global tea market.
It is the cost of making tea, its price and quality and other factors that determine the success of any country’s tea industry in the global tea market. India failed to meet the basic requirements and lost its place in the global tea market.

The tea industry in India has been facing a crisis; over supply being the main cause of concern. There are many types of tea produced in India but broadly, there are two types of tea in black tea production. One is orthodox tea and the other is the cut, tear, curl (CTC) variety. Compared to CTC production, the orthodox tea is relatively costly to produce. On an average, it takes around Rs 25 more to produce one kg of orthodox tea as compared to one kg of CTC tea. Its market price is also higher than the CTC variant. About 75% of the production in India is CTC tea. The crisis of over-production is more prominent in the CTC category as compared to the orthodox segment. 

One of the most notable features of the Indian tea industry is that more than 80% of its total production is consumed domestically. India is the fourth largest exporter of tea in the world. China ranks first, Sri Lanka and Kenya ranks second and third respectively. China has been focusing on the production of green tea. Sri Lanka is specialised in producing orthodox tea whereas Kenya is specialised in CTC tea. In 2017-18, the total production of tea was 1325.05 million kg in India which was an increase by 6% as compared to 2016-17. Similarly, the total quantity of tea exported during the financial year 2017-18 stood at 256.57 million kg, while the foreign exchange realised from export of Indian tea was $785.92 million.

How to tackle the problem of over-supply

A few months ago Mudit Kumar, the then President of Tea Association of India (TAI), in his speech at the organisation’s Annual General Meeting (AGM) raised some pertinent points. He pointed out a few ways that can tackle India’s tea industry’s issue with over supply. The first point was to do with regulation of tea production and the second point was around increasing consumption. To lower production, a complete cessation of plucking of leaves in the winter season is needed. It will definitely pull down tea production. The growing poor quality of tea is also a concern. It has been mandated by the Tea Board of India that no leaf beyond 15 days of age can be plucked. It is claimed that the small tea growers are prone to pluck bigger leaves that hampers quality. Among other areas, it is suggested that steps should be taken to increase the production of complaint tea varieties. It is also suggested that a portion of tea garden land can be used for other activities. Lastly, there is a need to restrict production of the CTC variety of tea and encourage production of orthodox tea.

Some initiatives of the Tea Board India

The Tea Board of India has taken several steps to restrict production. It has mandated not to pluck tea leaves in the
winter season. This is, of course, for the north Indian tea gardens. As a result, production has already decreased by about 25 million kg, according to Arun Kumar Ray, IPS and Deputy Chairman, Tea Board India. Ray also told that more curtailment can be expected in near future. Ray further told that as emphasis was being given to maintain the quality
of tea, it would also lead to production curtailment. The Tea Board has already undertaken a plan to increase the pro-
duction of orthodox tea. It has recommended the central government to implement a policy that will aim at increasing the production of orthodox tea. Price subsidy to increase export of orthodox tea and some other facilities can also be expected from the government.

The industry bodies have demanded the formation of a council like structure - similar to the Export Promotion
Council - chaired by the Tea Board India. It has been a long- standing industry demand to implement a Minimum Support Price (MSP) mechanism for tea. According to industry sources, this may help to revive the fortunes of the industry. However, according to Tea Board sources, as of now, MSP is restricted to some agricultural items and implementation of MSP for tea can only be possible with governmental intervention.

The Tea Board has procured a ‘Fine Count Machine’, which can be used to maintain the quality of tea. It will indicate the presence of quarantine elements in leaf, its texture type and size. But this is at an experimental stage. The Tea Board is also looking to enhance the traceability of Indian tea varieties to increase its saleability.

Additionally, tea planters are dependent on government subsidies and these subsidies are given on different heads. In the last three to four years, subsidies are not increasing. This is another cause of concern. But with the initiative of the Tea Board the subsidy has been raised to  Rs 197.64 crore from Rs 150 crore earlier.

Cost structure of Indian tea

Tea is a labour intensive industry. About 65% of the production cost is actually labour cost. The wage rate is determined by the rules under the Plantation Labour Act. In north Indian gardens, particularly, in West Bengal a portion is paid in cash and the rest in kind.

But the productivity of labour is different in different places. P. K. Bhattacharyay, Secretary General, Tea Association of India, said that in south India, labour productivity is higher. On an average, a tea garden labourer produces 6.5 kg of tea per day in south Indian gardens. On the other hand, in Bengal or Assam, a worker produces only 2.5kg to 2.75 kg per day. On an average, 4.65 kg of tea leaf is required to produce 1 kg of tea.

In India, tea production is mainly an organised sector. This is why - except in the case of small tea gardens (not more than 10 hectare of land) – all large gardens have to maintain labour laws and wage rates fixed by the management and labour representatives. It is claimed that countries like Sri Lanka or Kenya are better placed in the global tea market due to their largely unregulated tea industries. 

A very gross costing of 1 kg of tea in a small garden

An industry insider gave the estimation that on an average, one medium quality of tea leaf costs Rs 15 per kg. 1 kg of tea needs 4.65 kg of tea leaves and then the total cost of leaves per kg of tea is about Rs 70. The cost in a tea factory to produce one kg of tea is around Rs 30. Therefore, a medium quality of tea costs about Rs 100 per kg as of now. But low quality tea costs around Rs 75 per kg where tea leaves costs Rs 10 per kg. It is seen that in many cases, tea production is so much in excess compared to the current market demand that low to medium quality tea is being sold below its costing. A tea producer told that in Assam, low quality tea is being sold at Rs 60 per kg. The producers are not even able to recover the cost of production.

A study on global cost pricing

Among the tea varieties, Indian variants have high cost of production. The cost of production for 1 kg of tea in north India is $1.62/kg and in south India, it is $1.48/kg, while in Kenya, it is only $1.16/kg for the estate sector and $1.10/kg for the smallholders and in Sri Lanka it is $1.23/kg. However, while comparing the selling cost of these tea variants it can be found that Kenyan and Sri Lankan tea varieties currently fetch the highest price of around $1.92/kg. Prices for Indian tea varieties still remain at around $1.32/kg.

The future projection

Supply and demand for tea should be more or less equal to maintain a balance. But in a free market situation, mismatch between supply and demand is frequent. It should be noted that the supply-demand mismatch in tea is not only in India but also present in the international market.

There has been a recent study by the Food and Agricultural Organization (FAO) and it is observed that if the supply of tea has been more than its demand by about 5% then that may lead to fall in the average price level of tea by 25% in the international market. In India, excess supply of tea has been possible, mainly, due to unplanned production by small tea producers. In the case of Assam, illegal encroachment into forest land by tea gardens is also a cause for concern.

The emergence of small tea growers came at a time when there was huge supply shortage in the tea market in the late 1980s. The estate owners were satisfied with the domestic market and a confirmed the then USSR export market. But the situation changed later. The Russian market is now open and India’s tea export to Russia has also fallen drastically. 

In the current situation, the estate owners need to have a strong competitive attitude. Reinvestment in gardens should be a priority for them. Replantation of very old tea plants is much needed. The garden owners should increase labour productivity by capital investment but that should be done cautiously. India has to diversify the product and go for more value addition like increasing production of tea bags, flavoured tea and instant tea. The small tea producers are a reality now and their contribution will gradually increase.

India’s strength is its big and growing domestic market. India’s per capita consumption is little over 760 gm per capita per year and to increase it to one kg per capita per year should not be very difficult. India’s export potential is also not too limited - now it is over 270 MT - but the target is 300 MT by the end of this fiscal year. The Indian tea market needs to evolve with the times and changing consumer preferences.


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