April , 2019
Indian tea industry needs comprehensive reform
17:19 pm

B.E. Bureau

The Indian Tea association has been playing a multi-dimensional role towards formulating policies for the growth of the Indian tea industry since 1881. Arijit Raha, Secretary General of Indian Tea Association, spoke to BE's Ellora De.

Q) Unremunerative prices seem to eat into the margins of the tea companies. How can prices be increased?

A. It is true that tea prices in India have been stagnating for the last five years. The erosion of margins is primarily attributed to the impact of rising costs in the backdrop of stagnating prices. While input costs have witnessed a compound annual growth rate (CAGR) of more than 10% over the last decade, the CAGR of tea prices have been around 5%. The auctions being a prime channel of sale, serve as a benchmark for tea prices and are indicative of the market trends. In recent years, auction buying patterns suggest a higher preference for teas in the mid and lower end of the pyramid.

Tea production in India has grown significantly from a level of 980 million kg in 2008 to 1312 million kg in 2018. The spurt in production has been largely contributed by the small tea grower (STG) segment. In fact, during the period 2014-18, the STG production has increased by 223 million kg – an increase of 56%. During this period, the estate sector crop has declined by 13%. The last decade has seen the emergence of a dual cost paradigm. The STG sector’s tea harvest is primarily sourced by the Bought Leaf Factories (BLFs), which has the advantage of manufacturing teas at a substantially lower cost than the estate sector where high fixed overheads burden the cost of production. The large variance in the cost of production gives the BLF sector a competitive edge to offload teas at a lower price which is often below the cost of production of the estate sector.

Due to unfettered expansion of tea areas, there is an apparent oversupply, creating an imbalance in the demand-supply equilibrium. The identified strategy for dealing with oversupply focuses on increasing exports and boosting domestic consumption through generic promotion campaigns. The estimated per capita consumption in India at 0.786 kg is low when compared to several tea consuming countries like UK (2.74 kg), Pakistan (1.01 kg) etc. There is an opportunity to boost consumption among the youth positioning tea as a healthy and happening beverage served in hot, cold as well as flavoured formats. Generic promotion initiatives however require large funding to be sustained.  An overarching policy regulating expansion of tea areas is essential for restoring the demand supply equilibrium. The Tea Act permits such regulation.

In addition to the above, reforms are underway to make the auction system more competitive. Auction reforms in India have witnessed the introduction of electronic auctions, replacing the auction hammer with the mouse. The reform process is ongoing and it is expected that the future will see auctions attracting widespread buyer participation, reduction in transaction costs and better price discovery.

Q. What measures should be taken by the Indian tea industry to improve the present condition of Indian tea export segment?

A. India is the fourth largest tea exporter in the world exporting around 250 million kg annually.  India is primarily a crush – tear – curl (CTC) tea producer.   The steps being initiated to enhance exports to a level of 300 million kgs in the next few years cover correction of the product mix and tea promotional activities in key overseas markets. Correction of the product mix aims at enhancing the production of orthodox variety of tea.  Orthodox/green teas have a 60% share in the global export market. Presently around 100 – 110 million kg of orthodox teas are produced in India out of the total production basket of over 1300 million kg. The cost of producing orthodox tea is significantly higher than CTC teas. Therefore adequate incentivisation from the government is essential to motivate producers to produce more orthodox teas to cater to the global demand.

In addition, tea promotional activities are being undertaken by the industry in key overseas markets. Trade delegations are being mounted on a regular basis in potential markets like Russia, China, Iran, Iraq, USA, Egypt ,etc.

The new Agriculture Export Policy of the Government of India focuses on integrating the small farmers in the export chain, which has the potential to provide competitive edge to India’s exports.

Q. Indian tea is facing the problem of low productivity. Why is that?

A. The Indian tea industry is constrained by stagnant land productivity and yields. The average age of tea bushes for the estate sector is more than 50 years. In order to sustain viability, an annual 2% of area replanting is recommended. However, replanting involves long gestation periods of around seven years. Though a subsidy is being provided by the Government of India towards this end, in view of stagnating prices, sustaining replanting has become a challenge. Climate change has resulted in uneven rainfall, rising temperatures and increasing dependence on irrigation. Incidences of drought are more pronounced than on yester year. These coupled with increase in pest activity have had an adverse effect on productivity. Government has stepped in to mitigate irrigation costs. Rain water harvesting is being adopted by estates.

The tea industry in north eastern India covering Assam and West Bengal is seasonal in nature with effective operations being only for nine months in a year.  Though the revenue earning is for nine months, the wages of permanent workers has to be paid for the whole year covering the lean period when there is no production. The estate sector has a resident work force living on the estates with their families. Management is statutorily bound to cater to housing, medical, and welfare of the worker and his/her family. Cost of employment covers cash wage as well as in kind benefits. Catering to the growing aspirations for higher wages would not be economically viable or sustainable unless there is a significant rise in the prices of tea as well as increase in the labour productivity. Absenteeism from work is almost 30%. Pressure of population growth on the estates resources is growing. Mechanisation as an option is being explored by the industry. Large scale mechanisation and consequent rise in unemployment could make the sector vulnerable to social tensions. A comprehensive approach considering these realities is the way forward for viability and security of the one million plus employment of the tea sector. A special package for revival is a necessity.

Q. What is the contribution of the small tea growers in the tea industry?

A. The small tea grower (STG) sector contributes to around 47% of the Indian production.  The growth of the STG sector has created employment opportunities for a large population in tea growing areas. The launch of the agriculture export policy by the Government of India signals the need for the small tea growers to be integrated in the export chain. The Indian Tea Association has initiated an endeavour to partner with the STG sector under a project titled "Trinitea" in collaboration with Solidaridad Asia.  The cost competitive capability of this sector can be leveraged to cater to tea exports in the years to come. The STG sector is making a significant contribution to the rural economy and society at large.


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