The Indian tea industry has been facing several challenges. However, these challenges would have been bigger, if the government did not pull out of the Regional Comprehensive Economic Partnership (RCEP).
The challenges in the Indian tea industry are numerous. Compared to global producers like Sri Lanka, Kenya, China, and Vietnam, the cost of production is higher in India and productivity lower.
The cost of production is higher in India because labour cost is higher. According to well-placed sources in the Indian tea industry, there are no strict labour laws in other tea producing countries, lowering the cost composition. Additionally, the productivity is higher in those countries.
The age of plants is an important factor for productivity where lower aged plants mean higher productivity. The average age of tea plants in India is much higher - 60 or 70 years or more. But this is almost half in other peer producers. Additionally, Indian tea exporters are over-dependent on the government for their external marketing.
Role of small tea growers
The emergence of small tea growers has been a significant development in the Indian tea industry. The ‘small grower’ segment, which has grown from about 199 million kg (which was 22% of the production) in 2003 to 646 million kg (which was 48% of the production) in 2018.
The cost of tea produced by small tea growers is lesser. One of the reasons is its low cost of labour. The estate tea producers claim that the price of small tea growers is less but it is at the cost of quality. It is also stated that the small tea growers sell tea at low prices which hampers the entire tea market in India by pulling down the prices and making it difficult for established estate producers to provide competitive prices.
A section of tea consumers prefer to buy low priced tea and the demand for low quality tea is quite high in India. But it is claimed that a section of traders blend low priced tea with high quality tea and that draws a bad repute for the entire tea industry in India. According to many industry insiders, the price level of Indian quality tea has not been rising at the desired level and that has made the entire tea industry vulnerable.
According to small tea producers, their labour cost is low because they employ local labour I a way which is quite different from how labour is engaged in large tea estates. However, they do not agree that tea grown in small holdings would necessarily have to be of inferior quality. On the contrary, they feel that small growers can also supply high quality tea at comparably lower rates. However, according to them, Indian buyers are not ready to pay large amounts for unbranded tea.
Tea production in India had risen from 878 million kg in 2003 to 1338 million kg in 2018, indicating a 52% rise in production in 15 years, which outstripped the domestic consumption of tea - leading to stagnant selling prices for tea plantations.
Mudit Kumar, President, Tea Association of India (TAI), said during the associationʼs 47th Annual General Meeting(AGM) that much of the growth in production was becauseof the fast emergence of the ‘small grower’ segment between 2003 and 2018. He also mentioned that the productionfrom organised estates remained stagnant for this period.
Stagnant price but rising cost
A TAI source informed BE that one of the biggest problemsof the Indian tea industry is rising production costs andstagnant prices. Considering the CAGR growth of few essential inputs and consumer’s price index (CPI) as against theaverage All India Tea Auction price for the last 10 years, one can have a clear picture.
l Wages (Assam) - 12.36% l Wages (West Bengal) - 12.19%
l MOP- 13.41% l Coal- 9.01% l Electricity (Assam) - 8.39%
l Electricity (West Bengal) - 7.09% l CPI- 7.25% 8)
l Average All India Tea Auction price - 2.95%.
Could RCEP help Indian tea industryPrabhat Jamal Bezbaruah, Chairman, the Tea Board of India (TBI), told BE that the tea industry would have faced bigger challenges - had India signed the RCEP agreement. According to him, the main problem of the tea industry in India is labour. In China or Vietnam, most of the labour in the tea gardens is contractual. They perform their jobs in the garden and then go away. That is why the labour cost in tea production is low in those countries. The situation is different in India. To be externally competitive, the Indian tea industry must sort out issues associated with escalating labour costs.
A K Ray, Vice Chairman, TBI, informed BE, “Tea producers are depending on the TBI for many things. I agree that branding of Indian tea is very important. We can help them but the main initiatives should come from them.”