January , 2022
ASSOCHAM & ICRA report on tea industry targets many vital issues
00:15 am

Kishore Kumar Biswas

Recently, ASSOCHAM and rating agency ICRA released a joint report titled, ‘The Tea Industry at the Cross Roads’ in Kolkata. In the report, many important issues like strengths and challenges of the tea industry India, particularly north Indian tea, have been discussed. The main issues that the industry face continuously include sharp and continuous increase in costs, particularly wage rates, a not-so-suitable auction sale system and deteriorating profitability and credit profile. The report critically analyses various areas of tea production like plantation of tea, development of the gardens, production system, labour issues, marketing, pricing mechanism, enhancement of sales of the products and international competition.

Why is the tea industry at the crossroads?

In this regard Manish Dalmia, Chairman, ASSOCHAM Tea Sector Sub Committee, East points out in the report, “India has the commendable distinction of producing almost 1350 million kg of tea, second only to China. The challenges of the industry and the increased preference for quality tea are the dual factors for validating the future business strategies. Though value added tea like packets and sachets fetch a better price, the recent increasing demand for bulk tea brings us to a cross road.” In the report, Jayanta Roy, Senior Vice President and Group Head, Corporate Sector Ratings mentioned that FY 2021 provided some respite to bulk tea players due to presence of a changed situation in the pandemic period. But sustainability of the same looks unlikely. The industry is likely to face another challenging year in FY 2022 with wage rates having increased sharply, with effect from February 2021, and prices at recently held auctions declining at a rapid rate.

The challenges before the tea industry

The biggest challenge of the Indian tea industry, particularly the north Indian (NI) variety has been the consistent increase in the cost of production. The main factor behind this has been the rising wage cost. The tea industry is a fixed cost intensive industry. The labour cost accounts for about 60% of the total cost of manufacturing tea. A tea estate employs about 2.7 persons for an acre of tea garden. There are around 3.6 lakh hectares under the big tea producers in north India. This means almost 10 lakh workers are employed only in this sector. Apart from daily wages and associated bonus, gratuity and provident fund, tea estates also bear benefits such as ration, medical, housing, educational and other facilities. In 2010, the cost of labour per kg of tea production was ` 50. In 2020, it had almost tripled to around ` 150. The cost related to fuel and agro chemicals have also increased significantly over the years. But the price of tea has not risen commensurately with the increase in cost. The north India auction prices have remained largely similar from 2012 to 2019 with average increase of only1.7%. It was only in 2020 that the industry saw a jump of 32% of prices on the back of supply shock due to Covid 19 related restrictions as well as adverse weather conditions.

The suggested way forward

First, the export base of Indian tea should be increased. India exports only to a select few countries as of now. For CTC tea, India exports only to CIS countries (30-35%) of total exports, UK (7%) and UAE (6%). For orthodox tea, India’s export markets are CIS countries (30%) and Iran (12%). India has to think about exporting tea in value added form. At present, it exports only 10% of its exports in value added form. For Sri Lanka it is about 55%. Secondly, domestic consumption, which has been 0.8 kg per head for several years, has to be increased by creating awareness about the importance of drinking tea as well as pointing to the benefits of drinking quality tea. Thirdly, meeting changing preferences of consumers with value added products is very important. There is an increasing preference for green tea varieties and other non-black tea varieties as well as black tea infused with fruits and herbals. Fourthly, there is a need to concentrate on quality tea production. This will increase the revenue of the producers. This will also check the oversupply of bulk tea which in turn tends to increase the price of tea in the domestic market. The Indian tea industry’s domestic market is around 80%. Fifthly, more importance should be given to production of orthodox tea rather than low quality CTC tea. India’s main competitor in orthodox tea exports, Sri Lanka has been declining its exports. Under the changed circumstances, India can explore the international market. Lastly, the auction system needs to be more streamlined and it should be ensured that big customers purchase most of their tea through auctions. This would ensure more openness in the pricing of tea in India


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