The Indian tea industry is strugglingwith low prices, high labor costs, vagaries of the weather and with everypassing year, the problems are both recurring and amplifying. It was adesperate measure on their side to launch a newspaper advertising campaign onAugust 1 to draw the government’s attention to this crisis. The advertisementdrove home the urgency of the problems faced by the industry, revealing thediscrepancy between costs and selling prices, and seeking the government’sintervention.
The advertisement paid off and a meetingwas convened on August 14 in Delhi, by the Union Commerce & Industryministry. The meeting, chaired by the joint secretary, plantations was wellrepresented by the various tea associations, including UPASI, the Indian TeaAssociation (ITA), the Confederation of Small Tea Growers Associations, theassociations from Assam, the Northeast, the conglomerates HUL (HindustanUnilever) and Tata Global Beverages (TGBL), besides the brokers.
The outcome of the meeting remainsunclear, but it appears that 10 areas demand immediate attention. These includeimplementation of auction reforms, expanding tea areas from the current 5% to20% for cultivation of other crops, expanding domestic consumption of tea viamarketing and branding, promoting tea tourism, and allowing tea waste export.The Tea Board of India is still working on the proposal in consultation withthe stakeholders.
Other areas mentioned are raising theincentive for production of orthodox tea from the current INR3 ($0.04)per kilogram,assessing the feasibility of a base price for green leaf based on minimumquality standards, offering the Mahatma Gandhi National Rural Employee GuaranteeAct - a social security scheme - for temporary tea garden workers, andexploring a mechanism to exchange rupees for rubles to increase Russianexports. The ITA has also asked to ban any expansion of tea estates for atleast five years. ITA is seeking financial relief by asking that stategovernments to take over contributions to the employee Provident Fund for a3-year period.
Tea board chairman Prabhat K.Bezboruah has said the final proposal is expected to be submitted to theMinistry of Commerce within a month. The Indian Tea Association’s Chairman,Vivek Goenka, has said the discussion also included the need for short-termgoals and targets. The ITA is now working on a proposal towards increasingcultivation area for other crops, and tourism. Meanwhile the Indian Instituteof Management, Bangalore carried out a study on the auctions and haverecommended a revamping of the e-auction system for bulk tea, using theJapanese auction format as a model. This is thought to impact price discovery positively.
The Assam State Government hasalready acted as the country’s largest producer. Earlier in the month, Assam’sfinance minister, Himanta Biswa Sarama tweeted that a bill had been passedwithdrawing a cess (tax) on the production of green leaves backdated to April2019. Additionally, the large tea gardens get a three-year exemption of cess(INR0.40 per kilogram) on green leaves.
Offsetting this news are reports ofhigh prices at auctions. Recently, Assam’s Dikom Tea Estate sold its GoldenButterfly tea for INR75,000 ($1,024) per kilogram while the Manohari Gold Teafrom the Manohari estate sold for INR50,000 ($695) per kilogram. The industryis divided on these reports. Some feel they underplay the actual crisis in theindustry, suggesting marketers are creating the illusion of prosperity. Othersare of the opinion that they offer a ray of hope.
The specialty tea market, in smallquantities, commands these prices but with the bulk of the industry dependingon sale of bulk tea, there’s a gap in the cost of production and sellingprices.
The auction price in Assam has risenonly marginly from INR150 ($2) per kilogram in 2014 to INR156 ($2.15) per kilogramin 2018. The average price of tea this year was INR165 ($2.30) per kilogramwhile cost of production was INR200 ($2.78) per kilogram. Ninety percent of teasat auction sell for below INR200 per kilogram.
In contrast, wages have increased 22%.The tea industry employs 1.2 million people, supporting more than three milliondependents, with women making up half the workforce.
The annual surplus is high, exportsare flat, and domestic consumption remains low. While direct sales of specialtyteas command good prices through direct sales, the cost of production for anindustry that has been largely focused on producing commodity CTC, remains adeterrent.
This year’s budget also included a 2%tax on employers who continue to pay wages in cash. This tax added to thefinancial burden of the tea gardens, where cash payments are preferred byworkers. Although the government has insisted that bank accounts be opened andpayments made only via bank deposits, the reality is there are few ATMs in thegardens and little access for most workers.
Even as the industry awaits theproposal, Assam’s state government is showing that it is keen to get the ballrolling. They are all set to appoint a third-party agency to study thechallenges of its industry and possible solutions.