Surplus Tea Production and Depressed Prices Trouble Indian Tea Industry

India’s tea production in 2019 grew3.8% from the previous year, and clocked a record 1390 million kilograms, withAssam producing 716 million of the total. The increase isattributed solely to the small tea growers (STG), whose contribution to totalnational production stands at 48% (growing from 20% in 2010).

Record production brings multiple concerns to thefore.

India is the world's second-largest tea grower,producing both orthodox and CTC (cut, tear, curl) teas, with well-establishedexport and domestic markets for both. While the local market mainly consumesCTC, these teas are also exported to Egypt, Pakistan, and the UK. Exportmarkets for orthodox tea span Iran, Iraq, and Russia. There was some respite asbilateral relations between India and Iran sustained tea trade. Despite U.S.restrictions against Iran, the latter outranked Russia as the highest importerof Indian tea in 2019. Russian imports dropped by 3% to 46 million kilograms while Iran’simports rose by 74% to 53.5 million kilograms last year, selling for about $4per kilogram. But exports overall plateaued at 228 million kilograms for theperiod January to November 2019. Domestic consumption also remains flat, at 1,090million kilograms in the year, a problem that the Tea Board of India isgrappling to resolve.

Tea pluckers in Darjeeling India at Ambootia Tea Estate. (Photo courtesy of the Ambotia Tea Estate)

The news of production and prices are occasionallypunctuated with accounts of a specialty tea selling at never-seen-beforeprices. Last year, a spring white from Badamtam in Darjeeling sold for $2,500per kilogram, and a summer black tea from Dikom in Assam sold for nearly $1,000per kilogram. But these are seen as anomalies that distract from the crisis onthe ground level. Specialty tea is a segment with volumes too small to see acascading effect of higher prices. Tea Board of India chairman and planter Prabhat KamalBezbaruah said in an interviewlast year, "One can't make a business model out of making these kinds ofteas. The demand is artificially created for a few kilos. The INRs50,000 and INRs75,000prices fetched for a few kilos are definitely trivializing the tea industrycrisis."

Vivek Goenka, chairman of the Indian Tea Association,explained the most pressing problems lay with the production of bulk tea, whichhas suffered from high production costs and low prices for the last four years.

Both the Regulated Tea Gardens (RTG) and Small TeaGrowers (STG) are facing the impact of low prices. For the RTGs, the cost ofproduction necessitates a higher sale price. According to a report, the averageauction price for black tea was INRs110 ($ 1.54) at the turn of the decade. Bythe end of 2019, it stood at INRs148 ($2). With the cost of labor going up,along with production costs for fuel, fertilizer, and power to operatefactories, the largest gardens are unable to see a way out. Registered gardensmust also pay for housing and dry rations, firewood, medical care, and theeducational needs of minors. For the STGs, the cost of production may be lower,but the average STG produces only 1,100 kilograms of green leaf on one hectareof cultivated land. Small growers in Assam that rely on family labor yet stillincur production costs averaging INRs15 per hectare. Prices minimums areenforced in each region, but STGs earn only INRs15 ($0.20) per kilogram. Atthese rates, the business is not viable, yet with no alternative livelihoods,small growers are left with no choice.

And, as India's gardens ready for the first flushnext month, there is the matter of 50 million kilograms of surplus tea thatneeds to find a market, either domestic or export, or both.

Source: SiliconIndia, Reuters, TelegraphIndia