This is the Only Way Forward for India's Struggling Tea Industry

India’s tea plantation sector woes have continued for far too long despite being the world’s second largest tea producer, after China. It is time to rethink the way forward of a crop that the country has been growing for nearly two centuries.

First up, it needs to cut down on a decade-long glut of “poor-quality black teas that has been flooding the market leading to depressed or stagnant prices,” Indian Tea Exporters Association board member Mohit Agarwal, told World Tea News.

India’s tea sector is not heavily reliant on exports. After all, with a population of 1.4 billion, it has a massive domestic market to serve. Yet, there is still a surplus: Based on the past three years of data, India produced 1367 million kilos of black tea CTC leaves, on average of which 10% are orthodox tea, according to Agarwal. Of the total produced, 1120 million kilos are sold locally. Only 200 million kilos are exported, bringing the surplus close to 110 million kilos, he said.

The total global tea crop is 6603 million kilos.

Within the last two decades, a rise in smallholder tea farmers saw India’s tea production going up drastically, resulting in a surplus and declining prices. On top of that, the cost of producing tea has surged, making tea production almost unviable.

A major part of that cost is made up of tea plantation sector wages, which Agarwal agreed “should go up, in all fairness.” There has been a 25 percent wage rise for workers within the last four years. In India’s northeastern region of Assam, the daily minimum wage for a plantation sector worker is INR 250, and the amount varies from state to state, he said. Other input costs like rising fertilizer prices due to inflation has made things tough for the industry.

Going forward, these costs will continue to rise, and Agarwal called for “an equilibrium in supply and demand” to reverse this trend. “The industry needs an urgent impetus of price jump as most tea companies are bleeding,” he said.

Asked why the surplus was allowed to continue for so long without any steps being taken to remedy it, an industry expert who didn’t want to be named said it was all down to “low margins” in India’s tea sector.

“The only way to make some money is through volume,” the industry expert said. “Make as much as you possibly can and make a few cents per kilo. That was the strategy.”

Moving forward, the industry is starting to realize that this strategy is not going to work, with steps being taken to lower production. Last week, the west Bengal state government increased the portion of land that tea garden owners can use for growing other crops to 15% from the existing 5%. “This diversification can provide additional income streams and reduce dependence on tea alone,” the industry expert said.

So the message for the sector is loud and clear: Lower the quantity and improve the quality. "Indeed, more farmers have started to produce quality teas because the low-quality ones are not seeing the demand," said the industry expert.

To this end, Agarwal added that equipping farmers with the knowledge needed to produce high-quality tea in a sustainable way is crucial. A case in point is the Kenya Tea Development Agency (KTDA) model – a private company owned by nearly 600,000 tea smallholders farmers.

Another significant measure needed is ensuring that one-hundred percent of bought leaf tea is sold through a public auction system. Agarwal said it will ensure the visibility of price realization to small tea growers, enabling them to demand their fair share, “This will incentivize plucking of good quality green leaf, thereby improving the overall quality of teas being consumed in India.”  

Currently in India, only 40% of tea leaves are sold through auction, and Amaral blames the dual mode for the “biggest cause for depressed prices.” Agarwal said the auction price average improved during Covid (in 2021) at INR 184 per kilo, but since then, it has come down to INR 168 per kilo (2023).

Currently, the biggest tea packers buy only 30-35% of their requirements via public auction, which dilutes competition. As a result, “the barometer for determining prices is highly compromised," said Agarwal. “Only competition can lead to fair pricing.”

Strict enforcement of Maximum Residue Level (MRL) compliance is a key focus: It will not only help the industry to promote tea as a health beverage, but it will also lead to higher demand and lower supply.

Despite India’s struggles, Asia Pacific region’s ready to drink (RTD) tea market is forecast to reach USD 6.67 billion by 2028, posting an annual gain of 5.73%, (between 2023-2028), according to Research and Markets data.

Agarwal agreed that the “3 in 1 concept” or RTD powder with milk and sugar is getting bigger in southeast Asia. In fact, RTDs are primarily made from tea waste or BMF (Broken Mixed Fannings), which is a by-product of tea and not the primary grades of teas themselves. On the contrary, India is eyeing growth in the consumption of traditional tea leaves and not iced tea or RTDs, said Agarwal.

Tea may be one of the healthiest beverages in the world, but the industry has seemingly not been able to get this message across to India’s gen Z and millennials. According to industry data, “India’s per capita tea consumption has never grown beyond 840 grams or may have even dropped,” said Agarwal. “India’s tea industry will boom if we can get the per capita consumption increased to one kilo."

 

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