Though small tea growers may have the biggest role to play in the future of the tea sector, they have limited bargaining power due to a lack of scale of production, as many have land holdings of less than one hectare (or about 2.47 acres), limited support and access to financial backing, and a lack of access to several schemes that are available to other small farmers in the agricultural sector, per a new status report from India.
In fact, many small tea growers (STGs or STG) moving away from tea cultivation may turn out to be a reality in India, due to a low or sub-optimal price realization.
This was all pointed out in a recent report on small tea growers, prepared by the Confederation of Indian Small Tea Grower Associations (CISTA) and presented to the Union Commerce Secretary of India, Sunil Barthwal.
“Such sub-optimal price realization may put a question mark on the business viability of the STG segment, which may have serious socio-economic repercussions in terms of livelihood,” notes the paper. “Given [that] STGs are located in the remotest part of the country, where there are limited opportunities, tea is a major employment generator. Currently, over 5 lakh people are involved in the STG segment directly, and over 10 lakhs involved indirectly (one lakh equals one hundred thousand). Livelihood of 1.5 million people can get affected due to such issues.”
Bijoy Gopal Chakravarty, president of CISTA, told World Tea News: “If the long lasting price problem of green tea leaf is not solved soon, the existence of small tea growers will be in question in the near future in Assam and Bengal, who are contributing 90 percent of small sector tea. People have shifted from tea to other crops in South India, mainly in the Nilgiri district of Tamilnadu. In 2015 to 2016, small tea growers of Nilgiri contributed 78 percent of total tea production, which has now come down to 48 percent in 2022/2023, due to non-remunerative green tea leaf price. Small tea growers are selling their land to the hotels and resorts, and are now cultivating crops like carrots, tomatoes, potatoes for sustainable income.”
The idea behind the CISTA status report is to share the current status and challenges faced by the small tea sector in India, and to seek policy intervention from the government of India’s Ministry of Commerce and Industry, to address the critical challenges and ensure remunerative economical returns to the small growers and manufacturers.
According to the status paper, there are currently 2.4 lakh STGs in India (around 240,000) with a production of over 691 million kgs of tea (52 percent of India's tea production) and a combined area of around two lakh hectares under tea cultivation. Currently, more than five lakh of people are involved in the STG segment directly, and more than 10 lakhs involved indirectly, with the livelihoods of 1.5 million people at risk.
The Tea Board of India defines a small tea grower as a business that has a tea cultivation of up to 25 acres (or 10.1 hectares).
A Potential Supply & Demand Gap in the Industry
The report explains that the economy of the tea-growing regions in India – with highest STG presence – are largely dependent on the economy related to tea plantations. In the past, many such regions have seen a stable change or improvement of their local economy, as a result of the income from tea cultivation. “Poor price realization by STGs also impacts development of such regions," according to the report.
The paper also points out: “While trends are already observed in South India regarding migration of farmers from tea, this can intensify if the small tea growers (STG) do not get remunerative price to even cover up their cost of production. This may have a serious impact on the production of the STG segment. It is pertinent to mention here that one of the key reasons for the rapid growth of the STG segment is their relatively young bush profile. However, as these get older, there might be investments required for plantation development activities, which otherwise would impact yield and reduce overall production. This could create a potential supply-demand gap in the industry.”
Overall, the growth in green leaf price has been at a two percent compound annual growth rate (CAGR), which is much lower in comparison with the increase in cost of production of tea seeing an increase at more than five percent. That major cost is borne by the STGs and their human labor, as most of the plantation activities are done manually, such as plucking.
More importantly, the price realization of STGs is linked to a “made tea” prices at auction. However, due to various factors, the auction prices are not the right barometer to determine the price of green leaf for STGs and, more importantly, the slow growth rate of auction prices and the growth on price realization for growers have been lower compared to the growth rate in cost of production.
Interestingly, though, people working on small tea farms in Assam were supposed to get a wage of Rs232 (Indian rupee; about US$2.81 an hour), which is equal to what workers receive in the organized tea sector in India; it still has not been implemented in the state. The Assam government had notified small tea growers about the wages last year.
Looking at the big picture, a large majority of STGs sell their green leaves to bought leaf factories through agents, yet, only around seven to eight percent of the overall STG population sells directly to these bought leaf factories.
Agents play a vital role in the tea value chain, as they collect the leaves from STGs, aggregate and transport to the factories. The emergence of agents has been pronounced, mostly because STGs lack scale and limited financial capability to develop leaf collection, storage infrastructure and transportation facilities. Indeed, various socio-economic factors also play a critical role in making STGs overly dependent on the agents.
In the end, the growers receive a disproportionately lower share of the consumers wallet, which makes it imperative to move up the value chain and get direct market access to have a better price realization.
Should Leaf Agents in India Be Brought Under a Regulatory Framework?
In sharp contrast with the organized segment of the tea industry in India – which has inherited the legacy created by British planters and is maintaining plantation development activities (though, the degree of these development activities have come down significantly over the past few decades due to low investment), the STGs have limited knowledge about planting materials, the modus operandi of planting, and the optimal usage of inputs – even field practices, such as pruning and plucking, which have a considerable impact on the quality of the green leaf produced and, consequently, on the made tea.
While comparing the situation with other small tea growers of the world, the status report from the Confederation of Indian Small Tea Grower Associations says leaf agents, like in Sri Lanka, should be brought under a regulatory framework to bring transparency in price sharing, enabling faster payments to minimize price distortion across the supply chain.
In Sri Lanka, green leaf agents are regulated by the Sri Lanka Tea Board, which makes the price sharing process more streamlined as compared to India.
In India, the agents are by and large unregulated. Previously, the agents needed to have trade licenses to carry out the business of green leaf collection, aggregation and transportation. Operations of agents and price sharing by these agents used to be monitored by various leaders or deputy commissioners in the respective green leaf producing districts.
The new status report points out that looking at the interaction of STGs and associations, it becomes apparent that such a monitoring mechanism is defunct in many districts, and the requirement of a trade license for carrying out such leaf-agent activities is not strictly enforced, in most cases. “In absence of such documents, virtually there is hardly any mechanism to keep tab on the volume of leaves traded and little to no regulation,” the paper explains.
The report also stresses that the Sri Lanka model can be emulated in India, whereby the prices are shared between factories and small tea growers in a prescribed rate. “If the actual sale of the factories exceeds the auction average, the excess amount is equally shared between the growers and factories, thereby incentivizing growers to produce quality leaves,” per the report.
According to the Confederation of Indian Small Tea Grower Associations’ report, interventions are currently required around plantation development, support in formation of collectives, support around quality upgrades and value additions, support in establishing market linkage, encouraging innovations in the industry, and encouraging adoption of technology. Intervention is also needed in areas such as research and development, promoting a sustainable future, and regulatory aspects that help streamline the supply chain.
Roopak Goswami has worked for more than two decades as a newspaper journalist in Northeast India. Tea is his passion, and he covers the global tea industry regularly for World Tea News.
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