The Indian tea industry is facing threats on account of its high cost of production. The threat is particularly acute in the international arena where India is now a distant fourth with a global share of 12 per cent in 2009 and after Kenya, China and Sri Lanka.
That is nothing new, but over the last few years, the organised industry has been exposed to threat from within the country too — from the small tea growers (STG) who now account for 28 per cent of total Indian tea output.
The phenomenon is more pronounced in the South where 44 per cent of the produce is from this segment while in North India 24 per cent comes from STG. The industry construct is changing with a new paradigm evolving.
High cost
During the Eighth and the Ninth Plan periods, a large number of agriculturalists in North Bengal and Assam switched over to tea cultivation lured by good tea prices. Small growers holding upto 10-12 hectares thus started co-existing with corporates/proprietary gardens in North and South India and now perhaps no policy is formulated by the Government without keeping in mind this sector's interest.
However, the organised sector faces competition from this sector as STG is outside the ambit of the Plantation Labour Act under which the organised industry has to fulfil certain social obligations which results in shouldering the highest COP (cost of production) in the world.
The organised industry has addressed this challenge in two ways – while some corporates like the Tatas have de-risked their operations by evolving as a beverage company rather than remaining as a plantation outfit only, others have chosen to take benefit of this development (of emergence of STG) by increasing their purchases from bought leaf factories (BLF) to which the STG sell their green leaves.
There has been a mushrooming of BLF units in Assam and North Bengal. Currently, the share of BLF in total tea production is about 23 per cent against 10 per cent in 2001.
However, their teas are sold privately and inadequate quality control or expertise makes this sector produce a low quality product mostly.
Status paper
Says a recent status paper by the Indian Tea Association “Due to various reasons, the sector has much lower cost of production and thus can offload tea at lower prices. This adversely affects the general tea market because of uneven competition.” During 1998 and 2007 while the organised sector has lost 57 million kg of crop, the BLF sector registered a 169 million kg jump, just as the area cropped by the corporate sector increased by a mere 0.3 per cent while that of the STG by 14.3 per cent.
Now steps have been initiated to achieve the requisite quality standards as the organised sector is increasingly sourcing their teas from this sector,as part of its strategy to tackle competition as well as to meet the increasing demand.
These facets on the Indian tea industry has been highlighted in a recent status paper published by the Indian Tea Association which says that over the years, India has slipped to the fourth position in world tea exports as its competitors like Kenya and Sri Lanka, serviced by well-organised low-cost high quality small-holder sector is outdoing India.
Boosting exports and higher overall price-realisation will be the main thrust of the industry, the report said.
Demand-supply
Following erratic weather conditions where either there were drought conditions or incessant rains triggering a pest attack that will leave Indian crop down by 22 million kg in 2010.
The industry now expects a crop level of 957 million kg, with imports of 20 million kg and a consumption of 870 million kg.
There appears to be equilibrium in demand and supply. Exports are being seen at around the level of 190 million kg which is lower than in 2009 but realisations are expected to be better on improved prices. Commenting on the rising consumption of tea, the study is of the view that the demand which is now growing at an annual rate of three per cent is still low and the industry has to devise ways of tackling competition especially from the aerated beverage segment. Experts say that this can only be done through innovation as well as promoting the drink as one with health-giving properties. Some broad areas have already been identified in this respect between the ITA and the Tea Baord. A domestic consumption level of 870 million kg has been projected for this year.
Safeguard duty
Imports have been a cause for concern to the Indian growers especially in view of the two Free Trade Agreements in force now — the India-Sri Lanka and the India-ASEAN one — under which duties will come down progressively to 40 per cent in 10 years from 100 per cent now. The industry wants this to continue as a safeguard duty. At its recently held annual general meeting, the ITA chairman highlighted this issue before the Union Finance Minister also.
Value added exports
With volumes dropping, the emphasis now should be on value-added exports as these teas realise better price. Emphasis should also be placed on enhanced production of orthodox teas, the paper says. Exports are estimated at 190 million kg against 198 million kg in 2009 and 203 million in 2008.
