Tea — an industry trapped in its legacy

The sector is undergoing churn and the factors at play are more structural than cyclical

Quality is affected by the ageing of tea bushes in this centuries-old industry. Till September, about 3,325.7 hectares have been replanted under the Medium Term Framework 2017-20.

The Indian tea industry closed 2018 with a crop of 1,339 million kg. Production is on an upswing this year too.

Earlier, this would have gladdened the industry and the Tea Board of India alike. In today’s context, there may only be two cheers for a rising crop in India — the second-largest tea producer after China. The Indian tea industry is going through a churn and the factors at play are more structural in nature than cyclical, changing the industry construct.

Some of the world’s best teas are grown in Assam, Darjeeling, Nilgiris, Sikkim and Kangra. The labour-intensive industry, employs over 11 lakh workers in the organised sector, half of whom are women.

The emergence of the small tea-growers as a dominant force in the industry, along with the scarcity of labour and its cost (65% of cost) in the organised industry, are two of the major threats before the organised industry — also known as the estate segment. Prices have not moved in tandem with inflation, causing financial stress. The industry too has been found wanting.

Lately the organised sector’s production has shown a declining trend and small tea-growers now have a larger share of the pie. Between January and September 2019, the estate segment’s share in total crop fell to 50.9% against 52% a year ago.

Consumption

Contrary to the popular imagery of India being a tea-drinking nation, its per capita tea consumption is low at 786 gm. A burgeoning population has ensured that 80% of the crop is consumed domestically, but per capita consumption remains a pain-point for the industry and the regulator. “Not only do more Indians need to consume tea, but more Indians need to consume more teas,” said Mudit Kumar, President, Tea Association of India. According to him, demand-supply mismatch has led to stagnant prices.

Overall tea prices remained soft in the first half of fiscal 2020. According to a report by ICRA, while higher production will help absorb costs, the overall soft price trends will impact on the tea companies’ bottomline.

The All India Tea Auction price in the first half of 2019-20 has risen by 3.02% to ₹148.8 per kg. This is not enough according to the industry, which says that while wages (in Assam and West Bengal which account for 75% of the output) have risen by 12% since 2009, along with prices of other inputs, all of which have risen at a faster clip than the 3% rise in tea prices. “A majority of the estates are losing money and if prices do not increase, operations will not be sustainable,” said Vivek Goenka, Indian Tea Association Chairman.

Aware of the need to put in place a mechanism for fair price-discovery, the Tea Board has taken some measures. These included actions like foreclosing the tea season in December to curb production of indifferent qualities of teas and initiating auction reforms. To keep abreast of technology, the Tea Board has upgraded the e-auction infrastructure which includes cloud hosting and making the software compatible with the latest technology. An e-auction platform for Jorhat in Assam, with value-added services, is being developed.

Quality is also affected by the aging tea bushes in this centuries-old industry. Till September 2019, around 3,325.7 hectares have been uprooted and replanted during the government’s medium term framework (MTF- 2017-20).

Given the domestic consumption pattern, exports have attained criticality. In 2018, India’s tea exports stood at 256 million kg. Tea Board Deputy Chairman and CEO Arun Kumar Ray feels that this could rise in future as Indian exporters are scoring gains overseas despite the decline in the overall exports market.

The way forward

The industry has to gear up to face its challenges. Whether that be through adopting mechanisation or by adapting to new ways of doing business. “There is no way out but to increasingly adopt machine harvesting,” said Harkirat Singh Sidhu, a tea technologist.

“For too long the industry has adopted a laid-back way of functioning whether that be in replanting and rejuvenating the tea-bushes (most are over 50 years old) or innovating ways of marketing tea and adding value or by unleashing alternative revenue streams,” said a senior planter unwilling to be named.

Recently, a start-up, which sells teas at attractive prices here and abroad, delivered a lecture to the organised tea industry as to how he went about his business. According Kausshal Dugarr, founder Tea Box, “The industry is unable to look beyond its legacy.” The traditional industry, perhaps, would do well to listen and find ways to sell a produce that is the world’s second-most consumed beverage after water.