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Production and exports of Indian tea decline

Production and exports of Indian tea decline

FOR a commodity that has perked up the mornings of millions of consumers around the globe, Indian tea is itself in dire need of some cheerful dollop of news to boost its sagging fortunes.

While erratic weather conditions are playing havoc with tea plantations in the two northern states of Assam and West Bengal — which account for more than 75pc of India’s annual tea production — rising costs and declining yields at auctions are hurting the industry’s finances.

Exports from India — the world’s third-largest tea exporter after Kenya and Sri Lanka — are also stagnating. Over the past decade, exports have remained at levels of around 200m kg a year.

Exports fell last year by nearly 27m kg because of intense competition from East African producers.

Production at tea gardens in the organised sector (which account for the bulk of exported tea) is also not growing. This year, for instance, India’s tea production added up to 553.21m kg between January and July, as against 553.62m kg in the same period in 2014. Exports were down at 107.92m kg, as compared to 112.89m kg in the corresponding period of 2014.

Slackening demand from two major markets — Egypt and Iran — has also hurt exports. Exports to Egypt have plunged by nearly 65pc in the first eight months of 2015. Egypt, along with Pakistan, is the main market for India’s CTC (crush-tear-curl) tea exports, whereas Iran and Russia are the main buyers of orthodox tea.

Adding to the industry’s worries are concerns being raised in Europe about the presence of chemicals in speciality teas like Darjeeling. The hilly region of West Bengal produces nearly 10m kg of tea, about half of which is exported. Darjeeling tea fetches good premiums, but concerns about the presence of chemicals in the tea will hurt exporters. Production of Darjeeling tea has also fallen sharply in recent years as many of the bushes are old and are giving low yields.

Almost half of the 200m kg of tea produced in the southern states is also exported. But the industry — both in the south and the north — is finding it difficult to export lower grade tea.

Demand for good quality Assam tea is high, especially from the UK, Egypt and Pakistan. Medium to high grade tea from the state is also in demand, as it is substituting Kenyan tea, which is in short supply. Assam tea is much cheaper than Kenyan tea.

The average price realisation of exported tea fell to Rs175.26/kg, as against Rs191.12/kg in 2014. The average price for all varieties of tea was Rs137.02/kg at the north India auctions (covering Assam and West Bengal) and just Rs82.42/kg at the south India auctions (Kerala, Tamil Nadu and Karnataka).

More than 50pc of India’s tea is sold through auctions held at various centres. The teas sold here are produced mainly by companies that own the estates.

THE share of the organised sector in the tea business is declining gradually. According to the Confederation of Indian Small Tea Growers’ Association, the share of bought leaf factories (BLFs) — who process the produce of small tea-growers — has doubled to almost 40pc in recent years.

Last year, BLFs processed nearly 400m kg, but just 150m kg was sold through auctions. Small tea-growers avoid the auction route, as they have to wait for a month to get paid. But this trend is hurting tea prices and affecting all growers.

Earlier this month, the North Eastern Tea Association (NETA) — which represents the interests of medium-sized tea plantations — urged the central government to take note of the growing role of small tea producers and transfer the policy-making powers relating to the industry from the commerce ministry to the agriculture ministry. This would enable tea growers to access cheaper funds.

According to Bidyananda Barkakoty, chairman, NETA, “though traditionally Indian tea is being produced by the organised sector with a large corporate presence, during the last 35 years there has been huge growth in the small tea growers.” They account for a third of tea produced in India, he adds.

In Assam, for instance, there are about 100,000 small tea growers accounting for about 45pc of the state’s total tea production.

Barkakoty also refers to the growing input costs including wages, electricity and fertilisers, which are hurting the long-term sustainability of the industry, especially as tea prices are not going up. Wages constitute about 60pc of the cost of production.

The state governments of Assam and West Bengal have stipulated minimum wages for tea workers — Rs177/day (in the case of Assam), which includes cash and non-cash components; and Rs153/day (West Bengal — only cash component).

Plantation owners complain these rates are way above the minimum wages in the two states. They are also worried about the growing number of attacks on tea industry executives at plantations in the two states.

Over 30 tea estates in West Bengal have shut down or have been abandoned by their owners in West Bengal and some of the major corporate players are bankrupt.

The death of some workers in tea gardens that were shut down led the West Bengal government to set up a Rs1bn Tea Garden Employees’ Welfare fund earlier this month.

The fund will help ailing tea garden workers and hopefully prevent starvation deaths. According to the government, about 150,000 workers will stand to gain from the new initiative. Besides getting free electricity, they will also be given free food and medical facilities.

Owners of tea estates have also sought permission to convert some of the gardens into amusement parks or tourist attractions. They have also demanded tax concessions, especially while transferring land, and a cut in power tariff. While many multinationals have sold off their stakes in the tea plantations to domestic companies, mismanagement and sharp practices have led to the closure of tea gardens in both Assam and West Bengal in recent years.

Published in Dawn, Business & Finance weekly, November 16th, 2015

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