New Delhi, 28 April 2007

India’s Tea Industry

FUNDS FLOW SHOULD GENERATE ENTHUSIASM

By Dhurjati Mukherjee

A proposal mooted by a Chinese visiting delegation last year to set up an Asian tea confederation comprising India, China and Sri Lanka has received great appreciation in all quarters. The Indian tea industry is of the view that such a confederation would facilitate smooth marketing of the tea produced in the three Asian countries in the international market, without harming each others’ trading interest. In fact, it is felt that such an alliance would greatly help to dictate prices and put a check to the monopoly of tea trade by the Western multinationals.

The Indian Tea Board has also been receptive to the idea, though it remains to be seen when the confederation actually comes into being. However, there is need for further discussions between the three parties before the details of operation are finalised. This apart, certain other developments should bring cheer to the tea industry here. The Government has recently cleared the decks for a long-standing demand of Rs 4700- crore long-term Special Purpose Tea Fund (SPTF). This is for uprooting-replanting and rejuvenation-pruning spread over 15 years to revive ageing plantations and is expected to help 1800 gardens and about 800 owners, facing problems of low productivity and old plantations.

Twenty-five per cent of the sum would be subsidy by the Centre, another 25 per cent matching contribution of the growers and the rest long-term soft loans. It is understood that loans would be payable in eight equal instalments from the sixth year of sanction, with a five-year moratorium on the payment of principal. An initial contribution of Rs 100 crore was announced in the Budget 2006.

The Finance Minister had said that this amount would be followed by levelised contribution from the Centre every year, which would obviously benefit Assam, Bengal Tamil Nadu and Kerala. Around 74 per cent or Rs 3523 crore has been allocated to Assam and Bengal, with the latter getting Rs 1333 crores and the former Rs 2190 crores. There is unanimous appreciation of the government’s commitment to the proposed fund, which would help the tea industry to raise resources from banks and financial institutions and help improve production and quality.

Meanwhile, the 400 applications have been received from North Bengal, Kerala and Tamil Nadu. In this regard, the first round of signing of loan agreement between 100 tea garden owners would take place on June 25. The Eleventh Plan would focus on the SPTF to improve productivity, which suffers as 38 per cent of the area under plantation has bushes more than 50 years old.  After a five-year cycle of rejuvenation, the productivity should go up between 30 and 50 per cent, according to Jairam Ramesh, the minister of state for commerce and industry.  

Orthodox Production

There would also be a perceptible change in production strategy as the government has decided to increase orthodox tea production from the current 80 million tons to 120 million tons in the next five years to capture the growing tea market in this area. Incidentally, Ramesh indicated at a seminar recently that the Russian market, which has been a prime export destination for Indian tea, has shown its inclination towards consuming more orthodox tea instead of CTC.

The Tea Board had estimated that about 500 million kg could additionally be produced if one were to bring the yield of each of the gardens at par with the highest yield of the respective district. It would be necessary for the managers of the low-yielding gardens to visualize their operational responsibilities in terms of individual factors of production such as land management, soil management, nutrition management and water management and not merely in the traditional terms of estate management.

For increasing production of such uneconomic tea areas, rejuvenation and infilling offer the best medium-term remedies. Infilling can double the output per hectare and, considering an average vacancy of 20 per cent in 421,000 hectares in the country with double infill, the new bush population after eight years or so could be 40:80 i.e. 1:2. While expansion of area may be another option for production growth, availability of land has become a big problem. In fact, whatever expansion that has taken place in recent times has mainly been in the North Eastern parts of the country.

A favourable development last year for our tea industry was the widespread drought reported from Kenya. While India has for some years faced tough competition from Sri Lanka and Kenya because of their competitive prices, now is the turn for us to reduce our costs of production by increasing yield per hectare and make our presence felt in the international market. It may be mentioned here that the cost of tea production in India is the highest in the world and stands at $ 1.7 per hectare while it is as low as 0.58 in Indonesia. Though Indian tea is synonymous with quality tea, even then the costs have to be reduced to a certain extent to compete favourably in the international market.

Increasing Costs

 But the question arises whether all these developments will be able to effectively tackle the crisis in the tea industry where increasing costs of production and the inability to boost up exports have been major impediments. Labour costs have gone up by Rs17 per man-day since 1998 without any productivity norm being enforced. Other costs traveling northwards since 1998 are electricity by around 170 per cent (till 2003), petroleum products and other chemicals and fertilizers by over 60 per cent, which along with labour wage increase, have pushed up garden costs by around 70 to 75 per cent. Industry estimates reveal that the average man-day in a conventional tea garden produces only 1.2 kilograms of tea, among the lowest in the world that puts India at a competitive disadvantage against other tea producing nations.

The all India auction average came down from Rs 76.43 to Rs 55.43 between 1998 and 2002 with export price realization down by Rs 25 per kilogram. However the number of estates went up from 88,000 tea gardens producing 870 million kgs in 1998 to 115,250 tea gardens claiming to have produced 820-830 million kgs between 2002 and 2004. The drop of yield per hectare from 1995 kgs. to around 1580 kgs is indicative of the reduced demand as also of the state of the small growers whose production does not figure in the official list.

The total yield as per current productivity norms should be around 1000 million kgs. But in reality it is much less. The official figures do not reflect the output from the bought tea leaves or the tea waste being recycled with good teas to help flood the domestic market with strong teas. The government loses revenue and the industry does not have any authentic basis for its calculations as something around 150 million kgs are missing from official figures.

That production costs have to be brought down by resorting to mechanization cannot be doubted. Incidentally at $ 1.62 per kg, the Indian cost of tea production is highest among its other competitors. According to a study by the Indian Tea Board, the cost of production of tea in Sri Lanka is at $1.23, Kenya at $1.16, Vietnam at $0.96, Malaysia at $0.84 while Indonesia is the cheapest at $0.58.

An inter-ministerial group of the previous NDA government, comprising the finance, commerce and labour ministries had decided that the Centre would bear 40 per cent of the social cost and the state government would chip in 10 per cent though nothing has been done as yet. The social cost in north India was estimated at Rs 459.97 crores which is about Rs 7.17 per kg of made tea while in south India it was Rs 132 crores which is Rs 3.06 per kg of made tea. The group had also rightly suggested that the tea producing states review the high agricultural income tax imposed on the industry and rationalize the enactments keeping in view the financial health of the plantation sector. But not much headway has yet been made in this direction.

According to the group, it also asked the state governments to review the Plantation Labour Act and link wages with productivity. There is need to seriously think in this direction as these may help bring down costs to a considerable extent.

The other area of attention would obviously be an export thrust. The Tea Board and the Centre would also have a crucial role to play in undertaking promotional campaigns to boost up exports. In the search for new and emerging markets, aggressive promotional strategy would be needed. If necessary, big companies like Tata Tea, Hindustan Lever and the like may be roped in and a viable plan of action formulated to promote Indian tea in some specific markets of the Middle East and also Pakistan.

A point that cannot be denied is that the Tea Board has initially failed in promoting Indian tea in the unexplored markets and highlighting the beneficial aspects of drinking quality tea. A sustained campaign against cheap teas of Kenya and Sri Lanka may have to be launched along with the awareness of the medicinal values of tea on human health. It is only in recent years that the Tea Research Association (TRA) has undertaken research on the beneficial aspects of drinking quality tea and this has to be popularized in India and abroad.

Even in an otherwise dull scenario there is no reason to believe that exports cannot be substantially increased though, of course, the demands of the specific markets have to be kept into consideration. A modest export of around 180 million kgs should not be difficult to achieve if the industry and the Tea Board put in sincere efforts jointly. Meanwhile with Pakistan reducing duty and sales tax on imported tea, India can now hope to export around 20-25 million kgs to its neighbour (against around 15 million kgs in 2006).

Among other measures being contemplated by the Government is bringing more transparency in tea marketing in the country so as to enable radical improvements in the system and attract producers to trade through these centres. The Tea board is also going to set up auction centers at Jorhat and Dibrugarh in Upper Assam and these centres could act as satellite units of Guwahati Tea Auction Centre.

 Future Strategy

Competitiveness and reducing costs of production have to be important aspects of the future strategy. High-yielding varieties of seeds, which are being developed by the TRA and the UPASI Tea Institute, have to be put to use for which loans and grants have to be made available, specially for small growers. Modernization of the factory and giving more emphasis to orthodox production, keeping an eye on exports would be needed as early as possible. Moreover because of high costs of labour, mechanization in farm operations and also in the factory may help in bringing down costs. Another aspect, which has to be kept in mind, is the reduction in the use of chemicals and pesticides as the Western countries have been showing their preference for buying organic tea.

The coming decades is undoubtedly a big challenge for the Indian tea industry as determined efforts have to be made to boost up productivity through biological innovations, on the one hand, and break the monopoly of the MNCs in the realm of exports, on the other. The Rs 6000 crores industry with dollar earnings of around Rs 1800 crores spread over several states in the North-East and South and directly employing 1.1 million people in the country’s remotest regions (and indirectly another nine million) will have to be revived at any cost. Apart from the economic aspect for the industry’s growth and development in a sector where India was once a world leader, the social dimension is no less important.

Keeping such a labour-intensive industry vibrant is imperative at this juncture when unemployment and underemployment is a big problem and extremist activities are rampant in Assam and the North-East. With employment generation being a thrust of the present government’s development strategy and the SPTF expected to generate employment of 22 million person days, an industry like tea that is labour-intensive has rightly been accorded priority and all efforts have to be geared now for its revival and growth. Thus it is necessary that the present Fund would accelerate the process of evolving a realistic time-bound plan of action with the industry leaders taking the lead, keeping in view the interests of the big growers as also of their smaller counterparts, who are possibly the worst hit and struggling for survival.---INFA

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