The stormy cup of Indian tea industry

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The 200-year-old Tea Industry is passing through a very critical phase at present, and the matter of utmost importance is how best the industry can be restored to the visibility of survivability rather than letting it continue to sustain in the same manner as of now! It has been posing a serious concern for the producers of all companies how to run the business when the prospects of profitability upon which all social costs, maintenance of over one million of families to meet their needs and other fixed costs etc., are to be ensured despite having to maintain the properties in a proper way to be at par in the competitive markets. Although the problems and challenges have been highlighted through the media and other means of communications, yet these have failed to receive due importance.

At the present juncture of the tea industry of both India and Assam, there is a need for self-introspection to assess the crisis and challenges of the past and in the present time, which have almost crippled the Tea Industry to such a stage of below Economic Threshold (ET), and thereafter think of various constructive steps regarding how to mitigate and overcome the ongoing crisis

Going by the general scenario of the Indian Tea Industry at present, there are mainly two critical factors which are matters of concern for all producers:

1. Over-production of tea has created a direct effect on the supply: demand ratio. The more the supply (availability), the lesser the demand of tea, resulting in lower prices than expected.

2. The cost of production per kg of tea has been gradually found higher than the selling price of tea per kg in the markets.

Supply vs demand ratio:

It is a matter of great pride that total production has been showing an increasing graph in the last few years. Statistics show that in 2009, the total production of India was 939 million kg whereas in 2018 it was 1,339 million kg, which shows over 42.5% increase during nine years' time.

Although the production has reached a desirable level, the domestic consumption of tea in India has not grown to the extent expected. The average per capita consumption of tea in India is only 840 gm of tea, which is far too low if we compare with other tea-drinking countries.

Based on the consumption rate of 840 gm per head throughout the year, we find that the requirement of teas for domestic consumption in India is around 1,000 million kg, which creates a surplus of over 300 million kg to be sold either through exports or to carry over to the next season. With the export quantity hovering around 190-220 million kg each year, there results a surplus of over 100 million kg remaining to be sold in domestic market. This carry-over accumulation over the period of time is another reason for lower prices in the domestic market.

It is obvious that unless the per capita consumption of tea is increased to a reasonable level of around 1 kg per head per year, the economic theory of demand and supply will continue to prevail in the tea markets for a long period, making the industry become sick ultimately.

If we look at the total production of tea in India amounting to 1,359 million kg, 52% of tea come from the segments of small tea growers' production which emerged as one of the most enterprising revolutionary segments of Indian Tea Industry. Nearly over 700 million kg is contributed each year, 90% of which is bracketed in the common tea category. However, the quality of tea suffers due many factors such as handling of green leaf from the field to the factory, lack of scientific knowledge in field practices, low holding areas not receiving due attention and ignorance of MRL level of chemical use.

Escalating cost of production vs selling price:

The cost of production per kg of tea for organized estates over the last 10 years of time has shown a sharp increase due to high inflation rates for all inputs in running the properties complying with all norms and Acts pertaining to plantations and factories. The selling price for over a decade of time has almost remained same, thereby causing the gardens to incur losses regularly, which has been one of the main reasons of selling some of the prime old properties to traders in recent times.

Similarly the COP of per kg of green leaf by the small tea gardens have risen tremendously owing to the escalating cost of all inputs of fertilizers, chemicals, labour wages and other maintenance costs as compared to the costs incurred a few years back. The selling price of green leaf per kg to Bought Leaf Factories (BLFs) has not shown any marked increase, thereby resulting in heavy losses in recent times.

In case of BLF producers, there is not much setback even if the average selling price comes down, due to production of tea of inferior quality. There is always some margin of profit at the end of the day.

The amount of liabilities and fixed costs are also minimum for the BLF owners as compared to the estate owners.

Remedies to overcome the crisis:

1. First the domestic per capita consumption of tea has to be raised to a level of 1.5 kg to balance the supply and demand ratio for reducing carry-over stock of tea to the next season.

2. Since customer awareness to quality teas has been increasing so 'quality produce' is a must for all producers to come out from the impending danger of suffering a natural death. It is a fact that there is a big difference of prices between good tea and common medium tea in the market.

3. The urgent need of the industry is to pay attention to bring out a dramatic change for Bought Leaf Productions to a level of good standard of tea quality conforming to GMP.

4. The motto "to produce better leaf for better quality and better quality tea for better price" should be the main slogan for revitalization at this time of 'stormy cup of tea' of the Tea Industry