Tea Board panel recommends minimum sustainable price to protect India's tea industry

STAFF REPORTER

GUWAHATI: In a significant move towards addressing the widening gap between production costs and market realisations in the Indian tea industry, a 10-member committee constituted by the Tea Board of India (TBI) has recommended the introduction of a minimum sustainable price (MSP) for tea.

Producing approximately 1,350-1,400 million kg of tea annually, with small tea growers contributing nearly 55% of the country's total production, India is the world's second-largest tea producer. 

However, the industry continues to face mounting financial pressures, with production costs increasing significantly faster than tea price realisations. 

Over the years, tea prices have registered a marginal compound annual growth rate (CAGR) of approximately 2-3%, as compared to an estimated CAGR of 10-14% in input costs. This growing disparity has affected producers' ability to sustain operations, invest in replantation, improve productivity and maintain quality standards.

Given the structural challenges confronting the industry, the recommendation for an MSP assumes particular significance. 

Employment costs account for approximately 60% of the total cost of tea production, making producers particularly vulnerable to wage increases. With the anticipated notification of floor wages by the Central and state governments under the Code on Wages, tea producers are expected to face further increases in operating costs.

To address these concerns, the Tea Board panel recommended a composite index reflecting wage movements and the Consumer Price Index (CPI) for determining the benchmark MSP. It has also proposed periodic reviews of the benchmark to ensure that the pricing framework remains aligned with changes in production costs and inflation.

The introduction of MSP is expected to deliver wider benefits across the tea value chain. This will enable the industry to better accommodate future increases in wages and salaries arising from anticipated notifications under the Code on Wages. 

MSP is also expected to improve the financial viability and sustainability of the tea industry, creating a stronger foundation for the sustained production of quality Indian tea, besides supporting better and more stable returns for small tea growers and registered tea gardens, strengthening their ability to maintain operations and adhere to quality benchmarks.

Further, this would encourage improvements in the quality of green leaf and made tea, enhancing the global image of Indian tea and strengthening its export competitiveness.

The proposed MSP framework assumes particular significance for small tea growers, who contribute approximately 55% of India's total tea production. While small growers depend on the prices received for freshly harvested green leaf, bought-leaf factories (BLFs) procure these leaves and process them into made tea for sale.

When the prices realised from the sale of made tea are insufficient to cover processing costs and support sustainable procurement prices, factories face pressure on the prices they can offer small growers. This has a cascading impact across the supply chain. 

A well-designed MSP mechanism could help address this imbalance by supporting sustainable green-leaf prices while recognising the distinct cost structures and economic circumstances of small growers, bought-leaf factories and organised tea estates.

Hailing the recommendation, tea bodies emphasised the need for a sustainable pricing framework to secure remunerative returns for tea producers, protect the interests of small tea growers and ensure the long-term viability of the sector.

The Indian Tea Association (ITA), Tea Association of India (TAI), United Planters' Association of Southern India (UPASI), Confederation of Indian Small Tea Growers' Associations (CISTA) and Federation of Indian Tea Manufacturers' Association (FITMA), representing diverse segments of the tea value chain, including organised tea estates, small tea growers and bought-leaf factories, highlighted the need for a pricing framework that recognises the varying economic realities of the sector while ensuring the sustainability of tea production across regions.

They hoped the Union Ministry of Commerce would take favourable note of the committee's recommendations and notify the MSP for tea at the earliest.

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