Indian Tea Industry Demands Government Bailout from Looming Financial Crisis

Assam in red (Getty Images/kishore kumar)

The Indian tea industry is struggling with low prices, high labor costs, vagaries of the weather and with every passing year, the problems are both recurring and amplifying. It was a desperate measure on their side to launch a newspaper advertising campaign on August 1 to draw the government’s attention to this crisis. The advertisement drove home the urgency of the problems faced by the industry, revealing the discrepancy between costs and selling prices, and seeking the government’s intervention.

The advertisement paid off and a meeting was convened on August 14 in Delhi, by the Union Commerce & Industry ministry. The meeting, chaired by the joint secretary, plantations was well represented by the various tea associations, including UPASI, the Indian Tea Association (ITA), the Confederation of Small Tea Growers Associations, the associations from Assam, the Northeast, the conglomerates HUL (Hindustan Unilever) and Tata Global Beverages (TGBL), besides the brokers.

The outcome of the meeting remains unclear, but it appears that 10 areas demand immediate attention. These include implementation of auction reforms, expanding tea areas from the current 5% to 20% for cultivation of other crops, expanding domestic consumption of tea via marketing and branding, promoting tea tourism, and allowing tea waste export. The Tea Board of India is still working on the proposal in consultation with the stakeholders.

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Other areas mentioned are raising the incentive for production of orthodox tea from the current INR3 ($0.04)per kilogram, assessing the feasibility of a base price for green leaf based on minimum quality standards, offering the Mahatma Gandhi National Rural Employee Guarantee Act – a social security scheme – for temporary tea garden workers, and exploring a mechanism to exchange rupees for rubles to increase Russian exports. The ITA has also asked to ban any expansion of tea estates for at least five years. ITA is seeking financial relief by asking that state governments to take over contributions to the employee Provident Fund for a 3-year period.

Tea board chairman Prabhat K. Bezboruah has said the final proposal is expected to be submitted to the Ministry of Commerce within a month. The Indian Tea Association’s Chairman, Vivek Goenka, has said the discussion also included the need for short-term goals and targets. The ITA is now working on a proposal towards increasing cultivation area for other crops, and tourism. Meanwhile the Indian Institute of Management, Bangalore carried out a study on the auctions and have recommended a revamping of the e-auction system for bulk tea, using the Japanese auction format as a model. This is thought to impact price discovery positively.

The Assam State Government has already acted as the country’s largest producer. Earlier in the month, Assam’s finance minister, Himanta Biswa Sarama tweeted that a bill had been passed withdrawing a cess (tax) on the production of green leaves backdated to April 2019. Additionally, the large tea gardens get a three-year exemption of cess (INR0.40 per kilogram) on green leaves.

Offsetting this news are reports of high prices at auctions. Recently, Assam’s Dikom Tea Estate sold its Golden Butterfly tea for INR75,000 ($1,024) per kilogram while the Manohari Gold Tea from the Manohari estate sold for INR50,000 ($695) per kilogram. The industry is divided on these reports. Some feel they underplay the actual crisis in the industry, suggesting marketers are creating the illusion of prosperity. Others are of the opinion that they offer a ray of hope.

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The specialty tea market, in small quantities, commands these prices but with the bulk of the industry depending on sale of bulk tea, there’s a gap in the cost of production and selling prices. 

The auction price in Assam has risen only marginly from INR150 ($2) per kilogram in 2014 to INR156 ($2.15) per kilogram in 2018. The average price of tea this year was INR165 ($2.30) per kilogram while cost of production was INR200 ($2.78) per kilogram. Ninety percent of teas at auction sell for below INR200 per kilogram.

In contrast, wages have increased 22%. The tea industry employs 1.2 million people, supporting more than three million dependents, with women making up half the workforce.

The annual surplus is high, exports are flat, and domestic consumption remains low. While direct sales of specialty teas command good prices through direct sales, the cost of production for an industry that has been largely focused on producing commodity CTC, remains a deterrent.

This year’s budget also included a 2% tax on employers who continue to pay wages in cash. This tax added to the financial burden of the tea gardens, where cash payments are preferred by workers. Although the government has insisted that bank accounts be opened and payments made only via bank deposits, the reality is there are few ATMs in the gardens and little access for most workers.

Even as the industry awaits the proposal, Assam’s state government is showing that it is keen to get the ball rolling. They are all set to appoint a third-party agency to study the challenges of its industry and possible solutions.

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