CHAPTER II

GROWTH OF THE TEA INDUSTRY

CHAPTER II

GROWTH OF THE TEA INDUSTRY /

Introduction

The growing demand for tea in Europe coupled with the suitable geo­

climatic conditions in North-India and Sri Lanka led to the growth of the

industry in these countries. This chapter will focus on the origin and

development of the tea industry; growth in the land devoted to its

cultivation; regional distribution of tea estates and production, consumption

and exports of tea.

2.1 The Origin of the Tea Industry in India

The initial attempts to encourage tea cultivation 1n India were made by

Governor General Warren Hastings in 1776. He instructed Sir Joseph

Banks to prepare a series of notes on cultivation of new crops in India for

the East India Company. He considered tea (an article of the greatest

national importance' to the British. However, despite the detailed studies

made by Sir Banks, no headway was made until tea syrups were discovered

a few decades later in Assam. Though there were two clrumants for the

discovery of tea in India, it was C. A. Bruce in particular, who maintained

that he was the first European to locate the tea site in Assam. Lieutenant

Charlton had claimed that he had sent tea plants to the Agricultural and

Horticultural Society of India in 1831 from Assam, where he had been

working. However, most authorities inclined to give the honour to Bruce. I .

The collapse of the trade agreement between the British and China

finally led to the introduction of tea cultivation in India. 2 The British East

India Company had the monopoly of tea trade with China, which was

I Tea has been growing in Assam for centuries. C. A. Bruce learnt about the existence of tea syrups in Assam and made an arrangement with the Shinghpo Chief to provide some specimens of tea plants. Details are available in the Indian Tea Association Centenary 1881-1981, 'The Story of Indian Tea', Centenary volume Calcutta, pp. 5-11.

28

discontinued in 1833. This forced the Company to look for alternative areas

for tea cultivation. Lord William Bentinck appointed a Committee to explore

the possibility of tea cultivation in India. The committee headed by a British

botanist Dr. N. Wallich made proposals for tea cultivation and directed that

G. J. Gordon should visit China to obtain more information about the

cultivation of tea. In 1835, the secretary of the Committee dispatched tea

seeds from China. The Government experimented with the Chinese tea seed

at Sadiya area in North-Eastern India. Later, another experimental tea

garden was opened at Chabua with indigenous seeds of Assam.

Experiments were also conducted in South India under the auspices of the

Tea Committee.

Dr. Christi pioneered the tea industry 1n South India. He

experimented with effective planting methods of tea in the Nilgiri in 1834.

The plants were dispatched from Calcutta not only to Nilgiri but also to

other areas like Coorg, Mysore, and Coimbatore (Valparai) districts in South

India as a subsidiary crop in the coffee estates. The collapse of coffee on a

large scale due to the widespread leaf ailment during the last quarter of the

19th century compelled the planters to think of an alternative to coffee, and

thus it led to the cultivation of tea on a large scale.

With the growth of the tea industry in the Brahmaputra valley in

Assam, other suitable areas of North-East India were also brought under tea

cultivation. Tea was first planted in the district of Drujeeling in West Bengal

in 1839 and was spread over to Terai in 1862 and to Dooars in 1874.

In 1838, the first commercial sample of Assam tea containing twelve

chests weighing around 140 kilograms was sent to England and eight of

them were auctioned on the lOth of January, 1839. To facilitate the

production and manufacture of tea, the Bengal Tea Association was set up

in early 1839. In 1850, the area under tea in Assam was approximately 760

hectares and its production was about 87,500 kilograms. Table 2.1 clearly

exhibits this growth.

29

Table 2.1

Area under Tea'and Production in Assam 1850-71 /

Year Number of tea Area under Production estates cultivation (in kilograms)

(in hectares) 1850 1 759.5 87,500 1853 10 981.7 149,673 1859 48 3076.5 484,290 1869 260 10192.7 1,916,572 1871 295 12673.2 2,541,115

Source: Compiled from Memorandum by Mr. Campbell, (1935), 'Tea in Assam' in Edgar's 'Note on the Tea industry in Assam,' p. 128

The Wasteland Rules were made as liberal as possible to encourage

tea plantations. The rates of revenue for Wastelands were kept below those

of traditional cultivation in the region in order to facilitate large-scale

acquisition of wastelands. Tea companies, with or without land, sprang up

overnight without taking into account the specificity of environment and the

interplay of forces guiding the plantation economy.3 Companies were floated

in London and Calcutta. The planters who were involved in tea cultivation

during those days had no prior experience in the field. They were either

Army or Navy officers, Engineers, Steamer Captains, Policemen and the like.

As a result, the industry could not achieve its targets. Many ill-founded

enterprises were launched and mismanagement was common. The tea

industry confronted an obvious setback during the latter part of the 1860s.

However, the industry recovered from the crisis in the early 1870s

and the tea companies now began to be very cautious in the recruitment of

the management staff, kept a vigil on their estates and gave special

attention to other shortcomings. By 1880, the total area under tea-­

cultivation reached approximately 84,000 hectares, with Assam and West

Bengal accounting for nearly 60,000 hectares and 15,000 hectares

3 S. R. Misra, ( 1984), Tea Industry in India, Ashia Publishing House, New Delhi, p.35.

30

respectively.4 Total production in the same year amounted to roughly 20

million kilograms out of which Assam and West Bengal accounted for 15.4

millions kilograms and 2.9 millions kilograms respectively.s Both in

quantity and quality the tea production was considerably improved with the

introduction of relatively sophisticated equipment in the tea manufacturing

factories.

Efforts were also made to popularise Indian tea in the world market.

Consequently, the Indian Tea Cess Act was passed in 1903 to raise funds to

defray expenditures necessary for tea propaganda abroad. In short, the

expansion of the external market and the increase in the internal

consumption gave a boost to the development of this industry. The gaining

strength of the industry led to the establishment of The Indian Tea

Association (ITA) in 1881 and the United Planters Association of Southern

India (UPASI) in 1894. The ITA was the first association in tea that

represented the North Indian planters. The UPASI was the principal

representative organisation of the South Indian planters. The primary

objectives of these organisations were to bring about unity amongst the

owners and managers of tea estates, to negotiate with the government and

trade unions on behalf of the members and to improve means of

communication, transport, the welfare of the labourers, and the like.

During the latter half of the 19th century, the growth of the tea

industry gave a fillip to the economy of the tea growing regions. Inland

railways developed and facilitated the transportation of tea from remote

areas of Assam to Calcutta and Chittagong, and to move labour and stores

from Calcutta to North-Eastern India, One demand of the tea industry was

for a viable rail transportation that led to the establishment of the Assam­

Bengal railways covering a route of around 400 kilometres. The rapid

4 Cited in Economic and Scientific Research Association (ESRA), Growth and Potential of Tea Industry in India, (1983), ESRA, New Delhi, p. 6

31

expansion and development of the transport network was a landmark in the

history of tea industry in Northeast India. /

2.2 Growth Trends in the Tea Industry in India (1900-1950)

Between 1900 and 1913, the cultivated area, production, yield and export of

tea registered an impressive increase of 16.8 per cent, 55.6 per cent, 33 per

cent and 51.7 per cent respectively. However, adverse external factors

affected its smooth progress during the First World War. The industry

suffered a temporary setback particularly in the export sector due to acute

shortage of ships. This paved the way for the other tea producing countries

like Indonesia to capture some of India's traditional markets like the USA,

Canada and Australia.

However, the Great Depression of 1929 exposed the vulnerability of the Indian tea

industry to the worsening international economic situation due to the drop in the global

demand for tea. There was a sharp decline in exports -and the unit value realisation declined

as shown in table 2.2.

Table 2.2

Area, Production and Exports of Tea during th G t D . 1929 34 e rea eJ ,resston -

Year Area Production Yield Volume of Price (000 (million (kilograms I Exports (Rs per

hectares) kilograms) per (million kilograms) hectare) kilograms)

1929 318 196.7 601 173.5 1.53 1930 325 177.4 546 164.2 1.46

(-9.7) (-11.4) (-5.4) (-4.6) 1931 326 178.7 547 158 1.25

(0.7) (0.18) (-3.8) (-14.4) 1932 327 196.3 616 174.8 1.00

(10.0) (9.8) (10.6) (-18.0) 1933 331 174.0 526 149.3 1.33

(-11.6) (-12.5) (-14.6) (33.0) 1934 334 181.1 542 155.1 1.30

(4.08) (3.0) (3.8) (-2.3) Source: C1ted m Econom1c and Sc1entific Research Assocmtwn (ESRA), Growth and Potential of Tea Industry in India, (1983), ESRA, New Delhi, p. 11 Note: Figures in parentheses are indicating percentage increase I decrease over the

previous year

32

Collective remedial efforts were initiated at the intemational level.

This led to the International Tea Agreement in 1933, which sought /

regulation of exports and extension of cultivation through voluntary effort

and government intervention. An international Tea Committee was

constituted in July 1933 to co-ordinate the operation of the agreement.

However, the Second World War and the subsequent suspension of

the London Tea Auction in 1939 was a major setback in tea exports. The

British Ministry of Food prevented this by entering into an agreement for

bulk purchase of tea from India. Due to wartime demands along with

artificial shortage and the 1943 famine, the industry continued to procure

food grains at higher prices to fulfil its obligation towards labour. The

supply of essential inputs like coal, fertiliser, etc. fell short of demand.

These deficiencies were worsened by the inadequacy of the transport system

in North-East India that was also transporting military stores and

equipment. The industry was also handicapped by the demand of its

managerial staff and labour for war projects and other military purposes. In

a nutshell, these factors constituted additional financial strain on the

industry and this led to the neglect of the tea gardens.

Towards the end of 1940s there was an improvement m the tea

production, exports and prices. Up to the time of independence it was a

journey towards expansion and consolidation. The ITA and UPASI were set

up to ensure that scientific methods had to be used in cultivation and

processing.

2.3 Regional Distribution of tea in India (post Independence period)

After Independence the government paved the way for a supportive policy for

the tea industry not only through the Five Year Plans but also by way of

other measures whenever the need arose.

Land area, production and value of export of tea went up in the

1950s. The area under tea increased to roughly 4 per cent during 1950-62.

The production and yield increased up to 21 per cent and 16 per cent

33

respectively during the same period. The export price of tea also increased

by approximately 39 per ceht; It increased from rupees 4.32 per kilogram

during 1950-2 to rupees 6.02 in 1960-2. However, the volume of export

declined during this period due to the increase in the local consumption of

tea. The origin and development of the industry while boosting the national

economy of this country paved the way for regional development as well.

In India, the tea growing areas are concentrated in North-Eastern

India and in the districts of Nilgiri and Iddukki in South India. The total tea

land in India is around 436,057 hectares and about 80 per cent of the total

area under tea lies in North India. Table 2.3 reveals the distribution of area

under tea in different tea regions in India.

Table 2.3

Distribution of Area under Tea in different States and T R . I d. 1999 ea eg1ons 1n n 1a-

Area Under Tea Number of tea Average gardens Size of

States/ Percenta the each Regions (in Percentage Number ge share estate (in

hectares) share hectare) Assam 230,978 49.88 2472 6.38 93.44 West Bengal 104,226 23.09 453 1.17 230.08 Other States 12,860 2.94 3824. 9.87 3.35 Total North 348,064 79.82 6749 17.43 51.57 India Tamil Nadu 49,085 11.25 25796 66.64 1.90 Kerala 36,809 8.44 36 0.09 1022.47 Kama taka 2,099 0.48 6126 15.85 0.34 Total South 87,993 20.18 31958 82.57 2.75 India All India 436,057 100.00 38707 100.00 11.26

Source: Compiled from the Tea Statistics of India 2000, Tea Board of Calcutta.

According to Table 2.3 around 17.43 per cent of tea gardens in North

India possessed nearly 79.82 per cent of the total tea area, while the picture

was a reversed in South India. This obviously means that north India had

much larger sized tea estates compared to South India, "'·hich abounds in

34

small tea estates. The Table also gives the state level distribution of tea in

India. In view of that, state of Assam alone in North India covers around 50 /

per cent of the total tea land in India. The state of West Bengal is next,

sharing around 23 per cent of total tea land in the country. The other

States, i.e., Tripura, Uttaranchal (Dehradun), Dehradun in Uttarakhand,

Arunachal Pradesh, Nagaland, Manipur, Orissa, Sikkim, Meghalaya and

Bihar together hold roughly a total of 3 per cent of the tea land in India.

South India holds· around 20 per cent of tea area and it is largely distributed

in the district of Nilgiri in Tamil Nadu (roughly 11 per cent of total area

under tea). The other major tea-growing area in Tamil Nadu is Valparai

Taluk of Coimbatore district. The other districts like Kanyakumari, Madurai

and Tirunelveli have a marginal per centage of tea land. The districts of

Iddukki, Wynaad and Quilon (Kollam) are the major tea growing areas in

Kerala. Around 8 per cent of the total area under tea exists in Kerala. The

districts of Chickmagalur, Hassan and Coorg in Karnataka also have tea

cultivated areas and these consist less than one per cent of the total tea

land in India.

The tea growing areas in North India can be divided into three separate

geographical regions, viz.,

(i) The North-East Assam, the alluvial plains of the

Brahmaputra Valley surrounded by the Himalayan foothills

in the South by the Naga, Mikir and Khasi hills. This is the

largest area under tea cultivation in India.

(ii) The Surma Valley, surrounded by the hills on all sides,

except Cachar district, and,

(iii) Dooars, Terai and Darjeeling of which Terai and Dooars are

mostly plains located in a strip, ten kilometres broad along

the foothills of the Himalayas east of Teesta river and right

up to the Sankos river. The Darjeeling district, partly in the

35

northern Terai, partly in the mountains, grows tea on slopes

at an elevatio'n between 1500 and 2500 meters. /

In South India, tea is cultivated mainly in two geographical regions.

They are:

(i) the blue mountains (Nilgiri) which are of, on an average, 2000

meters elevation and several of its peaks run up to over 2800

meters and are situated in the South West of the Southern

Tamil Nadu, and,

(ii) the Western Ghats in Kerala.

Assam produces the most pungent tea, which is noted for its creamy

hard liquors. The most aromatic tea is produced in Darjeeling. The area

under tea cultivation in South India produces tea, which gives a

combination of both flavour and taste to an appreciable degree.

Table 2.3 also gives the distribution of number of tea gardens in

different regions in India. There were around 38,707 tea gardens in 1998. In

North India, most of the tea gardens were larger in size with only a small

number of smallholdings. The tea areas below 50 hectares are mostly in the

South. S. R. Misra in his analysis states that there is a substantial disparity

in the distribution of areas and production among the tea gardens of both

North and South India since 1957.6 He states that a large number of small

tea gardens, particularly in the South, con·stituted a large percentage of the

total number of tea gardens that control a small percentage of total area and

production. The dominance of a few producing units over the total

production capacity is quite remarkable.7 Table 2.4 depicts the trend of area

under tea and production in the different tea regions after the 1960s.

6 S. R. Misra, (1984), Tea Industry in India, Ashia Publishing House, New Delhi, p. 33-4

7 S. R. Misra, (1984), Ibid, p. 35

36

Table 2.4

Area, Production and Yield of Tea in the Regions in lndia-1960-63 to 1996-98

Year Area (hectares) Production (000 Kilograms) Yield (per hectare)

North South Total India North South Total India India India India India

1960-63* 259,809 74,570 334,379 252,730 85,237 339,951

1970-72 282,729 74,787 356,516 351,168 103,423 435,468 (8.82) (0.29) (6.62) (38.49) (21.33) (28.09)

1980-82 311,686 74,608 386,295 437,410 123,084 560,494 (10.24) (0.23) (8.35) (24.55) (19.0 1) (28.71)

1990-92 343,754 76,255 419,009 550,710 159,046 735,617 (10.28) (2.20) (8.46) (25.90) (29.21) (31.24)

1996-98 345,722 87,918 433,865 623,985 196,236 820,221 (0.57) (13.29) (3.54) (13.30) (23.38) (11.50)

Source: Compiled from Tea Annual Report, Tea Board of Calcutta, Various issues *Average of the Years 1960, 1962 and 1963.

North South Total India India India 972 1,143 1,016

. 1,211 1,268 1,249

(20.88) (10.93) (20.17)

1,391 1,655 1,441 (18.38) (30.52) (18.01)

1,627 2,340 1,755 (16.96) (41.38) (21.79)

1,804 2,226 1,890 (10.87) (-4.87) (-7.69)

Note: Figures in parentheses are the decadal growth rates of increase/decrease over the previous year. These have been calculated using the following formula: X2- X1 x100

Xl

37

Table 2.4 clearly reveals a significant increase in the area under tea

production and yield of tea during the period 1960-63 to 1990-92. The total

land under tea cultivation appeared to have increased from 6 to 8 per cent

during the period 1960-63 to 1990-92. The expansion of area under tea in

North India was largely contributed by the acquisition of new land for tea

cultivation particularly in Orissa to meet the objective of the Seventh Five

Year Plan.8 As far as the production of tea was concemed in this region, it

had significantly increased to around 31 per cent between 1980-82 and

1990-92.

The government has provided monetary support to improve the health

of the industry, much of which took the form of rebates on taxes and the

provision of grants and subsidies during the 1960s. The Tea manufacturing

hire/purchase scheme of 1960, the Tea Plantation Finance Scheme of 1962

and the Replanting Subsidy Scheme in 1968 are only a few among them.

Subsequently, the government also abolished the export duty on tea and

introduced modified fiscal incentives to the profitability of export of tea on

the recommendations of the P. C. Borooah Commission report on the tea

industry in 1968.9

However, the upward trend of area, production and yield of tea during

1960-63 I 1990-92 could not be maintained during the latter part of the

1990s. The total area under tea increased only 3.54 per cent between 1990-

92 and 1996-98. The upward trend of area under tea had initially occurred

in the tea regions of North India during 1960-63 to 1990-92, and it had­

taken place in South India only during the latter part of 1990s. This was

mainly due to the newly established tea estates. During this phase the State

Government of Tamil Nadu intervened for rehabilitating the people of Indian

8 Government of India, (1990-91), Economic Survey, p. 26

9 Government of India, ( 1968), Report of the P. C. Borooach Commission on Tea Industry, Ministry of Commerce, Directorate of Commercial Publicity, New Delhi, pp. 29-30

38

origin who had migrated to Tamil Nadu from the Sri Lankan tea estates.

Arm;..nd 2,760 hectares of new area was brought under tea cultivation under

rehabilitation programme. In addition to this, as the small tea growers in

the district of Nilgiri in Tamil Nadu and Iddukki district in Kerala got

significant benefits due to the favourable price of their production of tea

{Green Leaf), the tea growers acquired new land for cultivation during

1990s. The land under tea cultivation increased from 2200 hectares to 3400

hectares in Kerala during 1993-94.10

According to Table 2.4 the total production and yield of Indian tea

increased to around 30 per cent and around 21 per cent respectively during

1980-82/1990-92. The increase was as low as 11 per cent in total

production and 7 per cent in the yield of tea respectively between 1990-92

and 1996-98. The unfavourable climatic condition that prevailed

particularly in the tea regions of North India during 1996 and in the early

part of 1997 could be one of the major r~asons that led to the slow growth

in production of tea during this period. Table 2.4 also reveals a considerable

decline in the yield of tea in South India between 1990-92 and 1996-98. The

reason for low level of production was the decline of the price of Green Leaf,

produced by the small growers of Nilgiri district. The price of one kilogram of

Green Leaf was around Rs.10 in the mid-1990s and it has declined to

around Rs.6 in 1998.

2.4 The Origin of the Tea Industry in Sri Lanka

Historically, the first tea plants were imported to Ceylon (Sri Lanka) from

China in 1824 and from Assam in 1839. 11 The imported tea plants were

sown on an experimental basis at the Royal Botanical Gardens (near

Kandy). The organised knowledge regarding tea culture on scientific

10 Tea Statistics 1994/95, Tea Board of India, Calcutta.

11 Johnson, R. J., (1955), Johnson's NoteBook for Tea Planters, R. J. Johnson & Co., Colombo, London, p. 14

39

methods was rapidly gathered and commercial cultivation began in 1867.

The Scottish planter, Jame~ Taylor was a pioneer in this area who had set /

out around 8 hectares of tea cultivation at Loolecondera in Hewaheta

(around 50 kilometres away from Kandy) and he not only bred the tea plants

methodically, but also developed the methodology for the manufacturing

and the marketing of tea in 1867.

The establishment of the tea plantations in Sri Lanka in the late 19th

century came after the introduction of coffee in the 1820's. Sir Edward

Barnes attempted the growing of coffee on a plantation scale. Coffee exports

and its remuneration increased during a short period. The situation

drastically changed in the 1870s. The coffee rust disease Hemilia Vastatrix

struck in the form of a fungus, which ravaged and eventually destroyed the

coffee industry by the 1880s12.

During this period many coffee planters diverted their investment to

cinchona, cocoa and tea. The organisational system of the coffee industry,

trained labour force and the like were embodied in the expansion of the tea

cultivation in the country. The cultivation of tea rose by some 100 hectares

in 1873 to 155 thousand hectares in 193513. By the end of the 19th century,

Sri Lanka was producing about a quarter of the world's tea production and

soon tea became Sri Lanka's single largest foreign exchange earner. The

following table gives the growth of area under tea and the production and

the unit price of the export of tea during the period 1882-1935.

The major reason that contributed to the development of the tea

industry in Sri Lanka was the availability of land. The plantations were

established in the neighbouring peasant villages in the Kandyan regions

(central highlands of Sri Lanka). The government implemented different land

Ordinances favouring acquisition of land for cultivation of plantation crops.

12 D. M. Forrest, (1967), Hundred years of Tea in Ceylon, p. 50

I3 Donald Snodgrass, (1966), Ceylon: An Export Economy in Transition, Homewood, Illinois, p.33

40

Year

1882 1885 1890 1895 1900 1910 1920 1930 1935

Table 2.5 i'

Growth of Area under Production and Price of tea in Sri Lanka 1882- 1935

Area (in Production Unit price hectares) (000 Lankan

Kilograms) rupees/per kilograms)

1.9 0.4 1.87 5.4 1.8 1.56

41.2 20.8 1.10 89.0 44.8 1.10 133.6 67.5 0.79 155.8 83.4 1.0 n.a 83.9 0.97 n.a 110.2 1.65

226.3 96.1 1.52 Source: Snodgrass, R. Donald., (1966); Ceylon; An Export

(Sri

Economy in Transition, Richard D. Irwin, Inc, Homewood, Illinois, pp. 357-58

The vast tract of land was brought under the plantations by

implementation of the Land Ordinance No.12 of 1840 and the Crown Land

Encroachment Ordinance No. 9 of 1841.14 Several scholars' state that a

considerable extent of land acquir~d by the British through imposing these

Ordinances was privately owned by Ceylonese (Sri Lankan's) and those who

could not furnish proof of ownership, through title deeds and tax receipts

could not retain their lands. IS Moreover, according to the Lankan customary

law, the villagers had users' rights to the highlands surrounding their

villages, regardless of the over-lordship of the village aristocrat. However,

they were evicted from the occupied land, and the crops and buildings on

that particular lands were confiscated. Wesumperuma states that the

encroachment of wasteland and the land that was traditionally used for

Chena cultivation (slash and burn cultivation) by the Kandyan peasants for

14 K. M. de Silva, (1964), 'Studies in British Land Policy in Ceylon,1: The Evolution of Ordinances 12 of 1840 and 9 of 1841', CJHSS, Vol. 7, p. 124.

15 Asoka Bandarge, ( 1982), Colonialism in Sri Lanka the Political Economy of the Kandyan Highlands, 1833-1886, Mount Publishers, New York. pp. 223-74 and N. Perera, , ( 1998) Society and Space Colonialism, Nationalism and Post Colonial Idntity in Sri Lanka,Westview Press, pp. 61-93.

41

plantation crops made the villagers landlocked amidst the plantations.l6 The

other study on this issue 'shows that the growth of plantations in the /

Kandyan regions did not result in the creation of a · landless class or of

evicted groups in that region. Thus, the British land policies in Sri Lanka

resulted in further expansion of villages in and around the Kandyan

region.l7

After Independence of the country from British rule, its economy was

completely rebuilt around the plantations. The foreign banks that were

established initially had .the sole purpose of financing this industry.

Engineering firms and workshops grew for the engineering needs of the

plantation factories; and for the maintenance of railways and roads, and the

government engineering establishments. In addition, the changes .in the

economy led to the opening up of the economy to a capitalist form of

agriculture, and the plantation system opposed the earlier subsistence

agriculture, which was based on wage labour for a factory type of operation.

The tea plantation sector also attracted a larw~.immigrant labour force

from South India since the indigenous (Kandyan) ''sinhalese labour was not

adequately available for jobs in the plantations. The Sinhalese largely

remained within the subsistence agricultural sector in the Kandyan region.

However, the tea sector absorbed around 20 per cent of the total land area

and became significant in Sri Lanka's economy in terms of land utilisation,

employment and export income. Table 2.6 shows the growth of area under

tea cultivation, production and exports during 1940-59.

16 Wesumperuma Dharmapriya, (1986), Indian Immigrant Plantation Workers in Sri Lanka, A Historical Perspective 1880-1910, Vidyalankara Press, Kelaniya. p. 5 17 V. K., Jayawardena, The Rise of the labour Movement in Ceylon (1972), Durham, N.C. p. 11

42

Year

1940 . 1945 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959

Table 2.6

Growth of Area under Production and Exports of Tea in Sri Lanka 1940-59

Area {000 Production Yield {Per Exports hectares) {000 hectare in

kilograms) kilograms) Volume Value {Sri Lankan {000 rupees per kg.at kilograms) current prices)

223.4 120.2 538 98.8 1.46 222.3 125.1 563 105.2 2.64 227.1 138.3 607 135.1 5.55 229.0 147.4 641 138.3 5.78 231.7 143.0 619 142.4 5.07 232.0 155.2 668 152.3 5.41 233.0 166.4 712 164.0 6.84 229.5 172.6 751 165.0 7.23 230.6 170.7 739 157.8 6.61 231.1 180.0 779 166.8 6.11 231.7 187.6 809 186.3 6.06 234.2 187.3 799 173.6 6.01

Source: Cited in Bancil.P.C, { 1971), Ceylon Agriculture A perspective, Dhanpat Rai & Sons, New Delhi, p. 181. Note: Figures are converted into metrics

The Sri Lankan tea industry strengthened its production and thus, its

exports were favourable during the 1920's. However, the depression of the

1929 f 30s adversely affected the Sri Lankan tea industry. It resulted in

recording the lowest prices in the world market.18 The tea exporting

countries introduced the International Tea Regulation scheme (ITR) in 1933.

Under this scheme the major tea producing countries sought a solution to

the problems of tea production. The participating countries agreed on an

aggregate output figure and each government planned legislation bills

accordingly to enforce the decision of the scheme.

According to Table 2.5 we can see that the expansion of area under

tea remained more or less constant over the last two decades up to 1959.

The production of tea was increased at an annual average growth rate of 55

1s Donald Snodgrass, {1966), Ceylon: An Export Economy in Transition, Homewood, Illinois, p .. 34

43

per cent and the volume of exports increased to 76 per cent between 1940

and 1959 respectively. Sri' Lanka also established an output restriction

scheme like the ITA decision during the Second World War.

2.5 Effects of Nationalisation of the Tea Industry in Sri Lanka

Considerable changes occurred in Sri Lanka in the context of plantation

sector in 1948. The successive governments after independence had

repeatedly announced plans for nationalisation of the foreign owned

enterprises in the country. Consequently, many foreign owned plantation

companies and individuals fragmented their tea lands into small plots and

sold them. The announcement of the nationalisation of foreign owned assets

led to a decline of further expansion of the tea industry by the British owned

companies like 'Sterling' and 'Rupees' that possessed large-scale tea estates

in the country. During the 1950's the annual average tea land rose only by

0.3 per cent. In 1960s the British entrepreneurs took away the profit from

the estate rather then make investment for further development.

The programmes for nationalisation of foreign owned plantations were

implemented in two stages. They were the Land Reform Law No.1 of 1972

and Land Reforms (Amendment) Law No. 29 of 1975. Sudatta Ranasinghe

states that there were both political and economic objectives behind the

land reforms. The political objectives were associated with the explicit as

well as implicit needs to force out the hold that the foreign owners had over

the strategically important land resources of the country since

independence. The economic objectives were linked with the 'need to

increase productivity as well as employment in the plantation sector where

there had been a declining trend in the productivity and very slow increase

of employment in the tea sector from the 1960s. There were also social

objectives such as redistribution of agricultural land among the landless

44

peasants living in the plantation areas as well,l9 It should be noted that

immediately after the implementation of the programme there were

considerable number of schemes introduced for the distribution of marginal

tea lands to the villagers and for employment of village youth in the tea

sector than any development programmes to existing plantation community.

At the time of the nationalization of tea plantations a little over 26 per

cent of tea land in Sri Lanka was managed by Sterling companies, about 25

per cent by Rupees companies and another 25 per cent was owned and

managed by Ceylonese individuals. There was a smaller percentage of tea

land owned by non-Sri Lankan individuals whose estates were not managed

by the agency houses.

Under the first phase of the land reform of 1972 a ceiling of 20.2

hectares on private land ownership, including private companies was

imposed. In 1975, the scope of amended Land Reform enabled the

government to nationalise the plantation owned by local public companies

and Sterling companies. Under the first phase of Land Reform, a total of

56,396 hectares of tea land (25 per cent of total tea land) were taken over by

the Land Reform Commission (LRC). Between 1972 and 1975 a further

13,875 hectares of tea land was acquired. The second phase of Land Reform

in 1975 brought an additional 96,152 hectares of tea land. Thus 63 per cent

of total tea land came under state control towards the end of the Land

Reforms.

With nationalisation of the plantations, the management of estates

was somewhat broad based as the land vested under the Land Reform Law

was given over to several managing.agencies, and to some others who had

managed a few plantations prior ·to the nationalization. A new organisation

called the Janatha Estate Development Board (JEDB-1975) and the State

Plantation Corporation (SPC-1977) were created to replace the Agency

19 Sudatta Ranasinghe, (September 1995 ), 'Land Reform in the 1970s, its Impact and Subsequent Changes in the Mangement' Economic Review, Peoples Bank of Sri lanka, p. 10

45

Houses, which were administered by the British owned companies till the

implementation of the land 'reforms. In addition, some other new foq:ns of

organisations were also created to manage the nationalised plantations.2o

Due to that reallocation of the properties to the SPC and the JEDB,

the properties have increased to 50.8 per cent and 36.7 per cent respectively

in 1978. In the same year the government also allotted 8.6 per cent of the

total land that acquired under LRC for the National Agricultural

Diversification Authority (NADSA). The remaining 3.9 per cent of the tea land

remained with Land Refonn Commission (LRC) and later on most of it was

distributed among the non-estate workers.

This resulted in widespread corruption and mismanagement m the

tea estates of Sri Lanka. Several studies21 have indicated (at the time of

nationalisation) that at least two thirds of the tea estates were in need of

infusion of capital to carry out productive activities like re-planting and the

proper application of fertiliser etc. In the aftermath of the land reforms the

performance of the plantations declined largely due to the lack of proper

capital and physical improvements. For example the output of the tea

plantation represented 36,5 per cent of GNP in the 1948-50 period. It

represented less than 13 per cent in the 1978-80 period and 11 per cent in

1983. During the same periods the share of plantation products in foreign

20 The . government formed the following organizations and distributed the plantation land that acquired by the LRC between 1974 and 1976. State Plantation Corporation 14.82 per cent, USAWASAMA, 38.12 per cent, JANAWASAMA 5.84 per cent, District Land Reform Authorities (DLRA) 16.99 per cent and the other Corporative 24.23 per cent were allotted in 1974. Subsequently some of the organizations were emerged and the land was reallocated. Accordingly USAWASAMA allotted 37.81 per cent, JANAWASAMA 7.26 per cent, DLRA 12.31 and other Corporative 42.62 per cent. 21 N. Shanmugaratnam, Privatisation of Plantations, The Challenge of Refonning Production Relations in Sri Lana: An Institutional Historical Perspective, ( 1997) Social Scientists' Association, Colombo, pp 1-29 Sudatta Ranasinghe, N. 18, (September 1995), pp. 10-2, Paul Caspersz, H. K. Wannikanayake, and S. Vijesandiran. The Privatisation ofthe Plantations, (1995) ,SATYODAYA CENTRE, Kandy. pp. 1-23 And M. Sinnathamby. 'The State Sector Plantations: Recent Trends in Productivity, Employment and Earnings of Workers',(1993) in ARTEP Working Papers, ILO, New Delhi. pp. 25-45.

46

exchange earnings declined from 90.7 per cent in 1950 to 53 per cent in

1980 and to 4 7 per cent in 1983. Therefore the government embarked upon

a number of projects for rehabilitation. 22 The targets that were expected by

the implementation of the rehabilitation programmes did not sufficiently

materialise and thus, the financial problem reached a crisis point because of

the proportions of heavy borrowing from the two state banks.

Subsequently, the government dissolved most of the co-operative

agencies and handed over the tea estate management to the private

companies under the recommendation of the Plantation Restructuring

Committee (PRC), which was formulated with the assistance of the World

Bank in 1984. Currently, the plantation companies (22) control around 53

per cent of the total tea estate management and around 40 per cent belong

to smallholders. Only 7 per cent remain under the state corporations i.e the

SPC and JEDB. However, labour unrest and low level labour participation in

the industry emerged in the large-scale tea estates in the Higher and Mid

elevation tea regions. 23

2.6 Regional Distribution of Tea Industry in Sri Lanka

The areas under tea cultivation can be classified into three regions in Sri

Lanka, such as Tea Region of High Elevation (1220 metres and above) Tea

Region of Mid Elevation (610 to 1220 metres) and Tea Region of Low

Elevation (610 meters and below). The Appendix Figure 1:4 also shows the

distribution of aforesaid tea regions in Sri Lanka.

The regional distribution patterns of area under tea production have

undergone a substantial change during the last three decades. The region of

the high elevation accounted for approximately 32 per cent of the total area

22 MTIP. Medium Term Investment Programme, IRDP, Integrated Rural Development Programme, ADB - Asian Development Bank largely assisted with rehabilitation programme both tea plant and welfare o_f the tea estate workers.

47

under tea in 1960 while the.region of mid and low elevations accounted for

41 per cent and 26 per 'cent respectively. From the inception of tea

cultivation in Sri Lanka, large-scale (200 hectares· and above in size)

plantations have continued to become predominant in all these regiOns.

Recently however, the smallholdings, which can be defmed simply as

holding of 0.8 hectares in size, became the large tea estate holdings in the

region of lower elevation in Sri Lanka. 24

The recent survey on Tea land by the Tea Commissioner's Division of

Sri Lanka (1994) reveals the size, ownership and regional wise distribution

of area under tea in Sri Lanka. Accordingly, the total area under tea in Sri

Lanka is 186,990 hectares. It is around 20 per cent less when compared to

the total tea land area in the 1980s.

As mentioned earlier, in the Tea Land Survey 1995 (TLS) the higher

elevations constituted around 27 per cent of the total tea land and mid and

lower elevations comprised around 30 per cent and 43 per cent respectively.

The trend of area under tea production and yield during the last three

decades are depicted in table 2.7.

According to table 2. 7 the total area under tea has drastically declined

at the rate of 21.07 per cent between the period 1960/62 and 1996/98 in

Sri Lanka. The table also reveals the decadal growth rate of area under tea

in three different regions in the country. In view of that the area under tea

in the tea region of high elevation decline at the rate of 32.80 between

1960/62 and 1996/98 and mid elevation that of declined at the rate of

23 W.D. Laxman (1997), Dilemmas of Development (ed.) Sri Lanka Association of Economists, Sri Lanka, p. 283. 24 The definition of small holdings is "A Tea small holding constitutes a part of tea land, one or more adjoining tea lands, managed as one operational unit owned by one or more persons which is not less than 0.8 hectares (20 percent) in extent and with more than a density of 1000 tea per acre. Additional information can obtained from Tea Commisissioner's Division, (1996), Tea land Survey ofTea Small Holdings and State Owned Estate in Sri Lanka 1994/95, Sri Lanka Tea Board, Sri Lanka, p. 3.

48

41.05 during the same period. However, the tea region of low elevation

considerably increased 25.48 per cent between the period 1960/92 and

1996/98. According to the Tea Land Survey the main contributory factors in

this respect are poor yield and low prices caused by the abandonment of tea

lands due to soil erosion, fragmentation and land alienation, to provide

lands to land less families, over a considerable period.25 However, the tea

land for smallholdings of tea increased and presently, the tea smallholdings

comprise of around 70 per cent of the tea land in the TRLE in Sri Lanka.

This tea region not only increased the tea land but also increased its

production and fetched a favourable price for its output in the world market

in recent years. The inducements provided by the government for

smallholdings in the tea region of low elevation gave a boost to the

indigenous tea cultivators of Sinhala community to whom besides provision

of land, loan facilities and training for planting high yielding tea varieties,

and a favourable price for their production was assured. A parallel decline of

the tea regions of the high and mid elevations mainly consisted of large­

scale tea estates which were managed by the private companies who could

not achieve what the smallholders could achieve in recent years. The

management of the privatised tea estates either abandoned or diversified the

tea land area into other crops in the marginal areas. This was one reason for

the decline of area under tea in these regions.

The areas under tea were shrunk mainly due to the abandonment of

marginal tea land for other types of cultivation, particularly in the high

elevation region. Whereas in the mid elevation it is due to the expansion of

forest plantation under Upper Mahaweli river development, village

expansion, agricultural diversification programs and the development of

hydro power projects in recent years that the area of tea land shrunk.

2s Tea Commisissioner's Division, ( 1996), Tea land Survey of Tea Small Holdings and State Owned Estate in Sri Lanka 1994/95, Sri Lanka Tea Board, Sri Lanka, p.9

49

v. 0

Tahlc 2.7 Growth of Area, Production, and Yield of Tea in Different Tea Regions in Sri Lanka -1960/62-1998/20000.

/ .I Tea Average Decadal Growth Rate* / I

Categories Regions 1960/62 1970/72 1980/82 1990/92 1998/00 1960/62 1970/72 1980/82 1~~~2 6~~2 1970/72 1980/82 1990/92 19 /00 00 (I) (2) (3) (4) (5) (6) (7) (8_2 _(9) (10) (11) cri)-

Area TRHE 76,558 77,733 77,802 73,277 51,444 1.53 0.08 -5.8 -29.79 ' ...:32.80 (Hectare) TRME 97,530 98,033 97,276 82,712 57,488 0.51 -0.77 -14.97 -30.49 -41.05

TRLE 63,461 65,933 68,523 65,757 79,711 15.58 3.92 -4.03 21.22 25.48 Total 237,333 241,700 24,623 221,638 18,310 1.84 0.79 -9.02 -15.48 -21.07

Production TRHE 72,810 72,797 74,866 72,633 72,528 -0.01 2.84 -2.98 1.23 0.98 (Million TRME 64.168 6,508 55,566 50,366 49,082 -5.70 -8.16 -9.35 -2.54 -23.51 kgs.) TRLE 44,832 51,003 66,006 I I 1,533 131,97 13.76 29.40 68.98 17.63 192.64

Total 181.811 184.336 196,402 237.500 254,864 1.38 6.54 20.92 7.31 40.18 -

Yield TRHE 985 936 958 990 1,429 -2.29 2.35 3.34 44.34 49.16 (Per TRME 661 616 570 608 852 -6.80 -7.46 6.66 40.13 28.89 Hectare/ TRLE 712 773 302 1,695 1,645 8.56 3.75 111.3 -2.94 138.06 kgs.) Total 864 762 830 1,187 1.371 -11.22 8.21 43.01 15.50 58.68 * Growth Rate columns (8) I 970/82 over 1960/62, (9) 1980/82 over 1970/72 (1 0) 1990/92 over I980/2, (II) I998/00 over I990/92 and ( 12) !998/ 00 over !960/622

Source: Compiled from Tea Annual Report, Tea Board of Sri Lanka, Various Issues and Annual Report, Central bank of Sri lanka, Various issues. Colombo.

Though the tea regions of high and mid elevations are climatically

endowed for cultivation of' tea, and consists of adequate deployment of

skilled labour for their task, the acreage has nevertheless shrunk. The tea

regions of high and mid elevations consist of around 65 per cent of low

yielding seedling varieties for their cultivation. This largely contributes to

low levels of production and yield of tea in these regions.

Moreover, there is an uncertainty of relationship between the

workforce and the management in large-scale tea estates of the country. Tea

workers are not adequately participating in the estate jobs mostly in these

tea estates.26 In addition to that, low levels of wages in the estate jobs lead

to low turn-out for estate jobs and ultimately results in low productivity in

these regions.

The tea land survey also reveals the extent of tea land which belongs

to different ownership in respect of all the three regions of Sri Lanka. It

should be noted that the ownership of tea land between the different

institutes i.e. Plantation Management Companies (PMC), Janatha Estate

Development Board (JEDB) and State Plantation Corporation (SPC) have

their share in all three regions except in the tea land that belongs to the

JEDB in the higher elevations in Sri Lanka.

So far as the distribution of ownership between the tea regions is

concerned, the PMC27 constitutes a large share (around 91 per cent) of the

total tea land in the higher elevations. The tea regions of the mid and low

elevations have around 43 per cent and 26 per cent respectively of the land

26 David Dunham, et al, 'The Labour Situation on Sri Lanka Tea Estates-A view to 2005', (1997),IPS, Sri lanka

27 Around 450 large scale tea estates which owned by the two corporations, (JEDB and SPC) has been transferred to around 23 private management companies in 1992 and remains (around 50 estates) retain under the operation of JEDB and SPC in Sri Lanka.

51

hat belongs to the small holdings and to the state in Sri Lanka. 28 The areas '

under tea managed by the JEDB and SPC have their share in all the three

tea regions except in the high elevation. Only a marginal land area belongs

to these two state owned organisations, namely the JEDB and the SLSPC,

which in actual terms amounts to only around 5 per cent of the total tea

land ownership in the island. When the small holdings constitute around 74

per cent of the total tea land in the lower elevation, the share of total tea

land of PMCs is around 26 per cent in Sri Lanka. The smallholdings

constituted around 44 per cent of the total tea land in the country in 1994.

It has a big share of the tea regions of low elevation tea lands, which is 70

per cent of the total tea land in the region. The smallholdings in the tea

regions of high and mid elevations share about 4 per cent and 28 per cent

respectively ir.. 1994.

2. 7 Growth of Small Tea Holdings in India and Sri Lanka

Apart from the recent changes in the tea industries of India and Sri Lanka,

the role of the smallholders in the tea sector become significant in recent

years in the two countries. In Sri Lanka, although the tea small holding

sector emerged around 1950s, it was very significant after the Land Reform

Laws that were implemented between 1972 and 1975.

The Tea Board of India defined the small holders as those who have

less than 8.09 hectares (20 acres) of tea land. In Sri Lanka, the definition of

small tea holdings is given in the Report of the Presidential Commission on

the Tea Industry and Trade ( 1995) and it varies from the definition given in

the recent Tea Land Survey, which was conducted by the Tea Commissioner

of Sri Lanka in 1994 j 95.29 The first definition states that the owners ofland

between 4.1 hectares and 20.2 hectares are considered as a small tea holder

2s Ministry of Plantation Industries, Plantation Sector statistical Pocket Book- 1998, Colombo, p. 33.

52

in Sri Lanka. The second definition in fact repeats the Tea Control Act No.

51 of 1957. According to the Act, the 'Small tea holdings' should constitute

a part of tea land, one or more adjoining tea lands, managed by one

operational unit owned by one or more persons which is not less than 20

perches in extent and with more than a density of 500 tea bushes per

hectare. However, the study found that there are some tea landowners

having up to 50 hectares of land who claim themselves a.s tea smallholders

in both the countries. More interestingly, individual owners holding even up

to 100 hectares of individual ownership with facilities for processing of

manufacturing of tea (tea factory) also claim themselves as small tea

holders.

According to the Tea Statistics of India ( 1994), the total numbers of

small tea holders in 1994 owning less than 50 hectares under tea in India

are 33,886. Approximately 93 per cent (31,774) of the total number of these

small growers possess their lands in South India. Table 2.8 shows the

growth of large-scale tea estates vis-a-vis the smallholdings in India between

1986 and 1994.

Country

India

Total India Sri Lanka

Total Sri Lanka Total

Table 2.8

Growth of large and Smallholdings of Tea Estates in India and Sri Lanka- 1983 and 1994

Categories 1983 1994 Changes (in hectare) (in hectare) Hectares

Large-Scale 396,066 330,696 23,942 Smallholdings 2,711 7,504 4,793

309,465 338,200 28,735 Large-Scale 139,643 104.602 35,041 Smallholdings 67,504 76,570 9,066

207,147 181,172 25,975

14,104 25,563 11,459

Percentage 7.80 176.80 9.29 -25.09 13.43 -12.54

81.25 Source: Tea Annual Report, Tea Statistics, Tea Board of India, Calcutta, Various Issues and Tea commissioner's division, (October 1996), Tea Land Survey of small tea holdings and estates in Sri Lanka 1994/95, Tea commissioner's division of Sri Lanka Tea Board

29 Report of the Presidential Commission on the Tea Industry, and Trade- 1995, (1995), p. 69. and Tea Commissioner's Division, Tea land Survey of Tea Small Holdings and State owned estates in Sri Lanka- 1994/95, (1996), p. 6

53

/

Table (2.8) reveals t:):ie major characteristic features that can be

witnessed in the tea plantations both in the large tea estates and the small

tea holdings in two different regions in India. In terms of those

characteristics, the eight years growth rate of total area in the large-scale

tea estates in North India increased only by 7.80 per cent between 1983 and

1994. The land belonging to the small holdings, however, expanded nearly

three times (176.80 per cent) between the same periods. A similar expansion

of tea land for small holdings also occurred in the tea regions of South India

as well. Land belonging to the smallholdings increased by around 81 per

cent, whereas the increase in the large scale estates was only around 3 per

cent during the period. The table also confirms not only the land expansion

of the small holders but also a boost in the tea yield by the smallholding

sector in these regions. As far as the number of smallholdings is concerned,

it is clear that it has proliferated during the period under study. The

unprecedented rise in the number of small tea growers in the State of

Himachal Predesh (now the tea gardens of this States comes under the State

of Uttaranchal) which underwent land fragmentation towards the end of

1993, was responsible for the tremendous increase in the number of small

tea holders in North India. In South India, the implementation of

settlements in the district of Nilgiri to the migrated Indian Tamil labourers

who were repatriated from Sri Lanka is a major reason for a sudden

increase in the number of small tea growers during 1983-1994.

The small holders of tea began to rapidly develop after the

implementation of the Land Reforms (1972-75) in Sri Lanka. The total area

under tea cultivation for small holdings was around 12.5 per cent in 1955

and it went up to approximately 16 per cent in 1965. In 1994 it swelled up

to around 42 per cent (82,391 hectares) of the total area under tea

cultivation. Area under small holdings increased by more than 60 per cent

54

during the period between 1973 and 1983.30 The small holdings consist

largely in the tea region of low elevation in the country. The total number of

tea smallholders in the country was 206,650 in 1994. Tea area held by

individuals has considerably shrunk over the last two decades. According to

the Census of Agriculture of 1982, a large percentage of holdings were

around or below 2 hectares.· At present around 97 per cent of individual tea

holdings consist of only 0.5 hectares each. The difference between large and

smallholdings in terms of ownership, extension of area under cultivation

and the yield in the three tea regions is illustrated in Table 2.9.

Table 2.9

Distribution of different categories of Tea Estates in Sri Lanka- 2000

Tea Regions Category of Number of Distribution of tea estates Ownership under tea (hectares)

area

Area Percentage High Elevation Large 154 47,796 25.58

Small 4,648 3,557 1.90 Mid Elevation Large 116 33,716 18.04

Small 42,341 22,788 12.23 Low Elevation T..,arge 134 22,902 12.25

Small 159,661 56,046 30.00 Total Large estates 404 104,414 55.89 Total Smallholdings 206,650 82,391 44.11 Total Sri Lanka 207,054 186,805 100.00

Source: Tea Commissioners Division, Tea Land Survey-1994, (1996), Colombo, p. 27., and Sri Lanka Tea Board, Annual Report 2000, (2001), Sri Lanka.

Note: * Data on yield of tea between Large and small is not available. **The total average of both large and smallholdings of tea estates.

The tea smallholders largely concentrate on plucking tea from the

bushes. The private bought leaf factory owner and the large-scale factories

in South India and the factory that was run by the Tea Smallholdings

development Authority (TSHDA), also processes the manufacturing part of

the Green leaf of the smallholding sectors in the tea region of Low elevation

3° C. S. Weeratne, (August/September 1987),Role of Smallholdings in Plantation Crops Production, Economic Review, Peoples Bank, Sri Lanka, p. 6

55

m Sri Lanka in particular. There are more than 125 bought leaf factories

established in recent years in South India. /

The Nilgiri Small Tea Growers Association (TNSTGA) in South India

and TSHDA in Sri Lanka are the major organisations, which are directly

dealing with the day today requirements of the tea smallholders in these two

countries. The NSGA also acts as a mediator in solving the problems

between the producers and relevant government organisation in respect of

the tea small Growers in South India. In Sri Lanka, TSHDA has played a

key function in providing necessary inputs for the enhancement of the

smallholdings tea sector in the country. The TSHDA established a loan

scheme on supply of fertiliser to the smallholders and an extension services

programme to all the tea factories in Sri Lanka 1994. This training was with

regard to educating the smallholders to supply better leaves for quality

manufacturing.

2.8 Consumption of Tea in India and Sri Lanka

Tea drinking is a habit and leisure.31 The consumer continues to make

purchase on the basis of habit though the price has changed. A recent

analysis in connection with the demand of tea by R. S. Misra evidently

proves that a one per cent increase in the per capita income in real terms

brings about 1.8 per cent increase in the per capita consumption of tea.32

This indicates that the demand for tea is highly income elastic. The study

also confirmed that tea is highly price-inelastic.

There are approximately eighty countries, which have been importing

tea both from India and Sri Lanka. There is a towering demand for a

particular variety of Indian tea, namely CTC (Cut Tear and Curl; a process

31 G. K. Sakar, The World Tea Economy, (1972), Oxford University Press, Calcutta, p.81

32 R. S. Misra, ( 1984), Ibid. He has estimated on the basis of available data on total domestic consumption, retail price of tea and per capita real income in India between the period 1961-62 to 1981-82, pp. 77-78

56

of manufacturing of tea leaves) and the green tea of Darjeeling in the world

market. At the same time, the branded high quality orthodox tea from Sri /

Lanka also has a high demand in the world market. As far as Sri Lanka is

concerned the Middle Eastern countries have consumed a large proportion

of its tea in recent years. The production of CTC tea in Sri Lanka has

declined by 4 per cent to 17.5 million kgs. in 2000. Local CTC teas cannot

compete with low price competitors in the world market due to the high cost

of production. As a result, CTC tea imports for blending and re-exporting

were practiced in Sri Lanka from 1995 onwards.

At present tea drinking has spread over to the developing countries as

well. These developing countries consumed around 64 per cent of the total

exports of tea from India and Sri Lanka in 1996-97.33 The major tea

consuming countries are UK (8 per cent), USSR/CIS (7 per cent), Turkey

(6.8 per cent), Pakistan (6.7 per cent) and Japan (6 per cent). Although India

is one of the major exporters of tea, it is also the biggest consumer of tea in

the world. It consumed 645 million kilograms of tea in 1998 which was

around 23 per cent of total world consumption as compared to 224 million

kilograms in 1983. A recent study has concluded that the annual growth

rate of tea consumption increased by 4.9 per cent against a population

growth of 2.1 per cent during the last four decades in India (1960-90)34 •

The per capita consumption of tea in different countries is given in

Table 2.10.

33 Tea Statistics, Tea Board of India, (1998) p. 215 34 Gursharan Singh Kainath, 'Export of Indian Tea: Emerging Pattern' in Export Potential of Indian Agriculture, Regency Publication, New Dehli, ( 1960), p. 305.

57

Table 2.10

Consumption of Tea -1976/78 and 1995/97

Countries Annual average (Kg.fper/Head/Year} 1976/78 1995/97

India 0.48 1.29 Sri Lanka 1.52 0.66 USA 0.37 0.35 UK 3.30 2.46 USSR/CIS 0.54 0.63 Turkey 2.36 1.77 Pakistan 0.95 0.78

Source: Tea Statistics, Tea Board oflndia, (19995-96 and 1997-98), Calcutta.

There is a substantial decline in tea consumption in major tea

consuming countries except India, and the USSR/ CIS during recent years.

When compared to other countries the per capita consumption of tea in

India saw a marginal increase. Sri Lanka, which is the major exporter of tea

in the world, has built a reasonably high level of exportable surplus but

considerably declined in terms of per capita consumption of tea between

1976/78 and 1995/97. It may be due to the availability of alternative

imported drinks in the market after the liberalisation of the economy.

Except the UK and Pakistan, all other tea consuming countries also

produce their own tea. For example USSR/ CIS and Turkey produced

around 18 million kgs. (0.6 per cent) and 115 million kgs.(4 per cent)

respectively in 1998. They generally reduce the importation of tea from other

countries whenever they have enough of home production.

It is true that although changes are taking place in terms of income

levels, consumer tastes and price of tea and substitutes and complements

of tea are being popularised yet tea drinking is a habit which competes

with several other drinks in the markets. A study on determinants of tea

consumption in UK and USA shows that the per capita consumption of tea

58

drinking is increasing more than that of coffee in the USA and this trend is

likely to continue in the future as well.35 /

A recent phenomenon in both these countries 1s the increasing

popularity of the branded and packed tea in the home market. Earlier the

sale of packed tea was not a common practice and thus loose tea was largely

consumed. Now, the demand has shifted from loose tea to branqed teas. The

'tea bags' also have become a common commodity in the Indian market.

2. 9 Exports of Tea

Tea industry is not only of great importance to the national economies of

India and Sri Lanka but it also significantly contributes to the world trade.

The two countries together supply roughly 37 per cent (16 per cent by India

and 21 per cent by Sri Lanka) to the world tea trade. The Tea Statistics

shows that there are considerable changes that have taken place during the

last two decades in connection with the destination of tea exports. The

Western countries were the major markets for tea till the 1960s. At present

a substantial amount of tea is exported to the developing countries as well.

The other recent changes in the tea market are the availability of cheap

priced tea from Kenya, ·which is the major competitor against high price tea

from India and Sri Lanka.

Tea is mostly sold through auctions. The other methods of sales of tea

are Forward Contracts or Private Sales for export of tea and Ex-garden or

Ex-Factory sales held primarily for internal consumption. The London

auction has been the centre of world tea trade until recent times. Guwahati

auction center (established in 1861) is handling large quantum of tea for

auctions in India. The other auction centres in India are Cochin (established

194 7), Coonoor (in 1963), Siliguri (in 1976) and Coimbatore (in 1980), which

are centres for sales of tea from Kerala, Nilgiri, Darjeeling and Coimbatore

35 K. S. Dhindsa, The Determinants of Tea Consumption- case of UK and USA, (1984), Indian Joumal of Economics, pp. 437-494.

59

(Valparai taluk of Coimbatore) respectively. Colombo is the only auction

centre for tea in Sri Lanka and it has become the world's largest tea auction

centre and handled 277 million kilograms of tea in 2000.36 The second

largest is Guwahati in India, which handled approximately 130 million

kilograms the same year.

Table 2.11

Share of Different Countries in the World Trade of Tea - 1982 and 1998

Tea Producing Countries Percentage of Total Production 1982 1998

India 23.17 16.39 Sri Lanka 22.10

. 21.15

China 12.91 17.31 Kenya 9.80 20.91 Indonesia 7.76 5.58 Argentina 4.04 4.77 Malawi 4.44 3.27 Bangladesh 4.20 1.77 Tanzania 1.46 1.77 Other Countries 10.12 7.08* Total 100.00 100.00'

Source: Compiled from Tea Annual Report, Tea Statistics, Tea Board of Indai, Calcutta, various issues.

*Countries which export less than two per cent of tea to the world market in 1998 were: Taiwan (0.20), Japan (0.06), Papua & New Guinea (0.40), Iran (0.13), Turkey (0.36), Uganda (1.06), Mozambique (0.16), Zaire (0.16), Mauritius (0.02), Brazil (0.26) and Zimbabwe (0.86)

The Sri Lankan tea sales through auctions are around 97 per cent of

the total production. Kenya auctions roughly 66 per cent of its output and

India around 64 per cent of its production the balance of the sales are done

through other methods like Forward contract for exports and Ex-garden

contracts for local consumption. As far as the share of tea to the world

market is concerned, the shares of Indian and Sri Lankan tea have

considerably declined over the last two decades. In 1982, India and Sri

Lanka together supplied around 45 per cent of tea to the world market but

36 Central Bank of Sri Lanka , Annual Report 2000, Colombo, p. 51

60

this share declined to 35 per cent in 1998. However, Kenya, which gave

only about 10 per cent of the world supplies in 1982, increased its supply to

around 20 per cent in 1998. This is more or less at par with the supply of

Sri Lankan tea alone to the world market in recent years. Table 2.8

indicates the changes occurring in terms of total share of tea in the world by

the producers during the last two decades.

As far as the destinations for the export of tea are concerned, India

still exports a substantial quantity of tea to the USSR/ CIS countries. The

volume, which was exported to these countries was 45 million kgs which

was roughly 21 per cent of the total exports of tea by India in 1997. Exports

to Iraq also sizeably increased due to the continuation of UN sponsored

"Food for Oil" programme, which helped to boost the Indian tea both in

terms of quantity and export earnings. Though the other developing

countries purchased tea from India, it registered a decline during 1998

when compared to 1997. USSR/ CIS countries continued to be the largest

buyer of Sri Lankan tea. It accounted approximately to 16 per cent of the

total export of tea in 2000. Turkey, Syria, and Jordan are the other leading

buyers from Sri Lanka that constitute 13 per cent, 6 per cent and 5 per cent

of the total exports of tea respectively in 2000. Table 2.12 illustrates the

trend of export earnings of tea by India and Sri Lanka during the last two ·

decades.

Tea earnings amounted to about 1.19 per cent of the country's total

export earnings in India in 1995 and it was 12 per cent in Sri Lanka in the

same year. Table 2.12 shows an increase of the value of export income from

tea from 1980 to 1995. It has increased from 379 million US $.in 1980 to

986 million US $ in 1995 in India. In Sri Lanka it increased from 570

million US $ to 2433 million US $ during the same years. Because of the

diversification of exports, traditional exports like plantation crops in terms

of export earnings in these two countries declined.

61

Table 2.12

Export Earnings of Tea by India and Sri Lanka

Year India Sri Lanka Total Export Earnin Share of tea Total Earning Share of

Earnings gfrom in total Export from tea tea from (Rs in Corers) tea exports Earnings export total

export (in%) (Rs in (Rs in exports (Rs in Corers) Corers) (in%)

Corers) ( 1) (2) (3) (4) (5) (6) (7)

1980 6458.76 379.95 5.88 1528.20 570.47 37.32 1985 11743.68 780.94 6.65 3734.70 1576.43 42.21 1990 27681.46 914.82 3.30 7586.62 1979.70 26.08 1991 32527.28 1071.1 3.29 8137.55 1788.68 21.97

0 1992

44041.81 1212.2 2.75 10737.38 1489.34 13.86

7 1993

53605.39 1058.7 1.98 13728.57 1991.11 14.50

0 1994

69655.83 1063.0 1.53 15778.95 2096.40 13.28

4 1995 82608.72 986.41 1.19 19427.95 2433.50 12.52

Source: Tea Statistics, Tea Board of India, Calcutta, (1997), p. 193 and Statistical Abstract of Sri Lanka, Department of Census and Statistics, Colombo, ( 1997), p. 190 Note: Column (4) is the percentage (2) and (3)

Column (7) is the percentage of (5) and (6)

2.10 Conclusion

Tea industry is undergoing a process of modernisation, which has

considerably transformed the economies of India and Sri Lanka. It has

changed a feudal economy into a capitalist economy like Sri Lanka and

transformed economically backward regions into well-developed regions by

providing necessary infrastructure facilities. This is true in the case of tea

growing regions of North India and Sri Lanka where the intense land

utilisation of British evoked controversy; however, tea industry provided

stable flow of foreign exchange in both the countries.

Tea industry in India has grown tea in two widely separate regions,

namely the North and South India. In Sri Lanka tea estates are spread

62

/

according to the elevation, v1z. the tea regwns of high, mid and low

elevations. There have also been significant structural changes that

occurred in terms of land ownership, particularly in Sri Lanka and it has led

to the land fragmentation and the emergence of small tea holding sector in

the island. The settlement programmes in South India showed an increase

in small tea growers in recent years.

This chapter also discussed the disparity in terms of development

programmes that took place in three tea regions in Sri Lanka. The tea

regions of high and mid elevations hardly saw any developments to boost

the productivity of tea in recent years, whereas the tea region of low

elevation was given more attention not only in terms of extension but also in

terms of institutional support.

The other aspects that we discussed in this chapter are the

consumption and export of tea by these two countries. India became not

only the biggest producer of tea but also the largest consumer of tea in the

world. The most noteworthy feature has been the diversion of considerable

amount of tea exports from the western countries to the developing

countries in the recent years. Though the export earnings of both the

nations had enhanced considerably by these years due to diversification in

export items, the share of tea still remains substantial.

63