Market Survey

August 2011 • FACts FOR YOu 23

By: Dr I. Satya SunDaram

IndIan Tea: sIp on a qualITy dIpThe Indian tea has to become globally competitive. no doubt, there are large estates, but not sufficient attention is paid to processing and improving the quality of tea.

workforce. The annual production of tea is

around 979 million kilogram. The per capita consumption of tea in In-dia is low at 750 gm against 1 kilo-gram in Pakistan. Of course, it is 1.4 kilogram in Gujarat. There is a vast scope to boost domestic consumption of tea.

Recent trends

Tea industry has experienced many structural changes in recent years. These include emergence of small tea growers in place of large

plantations and introduction of bought leaf factories (BLF).

India’s large tea plantations are mostly concentrated in Assam, and north Bengal. Assam alone produces 51 per cent of the national produc-tion. As an agro-based industry, the development of plantation industry has contributed greatly towards ru-ral development and urbanisation of remote hilly regions by optimum use of land, creation of roads and other communication networks in such areas.

In India, there are about 1700 processing units engaged in tea production, while around 1671 big (more than 100 hectares) planters produce an output of 700 to 725 mil-lion kilogram. At least 16 planta-tions in West Bengal were shut down in last few years after production fell and profits plummeted due to low yields from ageing tea bushes.

According to the Tea Board, pro-duction during the first ten months of 2010 stood at 813 million kilogram as against 830 million kilogram dur-ing the same period last year. Look-ing at the cumulative figures, tea production in the first two months of 2011 was down by nearly 16.4 per cent to 37.66 million kilogram com-pared with 45.06 million kilogram of the commodity produced in the same period of 2010. Production in Feb-ruary was down in West Bengal as well as in most parts of North India.

India is one of the largest tea producers in the world. It produces the finest quality of tea. The country accounts for about 31 per cent of glob-

al production. Tea industry is also well-placed in terms of productivity. Since independence, tea production increased over 250 per cent, while land under tea crop increased by 40 per cent.

The labour-intensive industry employs over 1.1 million workers and generates income for another 10 million people approximately. Women constitute 50 per cent of the

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24 FACts FOR YOu • August 2011

In case of Assam, production rose significantly to 94,000 kilogram as against 44,000 kilogram in Feburary 2010.

Consumption of black tea in the world market is expected to in-crease. In India alone, black tea con-sumption is expected to grow by 3.5 per cent. The pressure on supply is expected to push up prices. In India, prices of quality tea fetched Rs 15-20 higher per kilogram in 2010 com-pared to the previous year.

Darjeeling Tea, which is known world over as the champagne of teas, may get exclusive status in the Eu-ropean Union (EU). India has sent a proposal, seeking patent protection for Darjeeling Tea in the EU. The Eu-ropean Commission has sought some clarifications from the Tea Board on Darjeeling Tea before granting pro-tected geographical indication (PGI). Over Rs 6 million is spent every year on the legal requirements to protect ‘Darjeeling’ word and logo globally.

A welcome development is that quality tea is finding takers even in smaller cities. Tier 2 and Tier 3 cities are emerging as major growth drivers for domestic consumption of tea. One reason for this is increase in purchasing power of the people.

Tea prices

Because of poor rains in June and July 2009, tea prices rose sharp-ly by Rs 35 per kilogram. Good-qual-ity Assam tea was selling at Rs 160 per kilogram and South India tea at Rs 90-110, was up Rs 20 to 30 per kilogram.

Tea prices are expected to re-main firm in 2011 with global tea deficit expected to reach as much as 130 million kilogram. The shortage in tea production in India alone was likely to reach 80 to 100 million kilo-gram in the new season beginning April 2011.

In March 2011, good Assam tea fetched Rs 200 to 300 per kilogram compared to Rs 200 per kilogram the previous year. Dooars and Cachar tea where sold at Rs 300 to 400 per kilogram against Rs 300 per kilo-gram the previous year.

Tea export

The coming down of the Ber-lin Wall and the disintegration of the former USSR have led to many changes in the industry’s export market. Shift in the composition of demand for tea in the importing countries has produced adverse ef-fects on export earnings from tea in India. Wide fluctuations in tea prices is a serious problem. There is a fierce competition abroad. Indian tea has lost its competitive advantage to other countries on account of high cost and poor quality.

The major competitive countries are Sri Lanka, Kenya, China and Indonesia. China is the major pro-ducer of green tea. Sri Lanka and Indonesia mainly produce orthodox varieties of tea. Kenya is basically a CTC tea-producing country. India is facing competition from Sri Lanka and Indonesia with respect to or-thodox tea, from China with respect to green tea, and from Kenya and other African countries with respect

Table I

Gross area and yield of tea

Year Gross area Yield (million ha) (kg/ha)

1960-61 0.3 9711970-71 0.4 11821980-81 0.4 14911990-91 0.4 17941999-2000 0.5 17022004-05 0.5 18002005-06 0.6 15002006-07 0.6 16672007-08 0.6 1500

Table II

Estimates of Domestic Consumption of tea

in IndiaYear Domestic consumption (million kg)

1998 6151999 6332000 6532001 6732002 6932003 7142004 7352005 7572006 7712007 7862008 8022009 8192010 837

Table III

tea Production in major Countries in 2009

Country Production (million kg)

India 979Sri Lanka 290Indonesia 136China 1359Vietnam 154Kenya 314Malawai 53Uganda 46Argentina 90

Table IV

India’s Exports of tea and mate

Year Quantity Value (‘000 tonnes) (Rs million)

1960-61 199.2 12401970-71 199.1 14801980-81 229.2 42601990-91 199.1 10,7002000-01 202.4 19,7602007-08 197.0 20,3402008-09 206.0 26,890

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August 2011 • FACts FOR YOu 25

to CTC tea. Because of their low do-mestic base, Sri Lanka and Kenya have an edge over India in the inter-national market.

Major problems

The tea industry is not free from problems. In early 2005, the in-dustry witnessed major companies withdrawing from production and concentrating on packaging/retail-ing sector. They intended to focus on brand-building business and explor-ing the market substantially, rather than on the plantation business, which is a low-margin segment.

The problem of tea-shortage is likely to worsen as pests damage this crop. In 2010, excess rains hurt tea crop in north-eastern states, which accounted for more than 70 per cent of production.

Also, the increasing use of tea bags and soluble instant tea effective-ly reduces the quality of tea needed per cup and raise the demand of plain cheaper tea. Tea bags account for 10 per cent of the volume of world con-sumption, and it it still increasing.

A major problem is the poor yield because of poor condition of the gardens. More than 30 per cent of the tea-growing areas are above the economic threshold age limit. The auction mechanism is defective

and factory set-ups are old. Poor and frequent changes of garden man-agement is another problem. Some owners are inexperienced. Added to these, the managements depend heavily on bank debts with negligi-ble fresh equity infusion.

Indian tea industry suffers from a defective auction system. Nearly 55 per cent of the output is sold through auction houses, and the rest sold through private sales. Of course, the compulsory auction was abolished in 2001. The fact is that big tea companies are benefiting from fall in auction prices and rise in retail prices of tea. Longer transac-tion time and high transaction cost (like warehousing charges, transpor-tation cost, brokerage charges, etc,)

are some other problems. It takes about 35 days for the entire transac-tion processes to complete.

The wide fluctuation in prices is causing hardships to the growers. The price of tea has been on a long term decline while production costs are rising, putting pressure on tea growers. The labourers too suffer because losses due to the low prices of tea are generally passed on to the workers in the form of low wages and withdrawal of basic facilities.

Measures needed

The Indian tea has to become globally competitive. No doubt, there are large estates, but not suf-ficient attention is paid towards pro-cessing and improving the quality of tea. India has to promote a powerful brand to win back the confidence of lost foreign markets.

Attention should be paid to reducing unit cost of production through productivity gains, capac-ity building of small growers and streamlining marketing channels to suit foreign markets’ demand. There is also a need to propagate the health benefits of tea. Promotion of organic tea is also important as its interna-tional demand is growing.

The author is an economist and a writer

range of tea Offered in India

Darjeeling tea Nilgiri tea Assam tea

Speciality teas: Black tea Instant tea Green tea Oolong tea Bio-dynamic tea White tea Flavoured tea

COMPONENTS. PRODUCTS. MACHINERY.