Two Leaves and a Nip in the Bud

The downward spiral began in 1998. ‘‘Till then, things were actually smooth, but since 1998 we are really in a bad shape,’’ says K R Bhagat, former chairman of the Assam Branch Indian Tea Association (ABITA). Others in the industry even prefer to call it an ‘‘unprecedented depression.’’

In 1999 came a severe drought, resulting in a slide in production from an all-time high record of 870 million kg the previous year to 805 million kg. However, though supply went down, prices refused to go up; in fact, they actually fell from an average of Rs 76.43 per kg in 1998 to Rs 72.80 per kg the next year.

The year 2000, however, registered a recovery on the production front, with the total output going up to 846 million kg. But the prices continued to fall, averaging Rs 62.39 per kg for the year. The current year has been even worse. The average price in the Guwahati Tea Auction Centre from January to June this year stood at as low as Rs 53.37 per kg against Rs 76.10 during January-June 2001.

As if that were not bad news by itself, an agreement between the ITA and the labourers’ unions will add Rs 5.45 to the daily wages and push up the production cost of per kg of tea by Rs 3 from September 1. The agreement is four years old, implementation having been deferred, ironically, for better economic circumstances.

‘‘We had a series of discussions with the unions to further postpone the implementation and maintain labour costs. But now there is no way out but to increase the wages,’’ says Dhiraj Kakati, ABITA secretary. Perhaps the silver lining in this cloud is the consequent improbability of a major strike.

‘‘Since 1998 the production cost per kg of tea has gone up by Rs 16.75. The average net impact of cost increases plus price decreases is about Rs 28.75 per kg. This has led to an extremely critical situation where prices are ruling below cost of production and many estates are defaulting on wage payments. Quite a few estates are on the verge of closure,’’ the ITA had told the Assam government in its pre-budget memorandum, while pleading for increased relief in taxes, cess and other burdens.

Interestingly, while the all-India prices of tea fell by almost Rs 20 per kg over three years, direct labour wages have gone up by 48 per cent. Add to this a 25 per cent hike in fertiliser prices.

In comparison to other plantation industries, the tea industry has the highest labour cost: about 50-55 per cent of the total input needs. The Plantation Labour Act provides for supply of seven kg of rice at between 44 and 54 paise per week for every labourer. There are other incentives like unlimited free medical facilities, free housing and fuel, all of which add up to the increasing burden on the industry.

The export scenario, meanwhile, has touched an all-time low. A study commissioned by the Tea Board recently revealed that the reputation of Indian tea in the international market has touched the lowest levels ever.

While the exports are already down with Russia and the CIS countries cutting down Indian tea intakes, an aggressive marketing strategy adopted by China, Sri Lanka and Kenya has further pushed out the Indian manufacturers. The study has revealed that Indian has fared rather poorly in its overseas promotion drive and has been ineffective in building brand equity amongst traders and consumers.

India’s service quality (yearlong availability, reliability of exporters, consistency of quality etc) was also much lower than that of Kenya and Sri Lanka, the study revealed. Given this scenario the study has suggested exploring possibilities of export diversification, including targeting new markets like Canada, Japan, Chile, Syria, Egypt and Australia.