That’s not good news for Assam and West Bengal. According to the Union labour ministry, in July 2016, India had 11 lakh tea workers, of which nearly seven …
Organised tea plantation in India suffers from weak fundamentals and unless there is a magical improvement in the scenario, a shakeout is imminent. That’s not good news for Assam and West Bengal. According to the Union labour ministry, in July 2016, India had 11 lakh tea workers, of which nearly seven lakh are in Assam and over three lakh in West Bengal.
That tea is in trouble can be understood in more ways than one. In 2012, the Parliamentary Standing Committee on Commerce said India is the highest-cost producer among all tea-producing nations, while the price realisation has remained stagnant.
At the country’s largest auction centre in Guwahati, the average price for tea per kg between 2012 and 2016 was ₹141, ₹135, ₹143, ₹145 and ₹140, respectively. Juxtapose this with normal inflationary pressure and you know the bottom line is under pressure.
The impact of the current price stagnation is significant; the industry saw a six-year-long price crash during 2000-2006. Add to this the increasing climate risks and one can see the industry is facing serious headwinds.
Producing quality tea may be a solution as long as it is the preserve of a few. From 1991, India’s tea production grew 60 per cent, but exports remained stagnant at around 200 million kg (it reached 225-230 million kg twice in the past 10 years). Except in FY13, there has been no significant spike in export prices. Per-unit realisation of tea has been more or less flat over the past six years. In the absence of export potential, planters are dependent on the domestic market. But they don’t have control over retailing. Moreover, on a per capita basis, India drinks much less tea than, say, Pakistan.
This means planters have to operate at low equilibrium. And maintaining this equilibrium gets increasingly tough as is evident from diminishing corporate interest in tea.
Top marketers such as Tatas or Unilever have either exited or cut exposure to the tea business substantially. South India has literally become a no-go zone for them. In the north, mergers and acquisitions have become rare as fresh investments are not remunerative.
Smaller entities are most affected by limited access to resources. Planters say barely a fifth of the 195 gardens in the plains of West Bengal, sufferingfrom low yields and high production costs, are in profit. As of August 2014, nearly 30 per cent of the Assam gardens defaulted PF obligations, attracting strong punitive action. This is a clear sign that people are desperately cutting corners, which will create problems in the future. A tea garden once sick is rarely revived.
The root of the problem lies in a gross policy failure or oversights that led to an over-supply of cheap tea; this has hit domestic prices. Tea plantations were set up by the British to cater to overseas markets. The model got a new traction during the Cold War days.
Taking advantage of the rupee-rouble trade and captive market in the erstwhile COMECON or the Council for Mutual Economic Assistance, Russian buyers offered unviably high prices for Indian tea. The industry minted money, a good part of which was diverted to property and lifestyle.
The traction ended with the collapse of the USSR in 1991. That year, India exported 27 per cent of its 754-million kg production.
Ideally, it should have discouraged further growth in production, but the Tea Board (under the commerce ministry) did just the opposite. It set a goal of 1,000 million kg production by the millennium, promising huge market opportunities both in India and abroad. In the end, it was successful only in increasing production, which shot up 62 per cent to 1,233 million kg in FY16. The share of exports went down to 19 per cent.
The entire production growth over the past 25 years came from small growers or farmers operating outside the regulatory framework of the Plantations Labour Act. Tea farming was encouraged as a social measure in Assam since 1978. In the mid-1980s, the Centre created provisions for bought-leaf factories to cater to the segment. But till the early 1990s, their contribution was insignificant.
Within a decade, the tea growing region was dotted with bought-leaf factories churning out cheap tea using green leaf procured from small growers. Many rightfully think it has helped contain militancy in Assam by offering gainful livelihood opportunities to unemployed youth. But it has also created a deep imbalance in the sector.
The gains could have been more sustainable if the small grower-BLF combine was replaced by contract farmers, creating room for the organised sector to grow. It would have also helped ensure greater market connect. With BLFs flooding the limited market space with cheap teas, the correction should come through disruptions in the over-regulated and costlier organised sector.
Dismantle Tea Board
In all fairness, tea is going the jute way. There is hardly any new face in the industry; the old expect government help, and politics and bureaucrats are in control. This is the time for structural reforms and that must start with the Tea Board.
This is a control-era relic, whichcollects ₹60 crore in cess from the industry to create another layer of bureaucracy, Inspector Raj, and justify it by throwing a few crumbs (subsidies) to the industry. As in 2015, the Board had 608 employees, yet it cannot publish the annual tea statistics on time.
According to the last available balance-sheet of FY13, the Board had spent ₹42 crore on establishment costs alone. These expenses include ₹11.5 crore in wages, ₹13 crore for allowances and bonus, ₹15 crore worth terminal benefits to retiring employees, and ₹2.3 crore on staff welfare such as canteen, holiday home, recreation club, etc.
The CAG’s performance audit in 2011 said that the Board had failed in regulation, its inspections were “non-transparent”, the subsidy schemes didn’t deliver, research was not fruitful, and even the internal audit was weak. The industry associations have no representation on the board, which is loaded with politicians and chosen ‘experts’.
The Board should go and the Government should remove subsidies as far as possible. Let there be a privately-run, lean tea promotion body. If Nepal can let professionals be in charge of clearing foreign investments why can’t we replicate it in tea?
Removing the Tea Board is not the only solution. A planter has no right to decide how many labourers he needs. He cannot explore if the land can be used more profitably through any crop other than tea. States and trade unions are overloading planters with social obligations taking advantage of an archaic Plantation Labour Act. This must stop. Planters should pay wages only in cash and take care of PF, ESI, etc, as in other industries. It is the State’s responsibility to build hospitals, houses and schools.
Governments can ensure that planters pay basic minimum wages for agriculture. But, forcing planters to commit fancy bonuses and wages will not do any good. Micromanagement is paving the way for more corruption and less transparency.