Stressed Tea Estates in North Keen to Use Land for Other Crops, Real …

Larger estates have begun posting losses due to spiraling costs, competition from smaller growers

Faced with spiraling cost of production and competition from bought leaf factories (BLF), estate holders in north India are exploring the possibility of converting a part of their plantation land for activities other than growing tea to contain falling profitability.
The Indian Tea Association (ITA) has decided to appoint a consultant to study the alternatives for the large estate holders to control falling profitability, while retaining the existing labour force. Sources said possibilities such as horticulture as well as building supermarkets, theatres and other commercial real estate projects are being thought of.
Officials belonging to large tea estates said that while they have to sustain a higher cost of production, the small tea growers (STGs), who usually send their produce to the BLFs, incur about 50 per cent lower cost of production. With tea prices remaining more or less flat, the estates have started to incur losses.
McLeod Russel, the world’s largest tea producer reported a 35 per cent decline in operating EBITDA at Rs 110.44 crore during the year ended March 31, 2017, while its top line dipped by three per cent to Rs 1,870.82 crore. Warren Tea reported a loss of Rs 15.17 crore during the previous year against a marginal Rs 4.58 crore profit in the 2015-16 period. Jay Shree Tea & Industries’ bottom line shrunk by 53.74 per cent to Rs 24.46 crore during the last fiscal year.
Officials said rising cost of production, depreciation of plant and yield per hectare as well as their commitment towards labourers’ social security such as housing, rations, education and others (as per Plantations Labour Act, 1951) are straining the estate tea sector across the country and are gradually making tea “unsustainable to produce”.
Wages and employee benefits, which account for around 45 per cent of a garden’s annual expenses, spiked by nearly 12 per cent for for McLeod Russel while Rossel Tea saw a 10.5 per cent hike.
“STGs on the other hand are not required to abide by the Plantations Labour Act, 1951, which makes their cost of production around 50 per cent lower than that borne by larger estates,” an estate tea producer said, adding that STGs appoint seasonal and casual labourers only, unlike the estates and large growers who rely on full-time regular staff.
On the other hand, while the yield per hectare for estates’ stands at 1,000-1,400 kg in north Bengal and 2,000-2,500 kg in upper Assam, the STGs yield is anywhere between 2,700-3,000 per hectare.
“It is not a level-playing field anymore between the estates and STGs”, the producer added.
While tea production in the country has been rising by 4.26 per cent to touch 1,250.49 million kg (mkg) in 2016-17 from the produce of 1,197.18 mkg during 2014-15, the contribution from BLFs rose to 35.06 per cent during 2016-17 from the earlier 32.95 per cent during the same time period.
In the last fiscal year, while production volume from the estates fell marginally by 0.5 per cent, BLF production shot up by five per cent.
Industry bodies like ITA, Darjeeling Tea Association and others, in the recent past have made several appeals to the state governments to modify the lease terms for the plantation to allow growing other crops.
S S Bagaria, former chairman of the Darjeeling Tea Association opined that unless the West Bengal government allows for a higher percentage of tea plantation land to be used for cultivating other crops and flower or to allow for commercial real estate development, viable alternative use of land cannot be made and the stressed tea companies will decline further.
Under the current rule in West Bengal, five per cent of plantation land allowed for tea can be used for other purposes. The industry, however, wants the allocation to be increased to 25 per cent.
Ashok Kumar, managing partner at Goomtee Tea Estate opined that the soil in the Indo-Bhutan border has turned alkaline which has rendered the area non feasible for tea cultivation.
“Bhutan has been building their cement plants in that border area and the fly ash comes to this side (Indian side) which has now turned the soil alkaline. Flowers and fruits do well in this kind of soil but not tea,” Kumar said.
Tea cultivation needs acidic soil and the yield per hectare suffers as the acidity level reduces.
Asked if the switchover by the large tea estates to other crops will hurt tea volume in India, several industry officials opined that an alternative usage of land don’t necessarily imply a volume decline.
“Anyhow, the focus needs to be on quality and not only volume. Higher quality of tea will fetch better prices both in the domestic as well as the export market,” a large planter said.