India’s Tea Industry Struggles To Flourish

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By Aravinda Anantharaman

The tea industry is one of the largest employers in India, with more than a million people producing over a billion kilos of tea per year, with exports alone valued at close to US$800 million in 2019.

Inherited from the British, the tea industry is nearly 200 years old and has been a significant economic asset for independent India. However, 70 years on, it’s showing deep cracks; in the last decade, tea gardens have been closing, citing losses from poor yield, aging bush, poor management, low quality, and lack of price realization. The pessimists declare that the writing is on the wall, that unless something is done, the tea industry can’t be rescued from its descent into a downward spiral.

Traditionally, tea estates have grown and produced tea in owned factories. They are the organized sector, or regulated tea gardens (RTG), as they come under the purview of the Plantation Labor Act (1951). Because tea estates are located in remote areas, and employ a significant workforce, living facilities are necessitated on the estate. The PLA (1951) mandates that the employer provide housing, medical care, a school, daycare center, etc., in addition to wages and other benefits. Gardens have a roster of permanent workers and hire temporary workers during the busy season.

But labor is the most contentious of issues in the tea industry. RTGs have been facing the twin problem of labor shortage and demand for higher wages. The tea estates are no longer an attractive employment option. Says Raju Lama, who runs Darjeeling Tea Leaves, a small enterprise to promote Darjeeling and its tea, “Today, you don’t find the younger generation working or willing to work as tea pluckers anymore. Current wages are way too low, and people with education and exposure outside their homes seek a good quality of life, respect at work, and are very conscious about self-esteem.” Lama is also among those who think the large tea garden model is no longer working. Tea garden workers are still often referred to as “coolies,” a colonial derogative.

Yet, in the Nilgiris, the 135-year old Craigmore Plantations producing orthodox green and black tea, with a resident population of 5,000 is running efficiently and profitably. The company’s welfare model is one of the best in the country, with no expense spared in the quality of services provided. Their environmental work is remarkable, with more than 25% of the estate left forested.

Craigmore offers a ready model to borrow from, but, unfortunately, there seem to be few takers coming forward to learn from it. Because right now, the conversation has shifted to the small tea grower (STG).

The rise of the small tea grower

In 2012, STGs contributed 25% of India’s total tea production and, by 2019, this had grown to 48%, almost equaling the output of the RTG. STGs are defined as a farmer who owns and cultivates tea on up to 25 acres. STG is not regulated by PLA. Most are single-crop growers, depending solely on tea for their livelihood. Unlike RTGs, they are not saddled by high overhead costs. Small farmers sell the green leaves to the estates or bought leaf factories (BLF) and are not encumbered by the production of tea or its distribution. But this gives them no cost advantages or bargaining power.

Mrityunjay Jalan, of the Chota Tingrai Estate, Assam, says, “STGs are forced into selling their leaf at low prices as there is no formal structure or mechanism for the green leaf sale. The minimum benchmark price remains low and, moreover, cannot be formally enforced. The low green-leaf price ensures that BLFs have a much lower cost of production as compared to the organized sector, thereby enabling them to sell the teas at a much lower price in the open market.”

Because they make up 44% of the production, BLF can influence prices. Adds Jalan, “There is major competition among tea brands to capture the market by competing on price and offering discounts. This forces them to reduce their purchasing price of tea. With BLFs willing to sell cheap, the overall tea market gets pushed down and the average selling price remains suppressed.”

Sonia Jabbar, of Nuxalbari Estate in Darjeeling, offers numbers. “I will pay my workers INR500 a day in wages, as is demanded, but will the buyers pay me INR500/kg of tea?” According to the Tea Statistics 2019 issued by the Tea Board of India, the all-India average auction price for 2018-19 was INR180.76/kg for orthodox tea and INR136.29/kg for CTC. Accounting for wages for a sizable workforce and cost of facilities necessitated by PLA, along with running and maintenance of the factories, RTGs say the math no longer works for them.

Bijoy Chakraborty, of the Confederation of Indian Small Tea Growers Association (CISTA), counters the view by proposing a cluster model where STGs form a farmer/producer company. He thinks that separating the garden and the factory, with workers as farmer clusters managing the garden, and garden owners managing the factory presents a viable model. This system, he says, takes away the garden owners’ obligation to PLA.

But the question that the organized sector has been asking is this: Why are STGs the focus of attention and support when they’ve been the problem? There is an uneven playing field; STG/BLF and RTGs work almost like two separate industries. RTGs insist that the complaint is not just about who will come out standing at the end, because small growers are not profitable either.

Jabbar, who is tirelessly working on creating an environmentally sustainable model at Nuxalbari, terms the crisis in Indian agriculture as “criminal.” She points out the irony in RTGs being asked to diversify into other crops, while small farmers are being encouraged to grow tea. She states, “I am against farmers leaving food crops to come to tea. Around here [Nuxalbari is in Darjeeling district], in the last seven years, huge tracts of lands have been lost to highways, factories, and buildings. Where’s our food going to come from?”

In Assam, STGs came about when the government needed to rehabilitate surrendered members of the rebel organization, ULFA. Marginalized land was given to them to cultivate tea. It was successful and created wider aspiration among people to become bagan malik or garden owners.

In the Nilgiris, STGs came up during the rupee-rouble trade of the 1980s, which everyone blames for pushing producers to produce inferior tea. The Soviet Union had a voracious appetite for black teas from India and wasn’t picky about quality. The governments incentivized small farmers to switch to tea, and many tea factories giving up orthodox tea production for CTC. The focus was on quantity, and quality took a back seat. When the USSR disbanded in 1991, Indian tea lost a market, its monopoly, and faced competition from Sri Lanka, Kenya, and even Vietnam.

In the blame game, it must be noted that Russia has redeemed itself as one of the biggest importers of Indian tea, at 46 million kgs in 2019, only recently losing top spot to Iran.

Reducing production, increasing quality, better prices

So, not only have STGs caused the glut, induced low prices, and shaken the foundation of the industry loose, they also produce not-so-great tea.

In 2013, trustea was launched as an India-centric tea certification code for sustainability, whose partners include HUL, TGBL, and Wagh Bakri, the top three tea packers in the country. The onus has been on packers to sell sustainable tea, and trustea’s mandate addresses various sustainability factors, including labor welfare, soil health, and tea production quality. Says Rajesh Bhuyan, trustea’s Director, “HUL and TGBL are moving towards 100% sustainable tea in a year or two.” So far, trustea has worked with estates and BLFs to influence change but hopes to move toward retail in 2020.

Another program is Trinitea, a support program for small tea growers created by the sustainability organization Solidarid and the producers’ body, Indian Tea Association. Shatadru Chattopadhyay, Solidaridad Asia’s managing director, talks about the ITA opening memberships to STGs as an historic development. If RTGS and STGs can work together, as is proposed by trinitea, he feels change is possible. He points out that, “Large gardens have the knowledge, while small gardens have younger bushes and higher yields.”

Jalan echoes this sentiment: “The industry and the government must recognize and accept that STGs are here to stay and are an integral part of the industry. They must be represented and involved in all negotiations and discussions pertaining to the industry. A conscious effort needs to be made to ensure that there is a level playing field between the unorganized and the organized sectors within the tea industry.”

The market for Indian tea

Even if one argues that bringing STGs up to minimum quality benchmarks may cause a natural adjustment in production volume, there’s still a stagnant consumption market. In 2018, the Tea Board of India commissioned Deloitte Consulting to assess tea production and study domestic consumption patterns.

The study indicated that the domestic preference had increased for packaged tea (especially in tier 2 and tier 3 cities), and for green tea. This was seen as a market opportunity.

Domestic consumption is high at 80% compared to exports, but per capita consumption remains low at 750g (Source: ITA); it’s almost 2,000g in the UK and about 1,500g in Iran.

The study also showed that tea is consumed in 88% of Indian households, with overall penetration of 96%, but relatively little is consumed outside the home.

Tea veteran Indi Khanna says, “We have a large domestic market. We are relying on the domestic market. Internationally, we are up against Kenya for CTC and Sri Lanka for orthodox tea.”

But how can the domestic market be tapped to increase per capita consumption by 50-100g, which incidentally will correct the demand-supply mismatch? One option is to put the onus of marketing on producers or producer bodies. Mrinalini Srivastava, managing director of Sikkim’s Temi Tea Garden, says, “When we realized we were not getting the right price at auctions, we disengaged partially. The retail market allowed Temi to build and promote its brand. We are aiming to sell 50% of our production in the retail market.”

Until 2001, producers were mandated to sell 75% of their tea via the auction. Although this has now changed, the auction remains a significant distribution channel for tea, with about 500mn kg of bulk tea sold via auctions annually. India’s six auction centers have been consolidated into an online e-auction portal.

In 2020, the chairman of the Tea Board, PK Bezbaruah announced his recommendation that the Board should disassociate from the auction system to make way for a liberalized open market.

This was lauded by the industry, which remains fragmented for the most part, functioning in silos. Where everyone has come together and is on the same page is in their expectations from the Tea Board, a government body established in 1953, that sets the mandate for tea cultivation, production, sales, and exports.

Of the board, the stakeholders all ask the same questions: Can it cease to be a regulatory body, and instead become a proactive promoter of Indian tea, speaking for and protecting the brand, strengthening old markets, creating new ones? Can it step away from interfering where efficient systems exist and instead focus on introducing mechanization, on product innovation, on climate change research? Can it become the body the Indian tea industry actually needs?

The answers to these questions may well provide the solution the industry desperately seeks.

With inputs sought from Raju Lama, Sonia Jabbar, Bijoy Chakraborty, Indi Khanna, Manoj Archibald, MN Bopana, K. Gopal Krishnan, Mrityunjay Jalan, Mrinalini Shrivastava, Rajesh Bhuyan, and Shatadru Chattopadhayay.