Financial woes continue to afflict India's tea producers, amid flat or falling prices and rising costs during recent years, according to a new report by the Indian Tea Association, the sector's leading group. As for exports, this year's outlook is "grim," the ITA said. Commenting on the report, industry stakeholders called for remedies like lifting quality and efficiency.
During the past 10 years, costs of vital inputs like coal, gas, sulphur and potassium fertilizer have risen at a compound annual growth rate (CAGR) of 9% to 15%, while during the same period prices have risen only some 4%. And during the past five years, wages of tea garden workers have increased significantly, the report said.
During this year so far, tea prices have declined alarmingly from 2022 levels. Prices for CTC (cut, tear, curl) and dust in weekly sale numbers 14–39 were down by 4.98%, or Rs 12.49 per kilogram, for Assam and 5.01%, or Rs 11.30 per kg, for West Bengal. Auction prices for orthodox teas were down by around 29.23% or Rs 95 per kg. Darjeeling auction prices continued to languish below the cost of production.
The ITA status paper said that adverse weather has impacted tea production in North India during 2023. As per Tea Board India data for the eight-month period January–August, production was down by 1.26% or 8.24 million kg in North India year on year. The Assam crop was down by 5.42 million kg, while West Bengal's output was down by 4.06 million kg.
"Depressed prices along with decline in production in 2023 have increased the financial stress of tea estates. Most tea companies are facing working capital constraints," the paper said.
Exports during the January–July 31 are down by or 2.25% or 2.61 million kg. Although shipments rebounded somewhat in 2022 amid reduced competition from Sri Lankan exporters, this year's outlook is grim because Iran's importers continue to face payment problems, a constraint that began in 2020. Iran is a key market, taking some 20% of India's total tea exports in 2019, but its purchases fell from 25.45 million kg that year to just 21.61 million kg in 2022, a decline of 32.84 million kg or 61%.
Remedies
Abhijeet Hazarika, of T Sigma Consultancy, said that cost dynamics can only be changed by increasing productivity and optimizing quality. "The concept of quality has to be customer driven, based on the final method of preparation rather than the traditional method of tea evaluation," he told STiR.
"Compare the cost of South and North India. People will say compare quality. I would say that to survive, if you cannot increase productivity, you cannot make up the costs as other input costs will go on increasing. So, the only way to neutralize this is through productivity and efficiency," he said.
Labor costs constitute 60% of an estate's operating costs. "Until productivity improvement happens, all else is small change. South India's plucking average is about 85 kg per person. In Assam it is 22. By using a small harvester on our experimental farm at Bor Noi, Assam, we get 60 kg per person," Abhijeet said.
Ajay Jalan, director of Mokalbari Tea and president of Tea Association of India, said that while the challenges are significant, the tea industry is not without hope. “Adapting to changing dynamics, meeting consumer demands for quality, sustainability, and convenience, and exploring new markets and innovative product offerings can help tea producers navigate these trying times and revitalize the industry,” he said.
Supply has risen faster than demand, creating a surplus. The industry must work to lift demand, Jalan said. “Ensuring and improving the quality of tea is crucial in the consumer segment. Quality teas can justify premium pricing, attracting consumers looking for a superior tea experience.”
Jalan called for investing in research to develop disease-resistant tea varieties; improve farming techniques; and increase production efficiency. These changes will make the industry more resilient and financially viable.
“The ability to adapt to changing consumer preferences, market conditions, and sustainability requirements is key for survival and growth. Being flexible and responsive is crucial in staying competitive,” Jalan said.
Mohit Agarwal of Asian Tea Group said that the industry needs to work together to create equilibrium between supply and demand. Stakeholders need to strengthen the auction system and elevate quality. India's population is growing, but consumption has not increased due to substandard offerings, competition from herbal infusions and other beverages, and a lack of promotion.
