Indian Tea Industry Needs Comprehensive Reform

The Indian Tea association has been playing a multi-dimensional role towards formulating policies for the growth of the Indian tea industry since 1881. Arijit Raha, Secretary General of Indian Tea Association, spoke to BE's Ellora De.

Q) Unremunerative prices seem to eat into the margins of the tea companies. How can prices be increased?

A. It is true that tea prices in India have been stagnating for the last five years. The erosion of margins is primarily attributed to the impact of rising costs in the backdrop of stagnating prices. While input costs have witnessed a compound annual growth rate (CAGR) of more than 10% over the last decade, the CAGR of tea prices have been around 5%. The auctions being a prime channel of sale, serve as a benchmark for tea prices and are indicative of the market trends. In recent years, auction buying patterns suggest a higher preference for teas in the mid and lower end of the pyramid.

Tea production in India has grown significantly from a level of 980 million kg in 2008 to 1312 million kg in 2018. The spurt in production has been largely contributed by the small tea grower (STG) segment. In fact, during the period 2014-18, the STG production has increased by 223 million kg – an increase of 56%. During this period, the estate sector crop has declined by 13%. The last decade has seen the emergence of a dual cost paradigm. The STG sector’s tea harvest is primarily sourced by the Bought Leaf Factories (BLFs), which has the advantage of manufacturing teas at a substantially lower cost than the estate sector where high fixed overheads burden the cost of production. The large variance in the cost of production gives the BLF sector a competitive edge to offload teas at a lower price which is often below the cost of production of the estate sector.