Paradise
plagued
To
a large extent, competitiveness of Indian teas, both in the domestic
market and globally, will depend on taking corrective measures in controlling
costs, says Sujit Patra
The
Indian tea industry is currently smarting under a clutch of problems,
the most prominent being a debilitated bottomline. Reduced level of
orthodox production, over production of plainer CTC (crush, tear and
curl) teas, inconsistency in production pattern and reduced consumption
growth coupled with cheap imported teas have brought the industry in
the thick of a dangerous predicament where the tea producers are getting
battered by rising cost and declining returns. One will come across
peaks and troughs along the timeline of the history of tea. But the
position in the last few years is one of steep increase in cost of production
and steep decline in price realisations. The position is not one of
the industry’s own making but thrust upon it due to cataclysmic changes
in the international price scenario, excess global supply, and competition
from new players and challenges from cold beverages.
Price
and cost squeeze
Continuous
recession for the fifth year in succession is unprecedented in the tea
industry. During this time while cost of production has gone up tea
prices have been falling since 1999. Along with the decline in prices
there has been a surge in production costs. The situation is threatening
the very viability of tea gardens. The high cost structure of the tea
industry in India has gradually priced out our teas from the international
markets. To a large extent, competitiveness of Indian teas, both in
the domestic market and globally, will depend on taking corrective measures
in controlling costs. While many of the cost factors are uncontrollable
in the administered price regime or due to central and state impositions,
there are certain areas where the industry needs to have a hard look
and it is in these very areas that the assistance of the government
would prove to be most vital.
The
problem
The
decline in tea prices is due to an oversupply position brought about
by a combination of several factors such as:
• Surging volumes of plainer quality teas especially from the bought
leaf factory (BLF) segment
• Reduced level of orthodox production
• Uncertainty in exports
• Increase in imports
• Slowing down of the rate of domestic consumption growth
Bought
leaf factory:
In the last 10 years there has been a phenomenal growth in the small
grower and BLF sector when compared to the traditional organised tea
sector in terms of area and production. Most of these BLF or small growers
are not registered with the Tea Board, which is mandatory under the
Tea (Marketing) Control Order (TMCO) and thus have little knowledge
about basic requirements like those outlined in the Prevention of Food
Adulteration Act (PFA).
Orthodox
varieties
In 1990, while orthodox tea production was 145 million kg (20 per cent
of the total crop of 720 million kg), this decreased to 78 million kg
in 1999 and now stands at less than 90 million kg (11per cent of the
total crop of 826 million kg). Realising this situation the Indian Tea
Association (ITA) and the Tea Board have been advocating since the last
few years for increasing orthodox tea production every year. However
there are certain difficulties present in achieving this end as the
production of orthodox tea involves more cost than that of CTC tea and
at this juncture the producers are not in a position to bear this additional
cost. Similarly the installation and re-furbishing of orthodox production
systems involves high levels of capital expenditure, which many producers
have little capability to do. Also, orthodox tea enjoys very little
demand in the domestic market and the traditional export markets for
orthodox teas have either banned imports or are sourcing their tea from
other new tea producing countries at throwaway prices. Hence there is
also a risk element involved in the production of orthodox tea as the
producer is in a thick soup in case the teas are not exported.
Exports
In
the international arena, there is a fierce competition in the tea trade
and India is in the throes of major challenges. The sweeping changes
in the erstwhile USSR, major economic and political upheavals in certain
key West Asian markets and trading blocks in...
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