The Hindu : Business : Improved outlook for tea industry

Online edition of India's National Newspaper
Monday, Nov 22, 2004

Business

Business

Improved outlook for tea industry

EVEN AS the Indian tea industry gets ready to leave behind the nightmares of the past years and begins to look forward to better times, it needs to attend to some worrisome trends if the turnaround is to be sustained.

The industry will remember 2003 as one of its worst years when downward pressure of tea prices continued in the face of rising costs of production. While India remains the highest cost producer in the world, the increased output of 2003 and availability of plainer quality teas only dampened prices further in the domestic market. Tracking prices over a five-year span, the Indian Tea Association (ITA) found that prices had dropped to Rs. 56.28 in 2003 from Rs. 76.43 a kg in 1997. The status paper holds the view that while auctions remain a useful sale vehicle for disposal of tea for certain producers, system efficiency can be maintained by leaving sellers with a choice on their preferred channel. The paper released this week forms the basis of many policy decisions for the industry.

Exports

In the export market, India has long its position of supremacy and was now ranked fourth after Sri Lanka, Kenya and China. Indian exports stood at 173 million kg in 2003 compared to 292 million kg of Sri Lanka who along with its closest rival scored gains in the international market as India continued to drift and was put in the league of countries like Bangladesh, Indonesia and Vietnam.

Kenya and Sri Lanka have between them sliced up three of the biggest international tea markets — Russia, the U.K. and Pakistan. In the CTC segment, Kenya dominates the world market because of its lower production cost.

In the the orthodox tea segment, Sri Lanka rules having an edge over its neighbour because of higher output of orthodox tea and cheaper production cost.

The ITA, which represents majority of the north Indian gardens in Assam, and West Bengal (accounting for about 75 per cent of the production), recommends increasing yield at a minimum rate of five per cent with a reduction of the total area under tea cultivation (at least that part which cannot sustain high yields). Uneconomic age profile of the tea bushes has contributed most of the decline in the industry's fortunes the paper said. At the micro level this has led to many gardens becoming sick. At the macro level the country has lost its market share despite producing the unique Darjeeling tea. In 2003, India notched up a 13 per cent share of the global tea market against 21 of Sri Lanka and 19 each of Kenya and China. China was the only country that increased its market share in the 2003.

Industry sources say that land and labour productivity were two of the most serious banes of the Indian tea industry now. To increase land productivity, ITA is in discussions with the Tea Board and the Centre for some assistance towards increasing orthodox tea production (which is the preferred variety in the international market) and for boosting replantation activities.

For increasing labour productivity the industry is in discussion with the government and the unions to go for piece-rated system instead of the traditional time-rated system. Pointing out that a temporaray price increase cannot form the basis of industry revival, the status paper pointed out that wage costs accounted for 40 per cent of the total costs of production, which averaged at Rs. 65 a kg with the figure exceeding Rs. 75 for some of the weaker tea estates.

Tea imports, over which there is sharp difference of opinion among the tea inustry and the merchant exporters is another source of niggling worry. In 2003 , India imported tea from Kenya, Sri Lanka, Vietnam and Indonesia, re-exporting most of it. But industry sources said that the absence of a proper certification agency was damaging the image of India as an exporter of quality teas.

So how does the industry hope to end 2004? The stock position of tea is expected to improve globally and India hopes to achieve equilibrium this year with production of 830 million kg against 857 million kg of 2003. There is optimism that the industry would emphasise on raising the quality bar than achieving gains on the production front.

The delegations to Pakistan and Russia, in 2004 and to the West Asian countries this year might bring some gains on the export front and a figure of 190 million kg is being projected.

However it is also imperative for the gardens to produce more of orthodox tea.

Indrani Dutta

in Kolkata

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