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Sunset of Assam team industry has already started
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IN-DEPTH

Assam’s 175-year-old tea industry is in deep red

If the current managers and others involved in business are to be believed, the sector may not even survive another 15-20 years, if drastic course corrections are not taken

Mrinal Talukdar

Mrinal Talukdar

Guwahati: For an industry which has encompassed the lives of one-sixth of the people of Assam for the past 120 years, the word 'loss' is something that is uncalled for.

For generations, the tea industry has been the symbol of opulence in Assam with tea growers owning chartered aircraft and a retinue of servants, not to forget the huge bungalows and a lifestyle that rightly befits the legacy of the British Raj.

However, all these seem to be a distant memory now. The bitter truth is that the industry is in deep red and has very little chance of revival. If the current mismanagement and others involved in the business are to be believed, the industry may not even survive another 15-20 years at this rate, if drastic course corrections are not taken immediately.

The McLeod Russell India Ltd, part of the BM Khaitan-controlled Williamson Magor Group, has been facing liquidity issues and has been selling its tea estates to repay its financial obligations. The company has already sold 16 tea estates and has entered into an MoU for selling another four. It is also open to looking at the further sale of assets of certain tea estates, sources said.

Big guns like McLeod Russell and Amalgamated Tea (Tata Tea) are bleeding heavily with the former going into desperate sale of its tea estates and the latter looking for an honourable way out of the plantation business.

This has shaken the entire industry. For the first time, the realisation has come that the end is not far. A combination of factors including less demand, higher input costs and carteling by the big guns as well lack of skilled tea makers have led to downfall for the industry.

What’s worse, the industry is not united and has not been able to take any concrete steps for its revival. Most of the tea management are “absentee owners” and the heavy headquarters are trying to cut corners everywhere, pumping out whatever possible from the industry, leaving everything in complete tatters.

After the mighty falls of the world's biggest tea maker, McLeod Russel, the Amalgamated Plantation Private Limited (APPL), a Tata Tea enterprise, was the next to tumble as they reported Rs 68.50 crore losses, sending the tea industry of Assam into a free fall.

"We regret to inform this but that is the satiation. We produced 41.23 million kg against 41.99 million kg of last year but registered 140 per cent more loss," APPL chairman Ranjit Barthakur said recently.

McLeod Russell India Ltd, part of the BM Khaitan-controlled Williamson Magor Group, has been facing liquidity issues and has been selling its tea estates to repay its financial obligations. The company has already sold 16 tea estates and has entered into MoU for selling another four estates. It is also open to looking at the further sale of assets of certain tea estates, sources said.

The company took out the money from tea, invested in other business and sunk. So did the Assam Company, which however now got a new owner trying to revive it again.

The industry is not united and has not been able to take any concrete steps for its revival
The industry is not united and has not been able to take any concrete steps for its revival
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In upper Assam and the north bank of Brahmaputra, many tea estates have not been able to pay its staff and executives their monthly salaries and stopped allowances and somehow stretching the labour payment to stem any social unrest. The situation is pretty bad for McLeod Russell estates, especially in north Bank, where even coal needed for running the factory is not there

But the industry as a whole is in deep red.

"As the big gardens are desperate to find a way out of the crisis of low prices of tea, which has split over and affected the huge small tea grower base, threatening social tension,” said Deepanjal Deka, secretary, Tea Association of India (TAI).

The tea industry in Assam directly employs more than 12 lakh people
The tea industry in Assam directly employs more than 12 lakh people
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The tea industry in Assam directly employs more than 12 lakh people and even if three persons are considered to be dependent on them, then the total figure balloons to around Rs 50 lakh, which is actually one-sixth of Assam’s population.

But barring a handful of policymakers like Assam finance minister Himanta Biswa Sarma, others are still in a mode of denial.

"The tea industry of Assam is no longer an asset but it is a problem now,” said Himanta Biswa Sharma at a recent convocation of the Assam Agricultural University (AAU), echoing the mood in the industry.

The data show that the main reason is the supply has outstripped demand. India produces 1325 million kg in 2018 and demand is around 1240 million kg sending roughly about 100 million kg as surplus to the next year’s inventory.

In upper Assam and the north bank of Brahmaputra, many tea estates have not been able to pay its staff and executives their monthly salaries and stopped allowances and somehow stretching the labour payment to stem any social unrest. The situation is pretty bad for McLeod Russell estates, especially in north bank, where even coal needed for running the factory is not there.

But why is this crisis? What went wrong for an industry, which was flourishing till 2000?

Data show that the main reason is supply outstripping demand. India produced 1,325 million kg of tea in 2018 while the demand was around 1,240 million kg, sending roughly about 100 million kg as surplus to the next year’s inventory.

The lack of demand has pushed the prices down and in the process has taken along the whole industry and other ancillaries. Tea Board of India sources said that the annual production of tea in 2018-19 is expected to be around 1,334 million kg.

But all agree that the industry and the Tea Board of India have not done enough to increase the demand. “Industry honchos go to metro cities and organise meetings to boost tea in five-star hotels. But that is not the way. Tea has to be promoted on the field, in the stadium or any other innovative way,” said Dinesh Bihani, secretary, Guwahati Tea Auction Centre Buyers’ Association.

Bihani has been in the business of tea since 1975 and he believes that this is the worst period of the tea industry. “Today, a kg of tomato is Rs 60, and peas Rs 100. But you are getting Assam tea even at Rs 75, because there is no demand. How can the industry survive? You have to create the demand,” he added.

Tea Board of India sources said that the annual production of tea in 2018-19 is expected to be around 1,334 million kg
Tea Board of India sources said that the annual production of tea in 2018-19 is expected to be around 1,334 million kg
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Same is the opinion of MGV Bhanu. He was the chairman of Tea Board of India. "If there is less domestic demand, you have to increase the demand and that is the job of the industry," said Bhanu, blaming the captains of the industry for being greedy and not pumping back the profits of the tea to the industry.

"But the industry did not work for that maintained splendid isolation of a cushy life for decades and never took the challenges and all along blaming the others," he added.

Are the companies fudging the account?

But there is also a school of thought which questions the very fundamental narrative that the tea industry is sick.

"This is a perception that the tea companies are trying to project and not a true picture. There is no transparency. The companies fudge account, siphon off profits to other investment, never reinvest in tea. Both McLeod Russell and Assam Company sunk for that reason," said Girish Barpatragohain, president of Assam Tea Employees’ Association.

Seconding his views of lack of reinvestment, GTAC Buyers’ Assocation president Bihani confirmed that almost 50% of the tea garden trade their tea outside the auction ecosystem making it impossible to track the price they have fetched.

"The chairman of the Indian Tea Association does not send a kg of tea to the auction. The Tea Board and the government should ensure that. Then there will be transparency and anyone from anywhere can buy the tea. Now there is stock transfer and private sale and that is how they are duping the state and defeating the price,” said Barpatragohain.

Another big suspicion is the carteling of the three main buyers. In hushed tones, the tea traders of Guwahati Tea Auction Centre (GTAC) also blamed the top three buyers, Tata Global Beverage Limited (TGBL), Hindustan Unilever Limited (HUL) and Wagh Bakri of controlling the tea price by forming a syndicate as they pick up nearly 51% of Indian tea, giving them dominating control over the market.

"It is these three who are laughing all the way to the bank because they are keeping the price under control and making all the profit," said a senior manager of a tea garden located in Tinsukia district.

These views only expose that there is a large underbelly of the tea industry and too much vested interests are involved and all sides -- management, leader of the labour and employee unions are milking the situation for decades pushing the industry into a mess.

Small tea growers perish

As the price is not increasing naturally, the huge base of the small tea growers (STG) are not getting the price. As a result more than 1,50,000 STGs are on the road, unable to realise the cost of production.

According to latest Tea Board data, the small tea growers (STG) produce more than 51% of the entire Indian tea. In the Brahmaputra valley, they produce 52%
According to latest Tea Board data, the small tea growers (STG) produce more than 51% of the entire Indian tea. In the Brahmaputra valley, they produce 52%
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According to the latest Tea Board data, the Small Tea Growers (STG) produces more than 51% of the entire Indian tea. In the Brahmaputra valley, they produce 52% tea.

Now the large companies feel that arrival of STGs has changed the scene as they not only brought a huge amount of tea altering the demand-supply ratio but also compromised with quality to cut cost and that has heavily influenced the low price, said Deepanjal Deka, secretary, Tea Association of India.

Deka is, however, categorical that both the STGs and the big gardens must go together in a well-defined ecosystem for the survival of the tea.

The basic allegation against the STG is that they do not supply quality leaves. But according to Hemanta Gohain, a pioneer in the small tea growers’ sector, the tea factories should reject the bad tea suppliers. “If the quality of tea leaves is not 65%, you reject them, it is plain and simple,” said Gohain.

While acknowledging the crisis, Joydeep Phukan, secretary, Tea Research Association (TRA), said that the key is the quality and informed that they had developed a device, which can instantly examine the tea quality.

But the greed of some tea factories specially bought leaf ones, made the situation messy as they prefer the quantity over quality.

“When there more supply than the demand, why they bought leaf factories are expanding? That means they will make money in volumes and ready to take all kind of leaves” said Debabrata Media, former secretary of the Biswanath Small Tea Growers’ Association. He demanded that carriers of the tea leaves must be banned.

Tea cultivations were once the domain of aristocrats with hardnosed British sahibs on horseback supervising them. But tea plantation in Assam has come a full circle as hundreds of small farmers have taken to growing the crop. The profession has now shifted from the rich to the common man, especially unemployed youths who have taken up tea cultivation as a business venture. Some even cultivate it in their backyards too.

The small tea growers sell the leaves to the nearby big plantations and bought leaf factories where they are processed. Across this tea-growing belt in eastern Assam, people in large numbers have started growing the crop even in 3 to 5 acres of land.

Growth of production is coming, mainly, from West Bengal and Assam. This is due to the growth of small tea growers in these regions. Within two decades or more, the contribution of small tea producers has been close to 60% in West Bengal and 52% in Assam.

The STGs generally supply the tea to the bought leaf factories that do not have tea gardens but have factories. Besides them, the STGs also send the tea to nearby gardens. The STGs, numbering around 1,65,000, are now gasping for survival as the input cost has increased and, accordingly, the tea price has not gone up.

An average of Rs 13-15 per kg is what the STGs are getting while the input cost is also around Rs 12-14, making the tea industry as a complete.

Growth of production is coming, mainly, from West Bengal and Assam. This is due to the growth of small tea growers in these regions. Within two decades or more, the contribution of small tea producers has been close to 60% in West Bengal and 52% in Assam.

Within two decades or more, the contribution of small tea producers has been close to 60% in West Bengal and 52% in Assam
Within two decades or more, the contribution of small tea producers has been close to 60% in West Bengal and 52% in Assam
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Export scenario

Unlike China, which is largely a green tea producer, India is mainly a black tea producer. India has been facing stiff competition from Sri Lanka and Kenya. Sri Lanka produces and exports orthodox tea. On the other hand, Kenya produces and exports CTC tea. India’s tea production is mostly of the CTC variety. But the costs of production of both orthodox and CTC tea are higher in India than those in Sri Lanka and Kenya

India’s total exports of tea in 2018-19 have been a little over 250 million kg. The unit price of tea was Rs 215. But the trading in 2017-18 was 257 million kg and the average unit price was Rs 197 per kg. That was highest in history and one of the major reasons for this high export was increased demand for Indian tea in Iran and Egypt. At the same time, China bought higher amounts of tea from India.

"But the irony is that when the production was 900 million kg, the export was 200 million kg and now when the product is crossing 1300 million kg, the export has not crossed 300 million kg," said Bihani.

Unlike China, which is largely a green tea producer. India is mainly a black tea producer. India has been facing stiff competition from Sri Lanka and Kenya. Sri Lanka produces and exports orthodox tea. On the other hand, Kenya produces and exports CTC tea. India’s tea production is mostly of the CTC variety. But the costs of production of both orthodox and CTC tea are higher in India than those in Sri Lanka and Kenya.

Indian tea is basically CTC (curl-twist-cut) tea, but the world and most of Europe love orthodox tea. So the export market is also not widening as Sri Lanka and Kenya have flooded the World market with cheaper and better tea.

But domestic demand remains the biggest headache, as young stars are moving towards the soft drink while Coffee is making great inroads of tea domain. Here is the tea consumption chart per person/per year.

Tea drinking habits

India – 0.78 kg

Turkey – 3.2 kg

Libya – 2.4 kg

U.K. – 1.68 Kg

(Source Tea Board of India)

"We have a serious problem in hand, and there is no straight forward solution too. One hand you have the statutory responsibilities from the Plantation Labour Act and the other side the market position, I do not think the industry can handle both at the same time" said Deepanjal Deka, secretary, Tea Association of India.

Assam’s 175-year-old tea industry is in deep red
The bone of the contention is the vintage Assam Plantation Labour Act. The act is a British legacy, and as per the law the health, education, PDS as well as housing are to be taken care of by the tea management, robbing the vast population of government benefits under the rural development schemes

Archaic labour laws

There are 4 lakh permanent tea workers and another 2.8 lakh temporary workers in Assam’s big tea gardens. As on date, a tea worker, besides the daily wage of Rs 167, is getting non-statutory and statutory benefits (ration, housing, medical) up to Rs 135 per day. It all adds up to a worker getting a total daily wage of Rs 312.

The teas industry is worried that the state government will implement the new proposal to hike cash wages to Rs 350.

Labour constitutes around 60% of the total cost of production. Up to 80% of the total expenses is fixed in nature with little scope for reduction.

The bone of the contention is the vintage Assam Plantation Labour Act. The act is a British legacy, and as per the law the health, education, PDS as well as housing are to be taken care of by the tea management, robbing the vast population of government benefits under the rural development schemes.

As they are under the act, the tea garden labourers could not be given housing, education, Rs 1 rice and even health. This is a catch-22 position, both the industry and the government want it to go and former Assam minister and newly elected MP Pallab Lochan Das in his maiden speech in Parliament raised the point.

He made a forceful appeal on the floor of Lok Sabha demanding immediate amendment of the Tea Act and Plantation Labour Act to save the tea industry of Assam or face severe law and order situation, even as panic has swept the entire industry in Assam and north Bengal.

He said that both the acts were legacy of British raj and continued to the prevalence of the same have denied not only the labourers their fundamental right as a citizen of India but also damaged the operation of the tea gardens.

"The tea companies are facing hardship as they are not getting price and above all they are forced to pay Rs 350 per day wage as per the Plantation Labour Act," he said.

The climate change factor

Vast swathes of Assam will be ‘unsuitable’ for tea plantation by 2050, mainly due to growing inconsistencies in the quantum and spread of shower, wider concentration of rainfall towards the monsoon season, rising temperature and carbon-dioxide levels, and the loss of relative humidity required for plant growth, according to RM Bhagat, an expert

If scientists are to be believed, 90% of tea areas in Assam could be "unsuitable" for plantation, hit by climate change. At stake are some of the most beautiful tea varieties with that divinely familiar malty flavor, and over a half of India's supplies that come from Assam.

Thirty-four years from now, roughly 90% of tea areas in Assam could be 'unsuitable' for plantation, hit by climate change. At stake are some of the most beautiful tea varieties with that divinely familiar malty flavour, and over a half of India's supplies that come from Assam. These alarming findings are part of a scientific study, launched at a meeting of the Food and Agricultural Organization's Inter-governmental group on tea in Kenya, in which Indian officials also participated.

Vast swathes of Assam will be 'unsuitable' for tea plantation by 2050, mainly due to growing inconsistencies in the quantum and spread of shower, wider concentration of rainfall towards the monsoon season, rising temperature and carbon-dioxide levels, and the loss of relative humidity required for plant growth, according to RM Bhagat, the lead author of the study, who was also the deputy director (research) and head (soils) at the Tea Research Association in Jorhat.

The solution

The solution is just one. Bring parity to demand and supply. How to do it?

· Full focus on quality, this will reduce the supply but the price will go up and as a result volume of money shall remain the same.

· All the produced tea of North India must be routed through the auction system which will bring in transparency

· Popularise the tea in a massive way. Bring in megastars and promote tea like egg and milk was promoted in mid-nineties. Per capita, tea consumption has to increase and for that strainer must be preferred than boiling.

· A separate platform for bought leaf factories and company gardens for tea sales

· Removal of the Assam Plantation Labour Act, releasing the tea industry from the social responsibilities and pay the full wages ( upward of Rs 300) in cash and let the Government take care of them like other citizens.

· Reduction of manpower during the winter months. This is going to be tricky as it will lead to social tension but maybe a hard step worth taking to save the industry.