The Hindu Business Line : McLeod Russel has no plans for diversification, says Aditya Khaitan

Khaitan says
Current tea price rise insufficient to stage cost recovery.
Demand to rise; production unlikely to rise significantly.
No JV with British firm for jatropha cultivation.

Mr Aditya Khaitan

Kolkata April 6 McLeod Russel India Ltd, the country's largest producer of tea, has no plans to diversify into alternative crops. This is in sharp contrast to the view expressed by a large section in the tea industry that the diversification into alternative crops is the surest recipe for achieving sustainable competitiveness and growth for the tea sector.

"Diversification may be critical for those not doing too well in tea, but not for us," Mr Aditya Khaitan, Managing Director of McLeod Russel, told Business Line here on Friday. "We are strong in tea and we will continue to use whatever land is available in our gardens only for production of tea, nothing else".

Since June 2005, McLeod Russel, through acquisitions of Williamson Tea (Assam), Doom Dooma and Moran Tea, has stepped up its annual capacity by 30 million kgs to 72 million kgs. The company now has a total of 55 gardens — 49 in Assam and six in the Dooars.

Strategy pays off

In early 2000, the going was not good. Even so, the company continued to invest in gardens even as the cost control measures continued. "We made some good acquisitions in the right time and at the right price. Now that the tea price is on the upswing, we notice to our satisfaction that our strategy is yielding results," he said.

But then, as Mr Khaitan felt, the present price increase has not been enough for the industry to recover from the setback it received since 1999-2000. "Tea prices have started rising only from last year and the industry needs this trend to continue for another three to four years to offset the effect of cost increases in the recent past," he said, pointing to the fact that costs increased by around Rs 15 per kg while the tea price slumped by an equal amount during the last few years.

Price trends

He, however, seemed convinced that the present rising trend in price would persist for the next few years, explaining that while the demand for tea both within the country and outside would continue to rise, production, particularly in the organised sector, was unlikely to rise to any significant extent.

Most tea companies opting for the facilities under the Special Tea Purpose Fund would be required to uproot tea plants on 2.5 per cent of the tea growing areas for replantation. He conceded that production of tea in the unorganised sector might register some increases. "But a few million kgs of additional production by the unorganised sector will not make much of a difference," he observed.

Jatropha plans

Mr Khaitan made it clear that the proposed jatropha cultivation by his company, in partnership with a British firm, would not be undertaken in any of the company's tea gardens. "We're trying to identify suitable land in Jharkhand, Assam and the North-East and, hopefully, the joint venture company that will undertake the cultivation will start operation in another two years," he said.

The FIPB clearance for the joint venture company was still awaited. Mr Khaitan estimated the investment at Rs 100 crore to be spread over three to five years.