Agri Business

Rising cost of production spoils the tea party

Shobha Roy | Updated on July 30, 2019 Published on July 30, 2019

The tea industry’s average cost of production has increased by nearly 10 per cent in the past six-to-seven years   -  THE HINDU

Reviving tea consumption, in domestic and in export markets, would be vital to help improve prices of tea and shore up profitability of most companies engaged in tea manufacturing. The companies have been reeling under the pressure of rising costs over the past few years.

When it comes to tea production, North India, which comprises the eastern and northeastern region of Assam Valley, Cachar, Dooars, Terai, Darjeeling and West Bengal among others, accounts for over 83 per cent of the country’s total production. India produced close to 1,339 million kg (mkg) of tea in the calendar year 2018. Of this, North India produced close to 1,114 mkg, while the production in South India was around 225 mkg.

According to Sujit Patra, Secretary, Indian Tea Association (ITA), while production of tea has been growing on a year-on-year basis, consumption – both in domestic and export markets – has not kept pace, resulting in surplus stock pulling down prices.

As per statistics available on Tea Board of India’s website, production increased from 1,200 mkg in 2013 to close to 1,339 mkg in 2018. However, during the same period, average prices of tea moved up by only ₹6 per kg.

“The average cost of production of the tea industry has increased by a CAGR of nearly 10 per cent in the past six-to-seven years. However, the price increase has only been to the tune of one per cent. In fact, in some years prices have inched downwards,” Patra told BusinessLine.

Wage costs account for nearly 65 per cent of the total cost of production for the tea industry and that has been rising on a year-on-year basis. This apart, the cost of fertilisers, gas, coal etc has also gone up in the last few years, inflating the overall cost of production of the industry.

There is yet another problem for the North Indian tea industry and that is primarily due to rising production of tea by small tea growers (STG) and bought leaf factories (BLF).

Till about 10 years ago, they accounted for only around 20-25 per cent of the region’s total production, but that has now increased to 50 per cent. The leaves produced by STG is made by BLF at a cost which is nearly ₹80-₹90 a kg lower than that of the organised tea industry.

This is because the BLFs do not have to bear any social costs and only have to pay for machinery and labour, as against the organised sector which has to bear a very high component of social costs.

Increasing consumption

The ITA has been working with the Tea Board to look at ways and means of increasing consumption in the domestic and export markets.

The consumption of tea in India is among the lowest at around 786 grams per person per annum, compared to the global average of over 1 kg per person per annum.

The ITA is mulling a social media campaign to target the 'young population' in the age bracket of 15-35 years. The campaign would aim to boost tea consumption among ‘coffee drinkers’ which in turn will strengthen demand for the beverage and boost prices.

The estimated budget for the campaign could be upward of ₹50 lakh. The ITA is also in talks with the Tea Board of India to extend funding support to the campaign.

The ITA has submitted its plan for the digital media campaign to the Tea Board and is expecting something to be rolled out soon.

On the export front, the ITA expects a good demand for Indian teas, both orthodox and CTC, in overseas markets, particularly Iran, Iraq, Egypt and Kazakhstan. There is an increased interest from Iran, which is a top market for quality orthodox tea.

Published on July 30, 2019
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