The Assam government’s decision to hike wages of tea garden workers by ₹50 a day is likely to impact the organised tea industry, which is already anticipating prices to decline on the back of a normal production this year.

According to industry experts, the wage hike is likely to push up costs by around ₹25-30 a kg.

The Sarbananda Sonowal-led Assam government increased the daily cash wage of tea workers in the State to ₹217 a day — up from ₹167. The West Bengal government had also announced a wage hike to ₹202 a day, as against ₹178 .

While the difference in wages for tea garden workers in Assam and Bengal may only appear to be ₹15 a day, this is only the cash component. The gardens in Assam are also required to provide ration to workers at ₹2 a kg. Hence, organised tea industry in Assam spends around ₹17 a day on ration, thereby taking the total cost up by nearly ₹30-32 a day.

“Assam tea industry will not be able to sustain such a huge wage hike, we are exploring various ways as to what could be a way forward,” Vivek Goenka, Chairman, Indian Tea Association (ITA), told BusinessLine .

Lower production, higher prices

As per production estimates available on Tea Board of India website, tea production in North India in 2020, which includes the gardens in Assam and Bengal, was down by nearly 137.18 million kg (mkg) at 1,033.73 mkg, compared with 1,170.91 mkg in 2019.

The North Indian tea estates lost nearly 65 per cent of the first flush crop as the plucking activities had come to a standstill on account of Covid-induced lockdowns. As a result, estates had to go for skiffing (light pruning of tea bush to limit the top growth) in April. That coupled with the unfavourable weather conditions led to a slower growth of the bush impacting production of the second flush in subsequent months.

It is to be noted that tea production in North India accounted for nearly 84 per cent of the country’s total production, which stood at around 1,390.08 mkg in 2019. Hence any drop in production in the region adversely affects the supply of tea in the system.

The drop in production had pushed up tea prices which had increased by nearly ₹120-130 a kg across various categories on a year-on-year basis since the beginning of the season in April-May 2020 till September. Prices were ruling around ₹313-320 a kg in August-September last year, however, they started witnessing a correction from end September-early October onwards.

According to statistics available on the website of Tea Board of India, average prices of CTC leaf and dust sold at the auction centre in Kolkata was ruling at around ₹156.36 a kg as on February 27, almost 66 per cent higher compared to ₹94.13 a kg same period last year. However, tea prices have come down by nearly 15 per cent from ₹184.65 a kg as on end-January.

Normal production expected

Tea production, which had taken a hit in 2020, is expected to be “normal” during the current year with the anticipation that Covid would be under control. If production improves, then it will exert a pressure on prices, industry fears.

“Last year the average price rise was to the tune of ₹65-70 a kg for full year. An increase in production might bring down prices. This wage hike is expected to push up cost by ₹25-30 a kg,” Kaushik Das, Vice-President and Sector Head, Corporate Sector Ratings, ICRA, said.

The cost push and the decline in prices is expected to hurt the organised tea industry the most, which is already at a relative cost disadvantage as compared to the small tea growers (STG).

Small growers account for nearly 50 per cent of the country’s total tea output, which is estimated to be over 1,300 mkg. Compared to the organised tea industry the STG do not have to pay any fixed wage or compensation to their workers. The organised industry is not only responsible for paying a fixed wage but also has to provide certain social benefits including ration, health and education. This pushes up their cost and squeezes their margins.

“STGs can produce teas at nearly 50 per cent of our costs and still make money by selling them at whatever prices but that is not true for us. We are in a Catch 22 situation,” Vikram Singh Gulia, MD&CEO, Amalgamated Plantations Private Ltd (APPL), said.

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