Assam tea — a political brew

There’s trouble brewing in Assam’s tea industry, which accounts for more than half the country’s total production of over one billion kg. The industry is once again making the news, for the wrong reasons. This time around, developments suggest that the problem is political.

The Guwahati Tea Auction Centre (GTAC), traditionally headed by bureaucrats, now has at its helm a politician who fired the first salvo immediately on assuming office.

He complained that there was inadequate support for the Guwahati auctions from the industry. Only around 21 per cent of the State’s total tea production of about 588 million kg was being offered in GTAC for public auctioning, it was pointed out. The figure, it was emphasised, should be much higher.

The GTAC chairman, who is also a minister in the State Cabinet, has been quoted as saying that the government might consider withdrawing benefits extended to tea companies unless more tea was routed through GTAC for public auction.

The chairman did not stop at that. He, along with officials, flew to Kolkata and held meetings with the city’s top tea buyers, urging them to buy from GTAC. It was, however, revealed at the meeting that almost all the buyers present were already active in Guwahati. But the GTAC chairman was not impressed. He insisted on much larger participation.

GTAC handles around 160 million kg annually, including 37 million kg through private sales, against Kolkata’s 150 million kg, apart from around seven million kg of private sales.

The GTAC chief’s grouse is that the bulk of tea offered at the Kolkata auction is grown in Assam. This is not surprising. GTAC handles only CTC (cut, torn and curled) and dust teas for the domestic market, whereas the Kolkata tea auction handles CTC for export, almost all the Orthodox and Darjeeling tea, as well as tea for the domestic market.

The Assam growers of CTC for export and the Orthodox variety, therefore, opt for the Kolkata auction, more so because the average price realisation at Kolkata is higher.

The volumes offered for private sale in GTAC are much larger than what’s on offer in Kolkata. In Guwahati, private sales account for around 37 million kg, or 23 per cent of total offerings, compared with the 4 to 5 per cent of the total CTC offerings in Kolkata.

The Assam government itself may be responsible for this. In Guwahati, the VAT differential between tea offered for public auctioning and for private sale (which is shown as deemed auction) has been reduced to 0.5 per cent from the earlier 1 per cent, whereas the differential is much higher in Kolkata, around 4 per cent.

As a result, private sales boom in Guwahati, not only violating the basic principle of public auctioning but also inhibiting transparency, discouraging competition and therefore preventing proper price discovery.

The reduction of VAT since May 2012 thus has failed to attract teas to GTAC for public auctioning (it has only boosted private sale), not stopped the flight of teas produced in Assam to auction centres outside the State and entailed a revenue loss of about Rs 3 crore annually to the State exchequer. Worse, GTAC runs the risk of being reduced to a private sale centre.

Infrastructure-wise, too, Kolkata is better placed. There are blending facilities in Kolkata, which also has a major port to facilitate exports and the city’s domestic market, with a large buyer base, is vibrant and strong.

It will be rash to claim that the GTAC top brass is unaware of all this. A section in the tea industry, therefore, wonders if there are some other compulsions behind the recent outbursts.

The Chief Minister also publicly proclaimed that he was unhappy with the industry’s donations to the chief minister’s relief fund. He felt the sum, Rs 15 lakh, was too small, and he vowed to return the money to the donors.

But the Chief Minister has reason to feel upset. Considering the kind of super-normal profits the Assam tea industry is making following the recent upsurge in tea prices, the amount is no doubt meagre.

Industry sources, however, claim that the donations have been higher. An additional Rs 45 lakh or so has been contributed to the fund by at least three tea majors with gardens in Assam, bringing the total to Rs 60 lakh or so.

“It is an annual ritual; we donate to CM’s relief fund every year,” a tea industry source observed. “But we’re not surprised at the CM’s remarks; after all, the Lok Sabha election is not far off.”

Interestingly, all this is happening at a time when Assam’s tea producers have started facing extortion demands from militant outfits. When the Chief Minister's attention was drawn to this, he reportedly dismissed it saying one should not give much importance to such things. But those receiving the threats do not feel so reassured. They keep the local administration posted, even though they are unsure whether any help will be able available in a crisis.

Nor is the tea industry as a whole making a hue and cry about the ‘demand notices’ being placed on tea gardens, presumably because they realise that discretion is the better part of valour. Conceding the demand would be a better option.

The average cost of tea production in Assam is estimated at Rs 115 per kg whereas average price realisation now ranges between Rs 175 and Rs 250 a kg depending on quality.

Paying the extortion amount, even at the rate of, say, Rs 10 a kg, will not leave a big hole in big tea growers’ pockets, it is felt. Militant outfits know this arithmetic as well as the tea companies.

As for the small tea growers, their number in Assam is close to a lakh, large enough to emerge as a major supplier of green leaves.

Many big gardens buy millions of kg of green leaves from these growers at low prices and thus cut down substantially on costs; at times the gardens are forced to buy at undisclosed prices for the sake of peace.

Who are these small growers? Many are not really small. According to Tea Board guidelines, any grower having up to 25 acres of tea growing area is considered ‘small’ and is entitled to benefits.

The Assam Government’s own survey suggests that the average holding size of a large number of so-called small growers in the State is around 40 acres and the owners in many cases are either surrendered militants or politicians, bureaucrats and others who forcibly occupy land, often encroaching into forest lands, and flout rules with impunity, thanks to the support they get from the powers that be.

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