Indian tea, a bitter brew for some

Munnar hills are home to many large and small tea plantations, the best-known among them being the Kannan Devan Hill Plantations Pvt Ltd., the erstwhile jewel in the crown of Tata Tea Limited, and now an important outpost of Tata Global Beverages Limited.

In 2005, Tata Tea hived off the Kannan Devan plantations as a worker-owned company, retaining just around 18 per cent of the shares. This action was symptomatic of the declining profits of the plantation sector in the country. The sector, spread out across the states of Kerala and Tamil Nadu in the south, and West Bengal and Assam in the east, employs an estimated 12.6 lakh workers.

FALLING TEA PRICES

Since the turn of the century, the sector has been faced with a crisis of falling prices for the tea leaf. The crisis had its biggest impact on tea plantation workers. As per the Central Government Ministry of Labour estimates, by 2003, out of a total of 4819 registered plantations, 1367 (or nearly 30 per cent) were defaulters in payment of workers' dues. In addition, during the past twelve years, 36 companies illegally closed or abandoned tea plantations, spread across 1,28,000 acres.

The Kannan Devan tea plantations are today among the best-managed plantations in all of Kerala, with workers paid the legal wage, and getting their statutory benefits. However, conversations in the plantation starkly brought out issues plaguing the sector. The legal minimum wage paid to workers today is Rs 145 per day. This is less than the prevailing wage under the NREGA in Kerala of Rs 150 per day. This is significantly lower than wages paid in construction and tourism in Munnar, of between Rs 250-300 for unskilled work. Why do workers then continue to work in the plantations?

Most workers are Tamil-speaking dalit migrants. In fact, migrant workers form the backbone of the tea plantation sector in the country. In Kannan Devan, these workers are second- and third-generation plantation workers, and see their futures linked with the plantations. They have their homes in the plantation housing colonies, and have benefitted from free medical care and primary education. However the situation is changing.

With tourism in the region came both opportunity of better wages and the necessity to earn more in the face of high inflation. Faced with financial crisis, many plantations cannot afford to provide adequate housing and healthcare benefits, and find it difficult to attract workforce.

In a major estate near Trivandrum, which has been leased out by the management to a middleman, workers are merely paid the statutory minimum wage of Rs 145, and get no other benefits. Their Provident Fund (PF) dues haven't been remitted by the company since 1997. Workers who continue to work here are old, and don't see the possibility of alternative employment. They are also unable to leave, given that they are owed large sums of money as statutory dues by the company.

The main reason for the crisis in tea plantations is falling real prices for tea. The price is governed by six tea auction centres in Kolkata , Guwahati, Siliguri, Kochi, Coonoor and Coimbatore. These auctions are tightly controlled by a cartel of traders.

As a result, average auction prices in south India declined from Rs 69 per kg in 1998 to Rs 44 per kg in the year 2000. From 2000-07, the auction price varied between Rs 45 to Rs 50 per kg. It increased to Rs 66 in 2008 and to Rs 81 in 2009, but fell to Rs 69 by 2011 — the tea price prevailing in 1998. Though inflation had more than doubled the cost of living, the plantation tea price for 2011 had returned to the prevailing value of 12 years ago.

RETAIL SECTOR UNAFFECTED

The same crisis has, however, not visited the retail sector in tea. The Annual Report of Tata Tea tells us that the company had an average price realisation of Rs 119 per kg for tea in the year 2005-06, which increased to Rs 207 per kg in 2010-11 — a 72 per cent price increase for a five-year period. During the same period, the consumer price index increased by 57 per cent. The company, therefore, enjoyed increasing realisation for tea sold at a higher-than-inflation rate in the last five years.

For the year 2010-11, the company made an operating profit of Rs 207 crore, with a healthy operating margin of 11.6 per cent. Thus, the consumer market for tea did well during the period when tea plantations faced a downturn. It isn't surprising that Tata Tea, in 2005, saw good business sense in passing on the burden of running the Kannan Devan estates to the plantation workers.

The crisis in the plantation sector is endemic across the country. The minimum tea garden wages, at Rs 85 per day in West Bengal and Rs 71 per day in Assam, are significantly lower than those in Kerala.

Labour costs alone contribute to around 50 per cent of price realisation at the plantation. The owners claim that they cannot afford to increase wages and also pay the benefits due to workers under the Tea Act. The competitive pressures of tourism and urbanisation are an incentive to many owners to exit the business of growing tea.

Is there a way out of the crisis?

Yes, if the tea sector is taken as a whole to work out its economics. While wages at the plantation level are 50 per cent of the realisation, they constitute only 10-12 per cent of the retail tea price. The sector can afford to pay better wages by redistributing profit margins. The main hindrance to this is the stranglehold over tea prices at the auctions.

The Tea Board is aware of the oligopsony (market controlled by few buyers). But without basic changes in the market structure to make plantations more profitable, attempts by the Board will only yield limited results.

(The author is an independent labour and industry researcher.)

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