The tea plantation industry is at a crossroads. This does not come as a surprise for a business that has 65 per cent of its cost of production loaded on wages and wage-related costs and whose revenues by way of farmgate prices have not kept pace with wage and input cost.

The Indian tea plantation scene is characterised by two major ownership structures — the large and small. The bought leaf factories (BLF) are making positive profit margins (factories which source most of their tea leaves from other growers) while the economics of the larger model is stressed. Many corporates have now developed ‘bought leaf‘ verticals, which are also clocking decent profit margins.

The reason for this divergent economics is the low cost of raw material — the green leaf of the small tea growers (STGs). It comes cheap because invariably they are owner labour, have no social and welfare costs and have nil or very little overheads. The STG/BLF teas today are over 50 per cent of national production, and growing. It is also pertinent that small growers are owners of their land, a huge socio-economic security net. A decentralised ownership model could well be the panacea, going forward.

Balancing factors

The tea plantation industry must be a fine balance between the economic viability of the business, social and economic security net of the workers/farmers, biodiversity conservation and climate change impact mitigation.

The restriction of activities in plantation lands and the restricted choice of crops, as stipulated in the relevant State land legislation, are outdated. Leveraging the organised management capabilities and the emerging strength of agricultural technology, plantations should be allowed to grow a host of new crops on a large scale in a critically relevant percentage of their land.

The areas under the new crops must have strict biodiversity, environmental and climate change mitigation guidelines. The current legislation preclude plantations from alienating land for purposes other than growing plantation crops. With limited demand, the value of these lands are at the lowest ebb. Therefore, plantation owners must be allowed to sell a critical percentage of their area for real estate and industrial purposes. The consequent liquidity will help plantation management in activities such as replanting, factory modernisation, etc.

Domestic consumption at below 2 per cent hasn’t kept pace with production growth of over 2 per cent. Neither the industry nor the government has made serious efforts to improve consumption (and consequently the consumer value of tea). Exports have also stagnated — an additional 20- 30 million kg of export is critical to maintaining the supply-demand balance and consequently the domestic price buoyancy.

Such a master plan is necessary, especially while taking into consideration the additional production from new areas.

Operationally too, the standard management response of increasing yields is no longer valid, what with the ever widening gap between price and costs — manpower cost in particular. It’s about time the tea plantation industry looked at bottomline as a balance between production, revenue (price) and costs (manpower). No one factor can be targeted at the expense of the other, beyond a critical level.

Shortage of manpower must be seen as an opportunity to mechanise, commensurate with changes in agronomic practices and implementation of incentive schemes that support family income while reducing unit cost of production. Wage component in the plantation cost of production must drop to about 30 per cent to remain competitive.

The tea industry has too many intermediaries that cannot be justified. The huge markup from farmgate to consumer price renders the primary producers underdogs in the value chain. Value addition in terms of retailing and branding have served different business interests. Plantation business must acquire its own core competencies.

The writer is a former President of the United Planters Association of Southern India

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