Govt needs to act else lot of tea gardens will close down: Jagjeet Singh Kandal, MD, APPL

The disparity in wage is the root of the problem the tea industry in North India is facing at the moment, feels Jagjeet Singh Kandal, managing director, Amalgamated Plantations Pvt Ltd (APPL), a Tata Group company, which owns 25 tea estates with a total annual production of 41 million kg. In a telephonic interview with Soumonty Kanungo, he says that the cost of production of small tea growers is 50% less than the organised industry, implying that 50% of the country’s production is available at the market for almost half the production cost of large organised tea gardens.

Wages of tea workers have substantially gone up in both West Bengal and Assam for the organised sector. How do you see it impacting the plantation companies?

While the organised industry pays for cash and non-cash components, the small tea growers or unorganised sector pay only the cash component. Their cost of production is 50% less than ours. The selling prices of made teas are not increasing since there are teas available in the market at half the organised industry’s cost price. This dual economy has to be removed and the government should look at it, by abolishing the Plantations Labour Act, 1951. If that happens, there will be only cash wage component which will be paid by everyone. Even the small tea growers will pay a wage similar to ours and the gap in our costs will bridge. Small tea growers account for almost 50% of the country’s tea production and they are only growing. Since they only employ casual workers when they need, their cost liability isn’t similar to ours. We have a workforce to look after, even during the three months period of no production. Unless there is a level field, the organised sector will find it difficult to survive.

Will it reduce disparity in wages?

We don’t mind paying higher wages, but the prices of tea must commensurate that. In the absence of a proportional increase in price to the wage increase, our margins are going to be severely under pressure. In the last five years, prices have remained stagnant or have even declined a bit, while the wage has gone up by 76% during the period and thus our costs have only gone up. Wage accounts for 60% of the tea companies total cost of production. The disparity in wages of the organised and the unorganised sector is pulling down the average selling price of tea. While the unorganised sector is still able to make a profit, our selling price is lower than our cost price. For my gardens, the cost of production is Rs 210 per kg while my selling price is Rs 180 per kg. On the other hand, the cost of production for the unorganised sector is Rs 110 while it is selling at Rs 130 per kg, making a profit of Rs 20 per kg. They can do it because they don’t have to pay for the non-cash components which we have to pay. And, the unorganised sector pays almost the same cash wage as us. Thus it is imperative for a market correction to happen that the disparity in wages be removed.

To bring down costs, do you think it makes sense to opt for mechanisation?

In the absence of a level field, there is no other alternative. At APPL, we are increasing mechanisation every year but can’t increase it beyond a certain point, since workers cannot be laid off. During the peak season, we are almost 30% mechanisation while the same is 20% overall. If the labour law is rationalised, then we can go for more mechanisation and can reduce our costs further. However, we need to caution here that this will lead to job reduction, particularly with casual workers.

Out of your total production of 41 million kg, your own gardens produce around 26 million kg while rest is from bought leaf factories (BLF). Would you like to increase your procurement from BLFs going ahead?

With the recent wage hikes, our cost of production has increased by Rs 20 per kg for Assam, while the same for West Bengal has increased by over Rs 30 per kg. Given the current situation, buying from bought leaf factories is way better than producing our own. With that model, we will at least not incur any losses. So we have to buy more from small tea growers and manufacture teas to protect our margins.

To your mind, where is the industry heading to?

If the government does not act, a lot of gardens will be forced to close down and then the government has to figure out what to do with these workers. Else, we have to look at more mechanisation and cut down on casual workers. That will also give rise to unemployment and the government will have to find out a solution. Hence, they should try to come out with measures which will help the organised and unorganised sectors as well as the workers. Increased cash wages will stabilise prices and benefit both the small tea growers and organised industry. A healthy Industry will also contribute taxes which at this stage is almost nil to the exchequer.