Whose cup of tea?

Early September, when a small tea farmer Girija Prasad Upadhyaya of Tinsukia district in Assam sought intervention from the Prime Minister’s Office over fixation of minimum support price (MSP) of green tea leaves, it again brought to fore the mismatch between price and wage – a problem plaguing the tea industry for long. And the growing mismatch is threatening the planters, who fear mechanisation will increase to keep costs under check, resulting in unemployement. In the absence of parity between cost and selling price, apprehensions are strong that the industry would see more assets sale and even closure of gardens with lower yields, as they would find it difficult to remain in the business in the long run. Recently, over a dozen tea estates in North India exchanged hands. It is to see how the new owners turn these gardens around and make them viable, despite rising production cost.

DISPARITY

Tea prices have largely remained stagnant for green leaves and also for teas at the auctions in the past five years, though the cost of production has gone up significantly, thanks to wage increase. Wage comprises of 60% of the industry’s total cost of production.

According to C.K Dhanuka, managing director, Dhunseri Tea & Industries, the selling price of tea has not increased with the average selling price hovering around Rs 150 per kg for the past five years. Meanwhile, wage has increased by almost 130% during this period, with the companies forced to absorb the wage hike in the absence of a proportional increase in selling prices of tea.

Recently, both West Bengal and Assam had seen steep increase in wages at a time when trade unions have been demanding for a minimum wage rate for tea workers. In Assam, the BJP-led government in its election promise called for a composite minimum wage of Rs 351 which received strong objections from the apex body of tea planters, Consultative Committee of Plantation Associations in the absence of proportional increase in price of teas. Proposal of a minimum wage of Rs 244.56 for small tea gardens was also objected by All Assam Small Tea Growers Association on the ground that it will not be sustainable without a minimum support price for green tea leaves.

However, with the general election due next year, the Assam government has taken resort in an interim wage hike by Rs 30 to Rs 167 from Rs 137 per worker, while the Trinamul Congress government of West Bengal has announced interim wage hikes twice this year in the tune of Rs 34.50 with an additional Rs 9 as cash component for food grains, which the state provides as subsidy to tea companies and thereby, get distributed among the workers. Together, the tea companies operating in West Bengal now have to pay a cash wage of Rs 176 per day per worker.

According to planters, wage hikes in both states are becoming more of a political consideration, with the election looming large in 2019.

“It is nothing but one-upmanship and it is going to affect the tea industry severely,” says a plantation owner.

Apart from the cash wage and bonus to permanent and casual workers, the organised industry additionally pays provident funds, gratuity, and provide for free housing, subsidised ration, free medical facilities, firewoods and other non-cash components, under the Plantations Labour Act, 1951, which together make the composite wage at around Rs 235-285 per worker.

Wage in South India is further steep. The cash wage of tea workers in Tamil Nadu is Rs 307.97 per worker, while the same in Kerala and Karnataka are Rs 326 per worker and Rs 317.14 per worker, respectively, and the non-cash benefits account for about 70% of the wage, additionally. On the other hand, the average auction selling price of South Indian tea is hovering around Rs 98-100 per kg.

According to Arun Narain Singh, vice chairman, Goodricke Group Ltd, the recent wage hike would be a "disaster" in absence of a proportional increase in selling price.

“Organised sector will slowly disintegrate and it is not good for the industry,” Singh says, adding that the “modus operandi” of the small tea growers is entirely different from the organised sector that provides employment to 11-12 lakh tea workers, including permanent and casual workers, spread across three major tea producing states of West Bengal, Assam, and Tamil Nadu.

According to him, if the organised sector disintegrates, the ultimate sufferer will be workers, since the model of small tea growers is based on family-run business.

Bijoy Gopal Chakroborty, president, Confederation of Indian Small Tea Growers Association (CISTA) concurs that 90% of small tea growers double up as workers in their own gardens and only hire 10% of casual workers, especially after monsoon when the production peaks. Unlike the organised sector, small tea growers do not have to pay for provident funds, gratuity and any other non-cash component to the workers since this sector is not governed by the Plantations Labour Act, 1951.

The recent wage hike in Assam and West Bengal will create a sustainability challenge for many, feels D.P. Maheshwari, managing director, Jayshree Tea & Industries, a B.K. Birla Group company. Maheshwari says that the wage hike is pushing the cost of production by Rs 25-30 per kg and would result in a number of tea estates becoming sick.

“As long as the crop is there, we will still manage to pay,” says Maheshwari, though his concern remains about survival of the industry post October when there will be no crop for next four months but a captive population at gardens to look after.

Tea is a seasonal crop and it is produced only for eight months in North India, from March till October. With winter setting in from November in the hills, production stops. While South India produces round the year, organised sector in North India (in tea parlance, it loosely refers to the tea producing states of eastern India) has to maintain its workforce even during the four months period of lull.

The growing disparity in price between organised and unorganised sectors is pulling down the selling prices, as per large planters, who also feel more assets will be on the block due to lack of a sustainable model.

Akhil Ruia, chief executive, James Warren Tea says many gardens in the Dooars are up for sale but there aren’t takers. In absence of buyers, some of the gardens may close down to avoid further financial losses.

Recently, plantation company McLeod Russel India has sold around 22 tea estates in Assam and the Dooars with a combined production of around 23 million kg, citing lower yield due to adverse weather conditions.

Maheshwari of Jayshree says that when large players with deep pockets are looking for viability in running certain assets, the impact on relatively smaller players is anybody’s guess.

Meanwhile, in the note to the PMO, the small tea farmer complained that the bought leaf factories are not adhering to the minimum benchmark price of green tea leaves set by the Tea Board of India. A bought leaf factory is a unit that processes green tea leaves purchased from other gardens, normally from small tea growers. The owners of these factories do not have any gardens of their own.

Unlike processed or made teas, green tea leaves are highly perishable in nature and a small farmer is often forced to sell it off at a price offered by bought leaf factories to avoid wastage, says Chakroborty of CISTA. The association has been rooting for long for minimum support price on green tea leaves at Rs35 per kg for Assam and Rs 30 per kg for West Bengal.

Parimal Shah, vice president, MK Jokai Agri Plantation, says if green tea leaves are not sold to factory for conversion into processed teas, they will perish within a few hours and have to be discarded. Hence, small tea growers are often forced to sell it off at throwaway prices. He, too, feels the minimum support price of green tea leaves should be kept as high as viable by the government, below which bought leaf factories should not be allowed to buy, and that would help to push up the price of teas at the auctions.

Chakroborty says this year production of small tea growers is 30% less than last year, resulting in a better price realisation.

“This year we are normally getting close to the benchmark price in both West Bengal and Assam, which is Rs 2 more than our cost of production,” he adds. There are around 3 lakh small tea growers in the country contributing for almost 50% of India’s annual tea production of 1,325 million kg. Around 2 lakh small tea growers are in Assam and West Bengal who together contribute 80% of small tea growers’ production in the country, says Chakroborty. The two eastern states contribute for over 70% of the country’s production, while South India accounts for 18-20%.

While the wage revision in Assam is applicable for small tea growers as well, the second round of wage hike in West Bengal is yet to be implemented for these growers who argue that they will accept it only if the government addresses their demand for minimum support price. Currently, all cash wage paid to workers by a small tea grower is Rs 150 in both Assam and West Bengal.

COST CONTROL

With no respite in sight immediately, the industry is struggling with ways to keep its costs under control. The organised sector says the government must intervene and create a level playing field.

Singh of Goodricke says prices are stagnant because there is a surplus crop of 70-80 million kg of teas from the bought leaf factories and available at lower prices, which in turn is pulling down the selling price of teas.

“The government must come with some cost-cutting measures to help the industry, else abolish the Plantations Labour Act,” he says, adding that with no non-cash component, the small tea growers will also have to pay similar cash wage to workers.

“Once there is a level playing field, prices are bound to move up,” he further adds. Meanwhile, he also feels there must be a minimum quality control to ensure poor quality tea does not come into the system and pulls down the average selling price.

According to planters, low quality teas are often procured by the retail companies, who then blend it with medium to high quality teas and sell it in the retail markets. Procuring low quality teas at low prices helps them maintain their profit margins, while the bulk tea producers struggle to protect theirs.

Recently, Aditya Khaitan, vice-chairman and managing director of McLeod Russel India has said that the tea industry should follow the Kenyan business model where the entire sector is driven by small bought leaf players.

MECHANISATION

To control costs and protect margins from further shrinking, mechanisation is the only way forward, feels Sanjith R Nair, joint secretary, United Planters’ Association of Southern India (Upasi).

“The way forward for the plantation industry is adoption of technology for plucking to processing. Mechanisation is the key,” says Nair. According to him, mechanisation is already extensively done in South India though it needs further improvement.

“With prices of teas not moving up, it helps to reduce costs,” he adds.

Chakroborty of CISTA also confirms that small tea growers use mechanisation to lower their costs. The Tea Research Association has also come up with studies on how to carry out mechanisation without hampering quality, he says.

Unlike South India, however, mechanisation is yet to make deep inroads in Assam and West Bengal, since the planters feel it will compromise on quality. According to them, the two leaves and a bud need careful manual plucking, done by the women workers, to ensure quality remains intact. While the crush-tear-curl (CTC) variety, consumed domestically, can still have some amount of mechanised plucking, it is strictly not advisable for the export-oriented premium quality of Assam and Darjeeling orthodox. India produces around 80-100 million kg of orthodox teas annually, with 67 GI-

marked gardens in Darjeeling producing only 8-9 million kg of premium Darjeeling teas in a year.

“If mechanisation increases, quality will deteriorate for the organised sector. This will make exports suffer since bulk of exports happen from here,” Singh of Goodricke points out. According to him, the industry has to adopt controlled mechanisation to ensure that the "credibility isn’t lost".

Nair of Upasi, however, adds that mechanised plucking should be done without impacting the quality and advancement in technology will help to improve it.

UNEMPLOYMENT

Normally, the industry depends on mechanisation when there is a shortage of skilled labour, says Ruia of James Warren. But if wages continue to go up without proportional increase in price, there will be a point when gardens will have to depend on mechanisation.

“The whole economics will then change, as tea gardens would require fewer people than what they employ now,” says Ruia. According to him, with mechanisation, there will be at least 20-25% less labour requirement at the plantations.

“While cost will drop massively, quality will also drop,” he adds.

More mechanisation will create more unemployment problem for the states. While permanents workers cannot be laid off, lesser number of casual workers will be required by the gardens.

“But, where will these casual workers go when there is no other industry in the states?,” questions Singh. According to the owners, this would create an additional burden for the government.

But, as an industry stalwart points out “Politicians are often concerned about short-term gain at the cost of long term pains.” Hence, the wage-price disparity is still awaiting a solution.

 GARDEN OF TOIL

11-12 lakh 
Workers are employed in the tea industry across the country

3 lakh 
Small tea growers contributing almost 50% of the country’s production

70% 
Of India’s production comes from Assam and West Bengal