Tea is considered to be the cheapest and most consumed beverage in India. The tea industry provides direct employment to more than a million workers mainly drawn from the backward and socially weaker section of the society. It also provides sizeable amount of revenue to the state and exchequer. The total turnover of the Indian tea Industry is in the vicinity of 9000 crores. As of now there are
∙ 1692 registered Tea Manufacturers
∙ 2200 registered Tea Exporters
∙ 5848 registered Tea Buyers
∙ 9 Tea Auction Centers
2. Economics of Tea:
The price of tea had been declining for the major part of the decade. The tea industries were incurring heavy losses from 2003 to 2007. However things have improved and the industry has been making profits during the last 3 years. The costs have been increasing due to which a lot of emphasis is given to reducing manufacturing costs of tea. The main reason for the increase in cost of manufacturing is the increase in wages of the labor. The tea industry is a labor intensive industry and provides direct employment to millions of workers. The wages have increased at a very high rate in Tamil Nadu and Kerala and players like Hindustan Unilever Limited have sold their estates in Nilgiris and Anamalai’s for the same reason. The wages have increased from 75Rs/day to 108 Rs/day and it is expected to increase by Rs 5/day every year.
The tea plantation sector has shown remarkable resilience. It has always seen cyclical fortunes and has been subject to sharp swings in global commodity markets.
Up to 1998 the industry had a stable record of growth. With spread of small growers the tea scenario changed dramatically with a mismatch in demand and supply severely impacting the health of the industry. Internal demand was unable to absorb excess supply resulting in a decline in tea prices from 1999 onwards. With a welcome improvement in price realization observed since later part of 2008 industry is now poised to recover past losses and propel itself on path of development and growth.
The manufacturing cost of tea is estimated to be around Rs 56 per Kg while the price at which Tea is sold is determined by the market forces. Before 2007, the companies were finding it difficult to breakeven. This was primarily due to excessive import of tea from countries like Kenya, Uganda and Srilanka. The price offered by these countries is much lower than that of India and this primarily due to the lower cost of manufacturing in these countries. However there has been a considerable decrease in the output in the years following 2007 due to which the Indian Tea Industry has again become prosperous. The Price at which tea is now being sold is in the range of 76-130 Rs/Kg.
2.1 HERFINDAHL Index of Indian tea Industry:
HERFINDAHL index of Indian Tea Industry is 0.07. The value is very small and it shows a highly competitive monopolistic market. The competition in this industry is mainly based on product differentiation. Each company tries to differentiate its product to cater to different customers. (Eg) Masala Tea, Leaf Tea, Dust Tea etc. There are a large number of companies in the market. There are more than 2000 companies operating in the Indian tea market. Some of the major players are TATA tea, Hindustan Unilever Limited, McLeod Russell, Jayshree Tea Industries etc.
2.2 Consumption/Demand Analysis:
Tea is highly penetrated beverage in Indian household. But the per capita consumption is only 730 grams which is lower than that of Pakistan, Afghanistan, UK, Ireland, Turkey. Per capita consumption in many states is well below national average. There is scope for improving per capita consumption in the country. Increased domestic demand will induce productivity enhancement at tea estate level thus lowering costs. Various research studies have thrown a lot of light on health benefits of tea. It is now a well-known fact that tea is a rich source of antioxidants which help body to ward off diseases.
The problem is compounded by the fact that tea-producing states like West Bengal, Tamil Nadu and Assam fare badly in consumption, while states like Maharashtra, Gujarat and Rajasthan show good per capita consumption. Given the fact that tea is now considered a health drink, increasing tea consumption domestically would protect the tea industry from the vicissitudes of the export market, board sources said. The board is now trying to increase the acceptability of the drink among youth by promoting various ways by which tea can be consumed.
Indians take tea with cream and sugar, and, sometimes with cardamom or ginger and chai masala. Promotion of iced tea could help in increasing the consumption, as developed nations have shown that less than 1% of the tea consumed there is brewed from loose tea. More than 60% of tea consumption in the US is in the form of tea bags. Tea experts attest to the importance of the "convenience factor" in tea's growing popularity. The demand for convenience has led to the recent packaging of ready-to-drink iced tea in cans, bottles, and plastic containers. Ready-to-drink teas are the fastest-growing products in the supermarket.
The importance of increasing tea consumption can be summarized by a study, which points that if Indians could drink half a cup more per day, the problem of surpluses will disappear and that could make buffers history. Such is the power of even a small increase in consumption for a large population base.
ESTIMATES OF INTERNAL CONSUMPTION AND PER CAPITA CONSUMPTION OF TEA IN INDIA
2.3 Tea Production:
All-India tea production rose by 12.3% to 1.62 lakh tonnes during January-April 2010. The Southern states performed better than the Northern counterparts. The states of Tamil Nadu, Kerala and Karnataka recorded between 13-24% y-o-y growth. Production in Assam–the largest tea producing state in India, recorded a 9.6 per cent growth.
India is the second largest producer of tea in the world with production at 979 million kg in 2009. Following the prediction of a normal monsoon forecast by the India meteorological department, the Tea Board had earlier said that production in 2010 could be around one billion kg. However, achievement of that target looks dicey. This is because Assam has witnessed excessive rains and pest attacks which have already impacted production in Assam, state media reports.
2.4 Exports:
Indian tea has been losing overseas market (currently around 12 per cent in world trade) in spite of being able to produce the best of quality and match international prices. The problem can be traced to poor image Indian exporters have earned by exporting sub standard tea over last decade to certain key importing countries. India is now viewed as a supplier of cheap tea and growth in exports of low priced tea stand testimony to this fact.
India’s tea exports, which rose steadily in the first four months of 2010, are also expected to be hit. India exports CTC (crush-tear-curl) variety of tea mainly to Egypt, Pakistan and the UK and the premium orthodox variety of tea to Iraq, Iran and Russia.
Tea exports had declined by 6.2% in 2009 but are expected to rise in 2010. On account of a shortfall in production from the major tea producing countries in 2009, the industry is believed to have begun the year with low opening stocks. On the other hand, global tea consumption is rising at a steady pace. Thus, the tight demand-supply situation in the global market and an increase in the domestic output will enable the Indian tea industry to see a partial recovery in its exports.
2.5 Pricing:
One area in which tea differs from coffee and cocoa is that the world tea market used to not be particularly prone to price volatility. In fact until the 1980s world tea prices seemed relatively stable when compared to other commodities. This can be accounted for in several ways:
∙ Tea production is less prone than coffee and cocoa to peaks and troughs due to weather and disease. Also world production is fairly diversified and not concentrated in particular areas as is the case with coffee (Brazil) and cocoa (West Africa).
∙ The tea market is not undermined by the destabilizing effects of speculation.
∙ Vertical integration and companies in monopolistic competition in consumer countries also stabilize prices (if at low levels).
The following are some of the other reasons due to which volatility is seen in the prices of tea
∙ A large number of countries produce tea and many of them are big enough to prevent the establishment of a clear monopolistic leader, which allows for fierce competition.
∙ Demand is rising slowly and so the only way to increase significantly the amount of tea exported is at the expense of competitors.
∙ It is fairly easy for buyers to switch from one source to another, especially for blends for popular tea bags as any change in taste with the change in the source of one tea can be disguised by blending with other teas. Because of the dominance of the auction system in acting as a day-to-day intermediary between producers and buyers, producer countries have been unable to tie customers into long-term relationships.
∙ As tea deteriorates fairly quickly it is frequently necessary to cut prices in order to clear stocks.
∙ Tea supply is greater than demand from manufacturers.
∙ Producing countries stay in the market despite its scant rewards because they have invested a great deal in tea production and lack alternatives.
2.6 Distribution of Tea :
The Distribution of tea can be explained by the following diagram
3. SWOT Analysis of the Tea Industry:
Strengths:
∙ In the past five years it has been noticed that the export realizations had grown by 5.83% and for domestic markets by 9.31%
∙ Indian Companies will continue to make a killing in the domestic market for some time to come.
∙ Countries like Srilanka are going to find it difficult to dump tea in India as the Indian Tea Lobby is very strong.
Weaknesses:
∙ The industry is seasonal and remains ineffective from March to June every year
∙ Since it is an agricultural crop, it is subject to natural limitations like any other agricultural produce.
Opportunities:
∙ The tea industry has got some fresh incentives in the union budget that was presented in the parliament in the present year which would further boost the export oriented sector
∙ This apart the industry is also looking at the sanctioned allocation over the Rs 130 crore granted in the 2009-10 budget and more funds for building infrastructure in tea garden. Under the special purpose tea fund, the tea industry has been given sufficient subsidy. The subsidy components for many gardens is estimated to be more than Rs 2 crore per garden and more than 20 north Indian gardens seeking pure subsidy are also under consideration
Threats:
∙ For the Indian planters, brokers and traders matters are getting hot. The export market is drying, competition is intensifying and the threat from imports of neighboring nations getting real.
∙ Add to this the excise duty of Rs 2 on bulk tea which has escalated the cost of production. But what has been slipping out slowly is India’s declining share in the world tea trade over the years.
4. Major Constraints of Tea Industry:
Transport:
Since the tea industries are situates in hilly rural areas, it is very disscult for them to transport their raw materials like food grains for plantation workers, Fertilizers, Plant Protection Chemicals, Machiner etc. The transportation of tea that is manufactured is also difficult. While all the agricultural products are entitled for the central transport subsidy in the north eastern states, this subsidy is denied for tea. Extending this subsidy to the tea industry will facilitate in bringing down the cost of production and will make the production cost competitive in the export market
Ownership of small Tea Gardens:
Reported number of small growers is more than 40000 but only 2927 growers have been registered with the tea board. Most of the small growers do not possess proper land documents and they are not in a position to avail any financial assistance from the tea board or from the banks/ financial institutions. There is an urgent need to regularize the land ownership for facilitating the development of the small holdings in the state.
System of Land Holding:
Community ownerships of land in states other than Assam and Tripura lead to difficulty in determination of ownership and in creation of security. A continuing guarantee by the concerned state governments is perhaps a solution acceptable to banks which needs to be worked out.
Man Power:
There is limited availability of skilled labor, supervisors and managerial cadre is a distinct impediment in systematic development of tea plantations. The policy restriction in regard to entry of labor from other states is one of the major hindrances in launching large scale commercial tea projects. There is a need for infrastructure development in places where the tea industries are set up. Basic facilities like schools, markets, hospitals, community centers have to be set up in order to retain the people in the tea industry.
Low Productivity:
The average age of a tea bush in India is very high .This has a direct impact on productivity and quality. Acknowledging the need for accelerated replantation and rejuvenation activity, the Tea Board has implemented a Special Purpose Tea Fund. The objective is to cover 2.12 lakh hectares over a 15 year period. This should go a long way in increasing productivity and quality of Indian tea
5. Future Outlook:
The turmoil in the global tea markets for India is unfortunate. Backed by the problems of domestic production constraints and fall in exports, the situation demands attention. To fight against the competition from new tea growing countries like Kenya and arresting the declining competitiveness pertaining to land, labor, imports, quality prices and shrinking home consumption need to be corrected before it has further multiplier effects. Though Indian Tea sector sustained the slump (1998-2004), it is quite evident that the situation has improved in terms of productivity and exports gradually, and the government legislation and policies on agro plantations can be the tool that can correct the disequilibria besides the climate. Clearly it is time to rejuvenate the absolute advantage and the 150 year old global leadership and heritage.
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6. References:
∙ http://www.maketradefair.com/assets/english/TeaMarket.pdf
∙ http://www.karnbanker.com/projectreport/Research%20Report%20for%20TEA%20INDUSTRY.pdf
∙ Industrial Survey Of India 2010 - Published by THE HINDU
∙ Capital Line
∙ CMIE Industry Analysis
∙ http://www.teaboard.gov.in/
