Rising costs, shift pay pull down tea industry

In June, the tea industry was shaken as the world's largest producer Mcleod Russel moved to sell 11 gardens in a bid to slash debt and consolidate its business. Nearly two years ago, Duncans, one of the largest tea companies in India, shut doors. Now, growing demand for shift wages for plantation employees in West Bengal, who want rates revised from ~159 to ~169, may lead to a slump in the industry.

The Plantations Labour Act requires workers be provided wages, health care, food, accommodation and education for their children. Assam, which produces close to 700 million kilograms of tea every year, recently revised wages from ~137 to ~167. Assam had been grappling with strikes or bandhs that saw around 500 of the 800 plus gardens stop work, causing billions of rupees in losses. Last week, West Bengal saw unions go on a three-day partial strike.

Azam Monem, director at Mcleod Russel, said business had come full circle from when his firm had bought gardens from the Tatas and Hindustan Unilever.

“The labour-intensive approach is back dated. Competition from small tea growers and flat tea prices at auctions makes it hard to see growth," Monem added. “The industry faces the exact predicament as the textile industry did during the advent of power looms. The tea industry is one of the largest employers after the Indian Railways with a minimum of 1,000 workers for every garden and around 700,000 workers in Assam, according to industry experts.

Monem thinks there are too many unions. “Assam has two to three unions, but West Bengal , including the Dooars, have 21 different registered unions in operation. This makes any negotiation complex," he said. Arijit Raha, secretary general of the Indian Tea Association, said small tea growers who accounted for around 15 per cent of the total production a few years ago now produce 47 per cent of the total output.

Bidyananda Barkakoty, chairman of the advisory committee for small tea growers in India, said the smaller producers sell at lower prices. He pointed to another emerging trend. "The organised sector is buying tea leaves from these small players," he added.

The Guwahati Tea Auction Centre broke records by receiving bids for ~40,000 a kilo for Golden Needle tea. So, why can't the sector go the premium way and push prices higher by packaging their products and pushing more premium products? The consumer class, which might spend money on tea and beverages is tiny and restricted to major metros and international markets, said Vivek Goenka, president of Warren Tea Company.

Darjeeling, a key hub for Indian tea plantations faced a lockdown for over three months last year due to political turbulence. While some may point to the need for agricultural labour to be fairly compensated, one Darjeeling-based tea garden owner pointed to a subject that most unions shy away from discussing —productivity. "Many workers don't show up for work but claim dues. It’s something the unions have to fix," he added.

Many were surprised when Mcleod Russel hived off multiple gardens but similar events in the future are not unexpected anymore. Goenka said: "I will not be surprised if more gardens or companies shut down entirely because of market pressure."