30 Sep 2016 13:19 IST

How Indian tea lost steam in the global market

World production of tea has gone up by nearly 250 per cent

Tea has been one of India’s finest agro-assets for a long time and the final quarter of the 20th century turned out to be reasonably prosperous for the tea producers of India.

Although our exports of tea had stabilised at around 200 million kg (mkg) per year, there was a steady upsurge in domestic consumption, which contributed to healthy prices in the auction centres.

But in the new millennium, the situation seems to have taken a turn for the worse due to a combination of factors.

World production of tea has gone up by nearly 250 per cent from 1,527 mkg to 5,200 mkg between 1975 and 2015. It is clear that British investors switched their interest from India and Sri Lanka to African countries, mainly Kenya, Malawi and Tanzania, in the 1970s.

In China, there was a phenomenal expansion in the area under tea, especially after the collapse of the USSR and emergence of the CIS countries, which led to an increase in the number of buyers in the world market.

Vietnam also brought in a larger area under tea to cash in on the boom.

Exports stagnant

India has been exporting approximately 200 mkg of the beverage per year for over 50 years and we have not been able to increase the quantity, mainly because of our own domestic demand.

For the period under review, Kenya’s shipments have gone up by leaps and bounds and its exports are currently around 350 mkg per year.

Sri Lanka’s shipments have also gone up from 200 mkg to 280 mkg per year.

China has also registered a healthy growth to 300 mkg, mostly of green tea, catering to a certain extent to the Chinese diaspora.

Indian exports to the USSR, after hitting a peak of 100 mkg per year in the 1980s, have halved in the new millennium to be replaced by Sri Lanka for orthodox, Kenya for CTC and China for green tea and, to a small extent, for orthodox tea.

It is important to note that from 1970 to 1992, 90 per cent of imports of tea into the USSR were from India!

Auction centres

But there has been been a steady increase in auction offerings in India, Sri Lanka and Kenya, proving the effectiveness of this system of marketing for a product like tea, which is plucked and processed on a daily basis, and where quality variations are immense.

Nearly 50 per cent of the Indian production is channelled through the auctions. London, which functioned as a terminal auction centre for tea from 1839, closed down in 1998 due to its shift to coffee.

Losing credibility

There has been a rise in preference for Kenyan and Sri Lankan teas over the years. India seems to be losing its credibility as a dependable supplier to the world market, partly because of its burgeoning internal market and partly because of uncertain government policies. Indian tea is averaging below $2/kg at the auctions, whereas Sri Lanka is well above $2 and Kenya is over $3.

Higher yields

Also to be kept in mind is the fact that African yields are higher, they have a more even distribution of the crop because of the equatorial climate and labour wages are much lower.

What is very disturbing, however, is the disparity in the prices realised for North Indian teas and South Indian teas, which stood at ₹70.34 and ₹44.64, respectively, in 2000 and has now widened further to ₹142.05 and ₹84.37, due to quality and consumer preferences. The cost of production of tea in India has gone up steadily and substantially and is now approaching ₹100/kg. South Indian teas, in particular, are languishing at uneconomic levels.

Apart from the time tested effects of supply and demand, a few special events of the last 50 years have had an impact on the tea market.

Key events

The oil boom of 1973 gave a fillip to the tea market in the form of a substantial increase in the purchasing power of West Asian countries.

The extensive frost damage to coffee in Brazil in 1977 resulted in an escalation in coffee prices and a switch to tea in the US and Europe and led to a boom in tea prices globally. The shortage of sugar in India in 1980 to 1982 had an effect on tea consumption in India. The ethnic riots in Sri Lanka, which started in mid 1983, affected the running of tea plantations and led to an acute shortage of orthodox teas and a resultant spurt in prices.

From then on, world production of tea proved to be far in excess of demand and a protracted period of unremunerative prices set in, especially for high-cost producers, such as India.

(This is the first of a two-part series on the Indian tea industry. The writer has worked in the tea industry for over 40 years. He has been a Director of Parry Agro Industries, Chennai, since 2006. Views are personal.)

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