The Hindu Business Line : Strained by problems

Customer preferences shift: India predominately produces CTC (crush-tear-curl) variety of tea. The CTC variety is a mass-market tea and the country consumes about 80 per cent of its production.

World over, the customer preference has been gradually shifting to the orthodox (leaf teas) variety. Orthodox teas follow the traditional form of manufacturing (by using rolling process) and produce twisty leafy tea, which has lighter and more flowery liquor. This change in customer preference is one of the main reasons why exports have been declining.

High cost of production: The cost of production in India is among the highest in the world when compared with other tea-producing countries such as Sri Lanka, Kenya, China, Vietnam and Indonesia.

In India, the cost of production for a kg of tea is $1.62 (around Rs 78). In contrast, in Bangladesh it is $0.58 ( Rs 27.8), Kenya $1.16 (Rs 55.7) and Sri Lanka $1.23 (Rs 59).

High labour costs: The tea industry is labour-intensive. In India, labour costs account for about 50 per cent of the cost of production.

The industry has not been able to rationalise labour costs as it is bound by agreements required under law to maintain a minimum number of employees.

Productivity concerns: Labour productivity in India is 748 kg , whereas in the case of our closest CTC competitor, Kenya, it is 1,026 kg.

This poor productivity has led to the industry adding about 40,000 labourers over the past three years; that too at a difficult time when lower prices have exerted stress on profitability.

No wage-productivity linkage: In India, the wages are not linked to labour productivity. Most plantation labourers are paid a time-cum-piece rate, which means that even when the worker does not complete his assigned task he is assured full daily wages.

The high labour cost structure was not much of an issue when the tea prices were at higher levels, but not so post-1998, when both prices and exports started declining.

Low land productivity: Labour productivity is just one of the hurdles for the industry, the other is land productivity. The yield per hectare has declined 10 per cent over a five-year period (1997-2001).

This decline in yield is primarily due to a high percentage of over-aged plants. And this is because many of the planters have neglected replanting new bushes which, in turn, is because of the high costs and the long gestation periods.

As the soil becomes unsuitable for planting for about two years after uprooting the old bushes and as the gestation period is about five years on replanting, planters have not been carrying out the process on all the old crops.

Uprooting a large number of bushes would mean losing out on crop production.

Many players have compromised the quality of tea in quest of immediate revenues and profits.

In contrast, countries with newer plantations such as Kenya and Vietnam have the advantage of higher land and labour productivity.

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