India’s tea industry is facing challenges that require policy liberalization to stimulate growth and reach its full potential. By addressing supply-side restrictions and boosting demand, the industry can flourish. Despite being the second-largest tea producer globally, with an annual tea production of over 1.3 million tonnes and the third-largest exporter earning $1 billion per year, India’s per capita tea consumption is among the world’s lowest at approximately 800gm per year.

A Brief History and Current Challenges

India has been growing tea for more than 180 years, but it is not the oldest tea producer globally. The famous 1773 Boston Tea Party, which played a role in US independence, was triggered by Chinese tea sold in Britain’s American colonies. Additionally, India has not ventured into newer categories of tea, such as the trending Kenyan yellow tea.

Encouraging Small Tea Growers

The government has introduced promotional schemes and incentives to support small tea growers (STGs), who number just over 200,000 and have an average tea-growing area of about 2 acres. As a result, India’s tea production has grown at a rate of about 4% per annum over the past 15 years. However, the industry has experienced downward price pressures due to tea consumption growing by less than 2.5% per annum and stagnant exports.

Decline of Large Regulated Tea Growers

The number and acreage of large regulated tea growers (RTGs), currently standing at around 230, have either remained static or declined. The market share of RTGs has fallen from 60% to less than 50% in recent years, posing concerns for the Indian tea industry as a whole.

Reforms for Sustainable Growth

To ensure the sustainable growth of the Indian tea industry, four major reform imperatives must be addressed:

1. Outdated RTG Tea-Estate Model: The highly regulated RTG tea-estate model is no longer necessary and economical. Previous statutory requirements to provide labor housing, schooling, and various facilities on the estate itself are redundant since all villages and habitations are now connected with all-weather roads and have access to public schooling, healthcare, and other facilities.
2. Inefficient Tea Auction Model: The current tea auction model, which involves transportation of tea to a limited number of auction centers and cumbersome processes, is inefficient and costly. It adds approximately ₹7-10 per kg of cost to the tea sold and results in a large number of unsold odd-lots. Moreover, only about 40% of the tea is sold through tea auctions.
3. Lack of Standardization and Classification: The Indian tea industry lacks effective standardization and classification processes. While there are reportedly about 800 types of tea manufactured or sold in India, industry estimates suggest that there are only around 25-30 major tea varieties. Standardization and classification are essential for streamlining the industry and ensuring transparency.
4. Promoting Tea as a Health Drink: Instead of solely focusing on supply, attention needs to be directed towards creating demand for tea. Promoting tea as a healthy beverage can help drive consumption and expand the market.

Practical Solutions and Policy Changes

Certain ideas proposed by tea industry interests, such as implementing mandatory tea auctions and ensuring a minimum floor price guarantee for all tea produced, are not feasible. These ideas draw inspiration from the minimum support prices (MSP) system for foodgrains, which only works for bulk commodities like rice and requires government procurement. The tea industry lacks government procurement and deals with significant price differentials, making such ideas unworkable and impractical.

To address the challenges and bring about meaningful change, reforms should focus on:

1. Transforming the Indian Tea Act 1954 into a Developmental and Facilitative Legislation: The current regulatory framework needs to be replaced with a forward-thinking approach that encourages growth and development. Compulsory mandates, such as labor housing and mandatory sales through tea auction houses, should be eliminated.
2. Converting the Tea Board into a Consumption and Export Promotion Body: The Tea Board should shift its focus from regulatory functions to promoting consumption and supporting tea exports. This change will allow the industry to flourish without unnecessary bureaucratic interference.
3. Establishing Industry-Managed Voluntary Tea Auction Centers: The existing tea auction houses should be transformed into industry-managed centers, allowing tea producers to sell their products voluntarily by paying a fee. This approach eliminates the need for mandates and promotes voluntary participation.
4. Adopting Standards and Certification Measures: Agencies responsible for developing and codifying standards and certifications, similar to the Indian Standards Institution (ISI) and Agricultural and Processed Food Products Export Development Authority (APEDA), should be established. These agencies will ensure consistency, quality, and export readiness.
5. Promoting Global Sales Channels: Indian tea, meeting market standards, should have the flexibility to be sold through any marketing channel available worldwide. This includes direct sales, e-commerce platforms, tea auction houses, commodity exchanges, and others.

By embracing these essential reforms, the Indian tea industry can thrive. Implementing policy changes will not only benefit tea-estate workers through higher volumes, productivity, and prices but also position India as a leading global tea producer.

Disclaimer:

The information provided in this article is based on the latest Acts, Rules, Circulars, Notifications, Provisions, Press Releases, and other applicable material available at the time of compilation. We have diligently ensured the completeness and accuracy of the material. However, it is essential for users to consult the relevant legislation for specific guidance. Please note that the data provided may be subject to change without prior notice and should not be considered as professional advice. Estabizz Fintech holds no liability for any outcomes resulting from the use of this material.