Indian Tea Association to present proposal for minimum floor price to govt

Trade body's members account for 400 million kg of tea production, 50 million kg by way of direct exports. The industry's total output was 1,258 million kg in 2020

The Indian Tea Association (ITA) is in the process of finalising a proposal for a “minimum floor price” for tea which will be submitted to the central government shortly.

About six months back, the ITA had engaged consultancy firm, Ernst & Young and law firm, Khaitan & Co, to analyse the industry and provide a roadmap for sustainability. The agency has suggested a proposal for a minimum floor price for made teas as well as green-leaf price benchmarked to quality.

“This proposal does not require any financial outlay from the state/central governments and ensures a self-sustainable model for all producers both small and large,” said Vivek Goenka, ITA chairman, at the association’s annual general meeting.

He added that the industry had the opportunity to present the initial paper to the Union Commerce Minister. Currently, ITA was engaging with other stakeholders and would be finalising the proposal before taking it to the ministry of commerce and state governments.

ITA members account for around 400 million kg of tea production and 50 million kg by way of direct exports. The industry’s total production stood at 1,258 million kg in 2020.

Goenka said that at the current production level, the estimated turnover of the industry is around Rs 22,000 crore. “If the industry is to survive, be in a position to meet the growing aspirations of the huge number of people dependent on it and provide a reasonable ROI to the investors, the total turnover of the industry has to increase substantially to Rs 35,000 crore,” he said.

This increase, the ITA chairman pointed out, cannot happen by way of further increase in production but rather by an increase in price.

“Without a price increase, neither can the tea producer sustain, nor make quality teas,” he said.

Earlier in the day, during a press meet, Goenka said that 50 per cent of the teas at auctions sell below Rs 200 a kg, which is below the cost of production of the organised sector.

Tea prices

Tea prices, according to Goenka, have not been compensating the rise in cost of production. In the last 10 years, tea prices have grown at a CAGR of 4 per cent while the CAGR of vital inputs increased between 9 and 12 per cent.

The pandemic had caused a sharp increase in prices in 2020, but prices dropped thereafter. In the last three decades, Goenka pointed out, the real price of tea in India (average auction price adjusted for inflation) has been falling reinforcing the need for a floor price.

However, he explained that a floor price for tea was not a minimum support price but a declaration of a floor price for teas sold in auctions.

Export challenge

Among the other challenges facing the industry was a drop in exports. Exports in 2018 had stood at 256 million kg and in 2020 at 208 million kg. In 2021, it is estimated to be around 180 million kg.

Keeping in mind the growing production in India we must target a volume of 350 million kg within the next 3-4 years to ensure that demand and supply is kept in equilibrium, said Goenka at the AGM.

Goenka believes that there is a case for continuation of Tea Board Orthodox Incentive Scheme. India’s orthodox/green tea production account for about about 11 per cent of global tea exports whereas global market share of orthodox/green tea is 60 per cent.

Assam Chief Minister, Himanta Biswa Sarma, who joined the AGM virtually, urged the industry to avail the Assam Tea Industries Special Incentive Scheme launched in 2020 which includes components like interest subvention on working capital, production subsidy for orthodox tea and subsidy for orthodox and speciality tea units.

The Chief Minister also said that the government wanted to help tea gardens in developing tourist resorts for tea tourism.