Kanika Datta: The price of prosperity

SWOT

There is some excitement in the tea industry this year because prices are ruling high on the back of a 37 million kg shortfall in crop and a 20 million kg rise in exports.

But even as tea company executives celebrate this  recovery on the golf courses and bars in Kolkata's clubs, they would do well to look at a listing of the world's ten most popular tea brands. India is one of the largest producers and exporters of tea. Yet not one domestic Indian name figures on that list.

Minnow Sri Lanka, which has a far younger industry than India, not only overtook India as an exporter some years ago, it even has a brand, Dilmah, on the top ten list. And Dilmah emerged only in the last few years. It is only if you extend the search to the top 20 brands that you will find one Indian name""Girnar.

Of course, tea officials will point out that large quantities of Indian tea are used in the big brand blends such as Twinings, Lipton, and so on. But it is significant that, despite being a centuries-old industry, India has no major global brand of its own. That is why the  industry's fortunes continue to be so closely linked to the ups and downs of crop yields and prices. 

Part of the reason for the lack of a strong Made in India brand might be attributed to the fact that tea was primarily a British-owned business till Foreign Exchange Regulation Act (Fera) strictures forced the sterling companies to reduce their holdings or find Indian partners.  So many of the major brands that developed were British (Earl Grey or even Tetley, now owned by Tata Tea).

But it has been more than 30 years since Fera, yet Indian tea companies are largely commodity players in the global market (and principally so in the domestic one) and no foreign direct investor would dream of looking at this once glamorous business any longer.

Should this matter? Well, there is the well-known fact that strong brands help insulate corporations from price fluctuations, a fact that Tata Tea has well understood in its declared intention of exiting the plantation business.

More seriously, the stubbornly unchanging nature of the core tea business encourages a collective ennui that eventually leads to decline.

For an example, industry barons need look no further than jute, the crop that paradoxically contributed to the fortunes of many an eastern business house even as it declined inexorably and depressingly for lack of innovation in marketing and technology.  

Although the lifestyles of industry executives may not suggest it yet, tea has been in similar danger for at least a decade and especially once imports were freed.

Indeed, it represents a classic case of the dangers of lack of innovation encouraged by a spurious prosperity. Till 1991 the assured market from the USSR created a permanent artificial domestic shortage that kept prices high and tea companies affluent and tea stocks among the star performers on the markets.

Prosperity made the industry short-sighted. Innovations have been non-existent; CTC is an 80 year-old technology and there has been no major breakthrough to increase cuppage and make Indian tea more price-competitive.

Small wonder that troubles began once the Soviet Union disintegrated and Sri Lankan and Kenyan producers started aggressively muscling in on these markets with cheaper varieties.

Today, purists might jibe at the quality of Sri Lankan tea, but buyers who pour this stuff into their peach, mint, mango or instant tea offerings seem to have no problems.

Pure Assam and Darjeeling blends certainly do have a place in the markets, but India has done little to develop these marques the way the French have done with champagne or the Scots with their whiskies""or why, even as the basmati rice exporters have done in recent years.

The French and the Scots regularly cash in on their mystique as much as anything else; Indian tea corporations could well have done the same""as anyone who has visited a plantation will tell you.

But with an assured market, they never felt the need to take a hard look at long-term marketing; now, when it is time to really compete, the momentum might have been lost. Unless it looks at marketing in a creative way, the Indian tea industry might forever be condemned to celebrating shortages.