Plantation firms take leaf out of Tata Tea book

The Tata Tea model of exiting plantations and marketing beverages is gaining acceptance among medium-sized plantation companies.

Gouri Prasad Goenka, chairman, Duncans Industries, expressed serious doubts over the long-term viability of owning tea gardens. He said, "I am extremely bearish about tea gardens. Left to myself, I would exit plantations."

He felt Tata Tea's strategy was the only viable model. Duncans, which produces around 15 million kg of tea, has a cause for concern.

Despite the expectation that the current year would be one of the better years for the business on the domestic front "" on account of the drought in Kenya, the prices have not seen a steady bullish trend.

Besides, the labour cost, which accounts for 60-65 per cent of the total production cost, is proving to be a drag on bottom lines.

Even FMCG majors agree. Hindustan Lever, which has got out of the tea plantation business, said the move made sense. A company spokesperson said there were very little synergies between the plantation division and the packet tea business.

However, Aditya Khaitan, managing director, McLeod Russel India, the world's largest bulk tea producer with a total production of 70 million kg, bets big on plantations, even as the company is growing its branded tea business.

Khaitan said, "Our unique selling proposition has been plantations with a consistent domestic and global market."

McLeod Russel's acquisitions of William Tea Assam from the Magor family and Doom Dooma Tea Company from Hindustan Lever were focused on consistent quality and the global opportunity.