Southern tea industry in dire straits as prices tumble

Price falls by 21% in two years, rising input and labour costs squeeze producers' margins

The South Indian tea industry finds itself in a fiscal abyss, with its once-financial strength severely eroded over the past two years due to a steep fall in prices and a sharp increase in input cost and labour wages.
 
After a steep 15.48% fall in 2014, tea prices in the region, which accounts for 22% of India’s total production, have slumped another 7% so far this calendar year to average at Rs 80.42 per kilogramme. India's tea exports have also declined by 4.97 million kg to 107.92 million kg by July this calendar year as compared to 112.89 million kg in the same period last year.
 
India's tea output remained stagnant over the last several years at around 1200 million kg. North eastern states like Assam and West Bengal contribute a major portion of the remaining 78% of India's tea output.
 
"The tea industry is gravely concerned about the current price levels which had pushed the industry to a deep crisis," said Vijayan Rajes, President, The United Planters' Association of Southern India (UPASI).
 
"The financial strength of tea industry is severely hit due to steep decline in realisation and increase in cost of production. (The) Current crisis is comparable to the darkest phase in the tea sector during the beginning of this century,” said Rajes. “The industry was just about managing without any significant profits for the last many years."
 
The central government had in 2002 permitted foreign direct investment (FDI) of up to 100% in tea plantations, with certain conditions that were removed in 2013. However, no worthwhile FDI has flowed into the region, suggesting that the financial strength of the industry is not conducive to attracting foreign investment.
 
India's tea industry also faces stiff competition in terms of exports from other nations such as Sri Lank and Kenya which are more competitively priced due to lower production costs.
 
“Productivity has to increase if the tea sector in India has to survive and move forward. At the current price levels, plantations will have no option but to cut production costs by stopping all developmental works and cutting down on input costs which will in turn reduce employment,” said Rajes.