Indian tea: Overflowing cup of woes
By Indrajit Basu

KOLKATA - The giddily winding roads up the picturesque hills of Darjeeling, famous for what is often called the champagne of aromatic teas, leave one breathless in more ways than one. Every sharp turn leads closer to the majestic Himalayas. The hills are dotted with legends in the tea industry hall of fame - Makaibari, Longview, Castleton, Ambootia. The list goes on.

Today, India's 13,000-odd tea gardens, as they are called, with a work force of more than 2 million people, have made Indian tea the pride of the world in stores synonymous with luxury, such as Harrods. Yet, despite the misty winter in Darjeeling, as one passes the tea gardens, each with their famous nameplates affixed to the gate, most of those legendary names face trouble.

The industry says that multinational beverage companies like Coca Cola and Pepsi are drawing away Indian tea-drinkers. "The youth, for example, are seen as grabbing a bottle of soda rather than a cup of tea," said K P Charak, a tea planter adding that, "suddenly tea drinking is not fashionable anymore." In addition, exporters from Sri Lanka, Kenya and other tea-producing countries are aggressively going after India's markets as the country's tea exporters remain complacent.

Indeed, nothing seems to be going well for the domestic tea industry, the world's largest, with annual production exceeding 864 million kilograms. Whether it is in the famous Darjeeling, a district in the Indian state of West Bengal, or the Brahmaputra Valley of Assam, or the rolling blue hills of the Nilgiris down in southern India, India's tea industry is brimming over with woes, and with years of increasing cost and declining revenues, its growers are pushed to their limit.

While exports are falling in the face of increasing global demand due to aggressive exports of newcomers like Indonesia and Vietnam, as well as old rivals like Sri Lanka and Kenya, domestic demand is declining. All these factors are leading to sliding profit levels and a large accumulation of stocks for the industry.

To put it bluntly, the Indian tea industry is facing its worst period, the result of a reversal of fortunes that began four years ago. Demand in the 670 million kg domestic market has been inching up by only 2 percent a year on average. From 597 million kg in 1997, domestic demand for tea grew to just 668 million kg in 2003. Things aren't good on the global front either, where, at 184 million kg expected this year, demand for Indian tea has been declining at an average of 1.5 percent a year for the past five years.

This has meant softer prices, which have been declining for Indian tea since 1998, falling by 8 percent in the last four years. What is more, tea companies are selling tea at prices well below the cost of production. According to the India Tea Association (ITA), it typically takes $1.40 to produce a kg of tea that fetches an average price of $1.20 per kg.

"The Indian tea plantation industry is suffering terribly," says Chandrakant Dhanuka, president of the ITA. "So much so that the future of India tea has been put to question."

It was never like this before. In the years of its existence since 1788, when the legendary British botanist, Joseph Banks, reported to the British East India Company that the climate in certain British-controlled parts of northeast India was ideal for tea growing, Indian tea always had a smooth run. The British introduced tea as a beverage in India towards the latter half of the 19th century, but it took time to gain popularity until it was finally accepted as a beverage by the middle of the last century.

Alongside the large estates, native farmers took up tea planting. The small growers, as they came to be called, received a fillip in the 1960s when the state government set up an industrial tea cooperative to process the teas they grew.

A development in the 1980s which changed the face of Indian tea like never before was the surge in tea prices and the consequent expansion of land under tea following the opening of the export market to the erstwhile Soviet Union under a bilateral rupee trade agreement.

The tea boom peaked in 1990 and began slowing, although exports surged for sometime around 1996-97 due to international crop shortages, after the Soviet Union split up. It suffered a crushing blow in the 1998 Russian currency devaluation. The boom finally went completely bust in 2000 when, encouraged by increasing global demand, competing tea-producing countries like Sri Lanka and Kenya got aggressive in the global markets.

Eventually, although the price of Indian tea fell by 19 percent in 2000, the price of Indonesian tea actually rose by 14 percent. Kenyan tea prices rose by 14 percent and Sri Lankan tea by 8 percent.

But now, Indian tea faces other challenges as well - significantly from imports. Packed-tea sellers, local industry representatives say, started importing cheap, low-quality tea from neighboring countries like Nepal, Vietnam, and Indonesia, encouraged by the removal of quantitative restrictions of commodity imports in 2001.

Last year, at 22 million kg, imported tea accounted for more than 3 percent of annual tea consumption, up from 1 percent just three years ago. Some say that the tea industry remained complacent even as colas and sodas took over the market, and even traditional beverages like coffee were promoted into fashionable drink status.

Nevertheless, the industry is trying hard to bring back the good times. While the state-owned tea development authority - Tea Board - is trying to draft a road map for the industry, other industry associations like the ITA are trying a blend of different things. First, ITA is trying to address the glut by cutting production of end-season plain teas.

This, the industry expects, would reduce the tea crop by around 20 million kg. "Not only this move cuts the oversupply and helps in firming up of domestic prices," says Aditya Khaitan, director of Williamson Magor, a major Darjeeling tea grower and exporter, "it will also help improve quality."

The ITA and the Tea Board's other reforms include pushing tea consumption up by promoting the brew as a health drink. Already the industry is working on several countrywide campaigns to promote tea as a health drink. "What the campaign is doing is giving tea a public face as a generic product," says H R Khusrokhan, managing director of Tata Tea, the largest tea company. "This fact has been neglected for too long. It is essential that tea gets recognized as a healthy and refreshing drink with the trappings of a gracious lifestyle."

But skeptics say, even as such initiatives may work, they're hardly a panacea. In the global market, particularly in high-value markets like the United States, Japan, the United Kingdom and the rest of Europe, India's competitors - Sri Lanka and Kenya - rule the roost. In fact Indian tea comes in a lowly third as a preference in such markets, say analysts, adding that unless the industry can chip into those markets, the future looks bleak for exports.

Nevertheless, there could be a silver lining. A recent issue of Harrods Catalogue listed a price tag of 50 stirling for a 125 gram pack of Darjeeling and Assam teas. Things surely could get better for the Indian cuppa.

World exports (million kilograms)
(Source: Indian Tea Association)