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Why is India’s tea industry in crisis?

  • Category
    Economy
  • Published
    3rd Dec, 2022

Context

During the Annual general meeting of the Indian Tea Association (ITA) in Kolkata, the Tea Board of India sought a special financial package of ?1,000 crores from the Centre for the tea Industry over five years.

  • This package is allocated for the industry to make the tea crisis sustainable for small and marginal tea estate owners.

About

India’s Tea industry:

  • In India, tea is cultivated in almost 15 states, of which Assam, West Bengal, Tamil Nadu, and Kerala are the major tea-growing states, accounting for nearly 98% of the total production.
  • India is also known for producing some of the finest teas in the world, like the Darjeeling, Assam, Sikkim, Nilgiris, and Kangra tea varieties.
  • However, India’s tea exports declined marginally to around 196 million kg in 2021 from 210 million kg in 2020.
  • Small tea growers (STGs) and industry stakeholders fear the news of the tea consignments being rejected in the international market may further hit the Indian tea sector.
    • According to available data, about 52% of tea in the country is produced by STGs.

Darjeeling Tea, called the ‘Champagne of Teas’, was the first Indian product to get the GI (Geographical Identification) tag in 2004 for its distinctive aroma and flavour.

The Reasons for the decline in Tea Industry:

  • Drop in Production of Tea per Hectare: The average yield per hectare of Darjeeling Tea, according to ITA, is about 350 kg at present which was about 542 kg in 2000.
    • The yield per hectare in the foothills, particularly the Dooars region, is about four times higher than the Darjeeling tea gardens.
  • Monopoly of Big Tea Estates: Industry experts point out that an average tea garden in Darjeeling is about 150 hectares whereas those in the foothills vary from 400 to 500 hectares.
  • Less Price in Auctions: Planters have also been complaining about the stagnant prices of the auction of Darjeeling Tea, which in 2021 was on average pegged at ?365.45 per kg.
  • Reduced growth rate: According to the ITA, prices of Darjeeling Tea in the last six years have grown at a CAGR (cumulative annual growth rate) of only 1.7% against an increasing cost of input between 10% and 12% CAGR.
  • Reduction in Demand for Indian Tea: Global factors like the decline in demand from European markets in the wake of the Russia-Ukraine war have compounded the problem.

Other emerging Issues:

  • Lack of Quality checks mechanism
  • Duty-free imports from neighboring estates like Nepal
  • Competitive markets (In 2020 alone, Sri Lanka exported $1.27 billion worth of tea and remained the world’s top five exporters of the commodity)

Suggestive Measures:

  • The Standing Committee of Parliament has recommended that the Government review and revisit the Indo-Nepal Treaty for incorporating stringent requirements for a certificate of origin on tea imports from Nepal.
  • The committee suggested that Small Tea Growers (STGs) should also be recognized as GI-registered producers on a par with the 87 tea estates which produce Darjeeling Tea to ensure better price premiums.
  • Industry experts called for raising the domestic consumption of tea in India, particularly when exports are not picking up.
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