Women workers plucking tea leaves at an estate in Darjeeling. The tea industry is a massive employment generator for women, but stagnant wages for the last many years have become an issue of discontentment
It’s easy to lose track of time in Darjeeling. The beautiful weather, sunrise over Kanchenjunga, easy going people and, of course, acres and acres of tea gardens, can make you forget the purpose of your visit to the Queen of the Hills. But we were determined; determined to find the reasons behind falling tea exports from India. And we figured that the trend can reversed. Quite easily.
Neha Dewan | The Dollar Business
A leaf is like your daughter. If you treat it harshly, it will wither. Did you see any harsh handling here? It’s all done with a certain amount of love and emotional attachment, which makes the leaves bloom beautifully,” Sanjay Das, Manager, Makaibari Tea Estates, one of the oldest tea gardens in Darjeeling, explained with a glint of pride in his eyes, while taking us through the various processes at work at the Makaibari factory. Home to some of the most expensive tea, every step of tea production at the Makaibari factory, right from withering and rolling to fermentation, drying and sorting, have clear instructions tabled in Nepali and English for those at work. “We don’t want to leave any room for ambiguity,” Das added. He ensured a steady supply of black tea, as we sat down for a detailed chat. “Even if you are not a tea drinker, it will not take you long to become one,” he chuckled confidently.
In the blood
Das’ words find favour in Indian tea statistics, which show increased leanings towards domestic consumption. For, though India is the world’s second biggest producer of tea, accounting for almost a quarter of global production, it is only the fourth biggest exporter, accounting for just 1/8th of global exports. The reason? Look no further than your kitchen. Other than the millions of gallons of tea we Indians gulp down every year, a reason for India’s tea exports declining for the last couple of years is crop losses in some of the high value tea producing places in the country, like Darjeeling. “Crop loss has been huge. Production has declined, sales are down. We can’t do anything to offset this loss. In fact, profitability has been coming down over the last 3-4 years. The market has become very competitive, with too many people, offering too many varieties,” Girish Sarda, Partner, Nathmulls Tea, one of the more respected Darjeeling Tea brands, told The Dollar Business.
Gift from the East
Bulk of India’s tea production takes place in Assam Valley; and in Dooars, Terai, and of course, Darjeeling, in West Bengal. Although tea is also produced in Tamil Nadu, Kerala, Karnataka and several other states, their quality is inferior and they command a significant discount to that produced in North India. In fact, in FY2014, South Indian tea prices were, on an average, 40-45% cheaper than that of North India.
In terms of tea consumption, CTC (cut, tear and curl) tea, within the black tea category, constitutes bulk of the market. Its making is a more complex process than that of other varieties and involves the use of machines to process tea leaves, which results in the tea liquor ending up looking much thicker in appearance. The other popular variety of black tea – orthodox tea – is processed by hand, to get whole leaves, and is considered superior in quality. While CTC, which is less expensive than orthodox tea, is majorly exported to countries such as Egypt, Pakistan and UK, the latter finds more of a market in Iraq, Iran and Russia.
Meticulous
Usually, the manufacturing process for black tea starts with plucking, wherein the plucked leaves are collected in bamboo baskets without being overloaded. This is followed by weighment, wherein each plucker gets paid as per the quantum of leaf plucked. Then withering takes care of the excess moisture content in the green leaves and this period can last anywhere between 18-24 hours. Once sufficiently withered, the leaves tend to have an aroma. Post this, is the process of rolling, wherein the withered leaves get rolled under a bit of pressure between metal plates. This is followed by the fermentation process, which helps to develop the aroma and essence of tea and can take anywhere between 30 min to four hours. These leaves are then dried for approximately 20-25 min at a temperature ranging 240-250 degree Fahrenheit (115-120 degree Celsius). Sorting or grading then follows and is done by sorting machines before the packing process, in which the different grades of tea are packaged carefully for shipment.
Commonly, in Darjeeling, you will also come across the various flushes of tea, which tell us about the tea growing seasons in the district. While the first flush typically come in between mid-March and May, the second flush come in around June, while the third flush, also known as the autumn flush, come in November-December. Similarly, while the first flush is costlier due to its small produce and is light and aromatic, the second flush brings the special flavour of Darjeeling to the fore.
Too hot
Falling exports mean that the Indian tea industry, particularly that in Darjeeling, is not going through an easy time. Only those who are adapting to the times, are expected to stay afloat. Subrata Das, Deputy Manager, Happy Valley Tea Estate, Darjeeling, feels buyers are continuously expecting the quality of their tea get better. “In the current cut throat scenario, only those who produce quality tea can survive and grow,” he told The Dollar Business. He explained how crop loss has only made things worse and said, “Despite the crop loss last year, we have not received any subsidy from the government. It’s putting immense pressure on us.” The Happy Valley Estate, which was established in 1854 and is the oldest tea estate in Darjeeling, sprawling over approximately 437 acres of land, produces around 50,000 kg of tea annually, almost 95% of which is exported, primarily to UK, Germany and Japan. Just how superior the estate’s tea is can be gauged from the fact that as compared to a national average auction price of just $2.3/kg, Happy Valley tea is priced in the range of $60/kg and $400/kg. Yes, Darjeeling Tea fetches that kind of premium.
Black beauty
When it comes to Darjeeling, it’s all about the traditional black tea. And Sidhant Prakash, CEO, Glenburn Tea Direct, feels that’s because of Darjeeling’s soil. “Our strength lies in black tea and I think that will always be the case,” he told The Dollar Business. But that’s bad news because the buzz now is around green tea, the demand for which, according to reports, is growing at 50% y-o-y. Validating this, Sarda of Nathmulls Tea, said, “The hype is green, though black is selling more. This is due to the rising consumer consciousness to move towards a healthier life.” Not surprisingly then, green tea, which finds its origin in China, is increasingly vying for a larger chunk of the market share in India. And catering to this demand, FMCG majors such as Hindustan Unilever and Tata Global Beverages have launched innovative variants to attract consumer fancy.
Back breaking
Other than crop loss and rising popularity of green tea, are there other hindrances that the Indian tea industry faces? Of course, if you go by industry insiders in Darjeeling. Das, of Happy Valley Estate, feels rising wage rates are adding up to overall cost. “If the government can give us some support in providing housing, ration and medical facilities to tea plantation workers, it can be of big help,” he told The Dollar Business. Others say that unless a more regimented management and worker structure is institutionalised, issues will continue to impact the tea industry. “The management and workers are the main stakeholders of tea gardens and they are always at tussle. The yields are terrible. Unless workers become partners, no solution can be permanent enough,” Rishi Saria, Director, Gopaldhara Tea Estate, told The Dollar Business.
Being labour intensive, the Indian tea industry is a massive employment generator. But wages have been low for years, if not decades. Ask 28-year-old plucker Dipika Bhujel, who has been working at the Makaibari Tea Estate for the last 8-9 years. Though she is reticent in mentioning the state of wages in the industry, the plans that she has in mind for her children’s future outlines it all. “I like my job and being in a fresh environment is something that keeps me going. However, I will not encourage my children, who are studying in a convent in Kurseong, to join the tea industry when they grow up,” she told The Dollar Business.
For freshness
To address the issue of low wages, estates like Makaibari have started home stay options at their estates, which are open to tourists, students and foreigners, and act as an additional source of income for their workers. Priced at Rs.700/night, home stay allows a guest to stay at the house of a tea worker and be home to the local cuisine, as well as closely experience all the activities at the tea garden. 70% of the money from the home stays go to the tea worker’s family, with the remaining 30% collected for the purpose of community development.
However, such measures are far and few and one is sure that more needs to be done to create a congenial and financially rewarding atmosphere for a workforce that is struggling to survive in this industry. A more amalgamated effort, to increase productivity and pump in more government incentives that can scale up the overall profitability for the tea industry as a whole, is the need of the hour.
Similarly, from an export stand point, better and more focused marketing strategies, improved quality controls and product diversifications can help in commanding a premium. Additional incentives to exporters by the government can play a significant role in scaling up reduced margins, thereby making it a more lucrative business and giving a much needed fillip to India’s exports of the darling beverage. Given that the per unit price of India’s tea exports have remained stagnant for the last years, and sanctions on Iran, one of our main export destinations, are being eased, these steps are needed to be taken with utmost urgency.
“Darjeeling tea is known as the champagne of teas” - Sidhant Prakash, CEO, Glenburn Tea Direct
TDB: How have you benefitted from Darjeeling Tea’s Geographical Indication (GI) status?
Sidhant Prakash (SP): It has properly come into effect only in the last two years. The reason we needed the GI is because against an annual production of 9 million kg, about 40 million kg of Darjeeling Tea is sold all over the world! Until now, what was happening was that people were taking a little bit of Darjeeling Tea, blending it with other teas, and then selling the entire quantity as Darjeeling Tea. So, people were using the Darjeeling brand, but selling other content. This is why the GI was important.
This has created a different problem. As a result of the GI properly coming into effect, people, who were earlier buying Darjeeling Tea just to make their blends, have switched to Nepalese tea and are calling the final product Himalayan Blend. So, the demand for Darjeeling Tea from smaller players has gone down, leading to depressed prices. But I am hopeful that things will correct in the future and prices will go up.
TDB: In what way(s) are you trying to increase your exports? Are you targeting any new market?
SP: We offer most of our tea in the auction market as we don’t have established buyers because of being a relatively new company. Established players have tie ups with companies all over the world, who buy from them every year, at a price that works out for both the parties. But we had been relying on the traditional market for some time and have been suffering because of that. Hence, things were looking bleak for us as a single estate owner. Our entire focus is now to directly find customers in export markets across the globe. This, so that we are not completely dependent on the traditional supply chain.
In this direct selling strategy, results have been slow and volumes are tiny at present. But hopefully, in the next 3-5 years, we should be able to increase our export volumes. Our target is to increase our exports by 40% in the next three years. It’s not an easy target, but is achievable.
TDB: Do you think Darjeeling Tea has become a commodity? How are you trying to stand out in the crowded global tea market?
SP: Darjeeling Tea is known as the champagne of teas. It has got a certain mysticism to it. It’s a very well-known brand and everyone knows about it. But as a region, we are not doing enough to market ourselves. One brand, which is marketing itself properly is Ceylon Tea. Then there is Dilmah Tea, another Sri Lankan brand. As a country, Sri Lanka has done a very good job in marketing its tea brands. Tea accounts for about 30% of their GDP. I remember when I was at a trade show in Paris, several people came up to me and enquired about Ceylon Tea. That’s when I realised that they have beaten us hands down when it comes to marketing.
With Glenburn Tea, we are trying to market Darjeeling Tea as the champagne of teas. It’s the undisputed No.1 when it comes to black tea. And that’s our primary approach to stand out in the market.
TDB: Tell us about the current consumption patterns when it comes to tea, both in India and globally.
SP: There’s a huge movement in the tea market. People are moving towards green tea in massive numbers. Probably, everyone has understood that green tea is healthier. Hence, demand for it is growing very at a very fast pace. People in India mostly consume the milk and sugar tea. But you don’t need to add milk in Darjeeling Tea. Maybe that’s why even within India, not many are acquainted with Darjeeling Tea. So, we also want to become a brand within India that can supply Darjeeling Tea to Indians.
TDB: What kind of premium does Darjeeling Tea command in international markets?
SP: Premiums can range anywhere between 30% and even 1,000%. So, it’s very hard to give figures.
“We ensure that the tea board’s guidelines are followed in auctions” - Manik Chand Lohia, MD, Tea Champagne Pvt. Ltd. & Governing Body Member, Siliguri Tea Auction Committee
TDB: What value do tea auction houses like Siliguri Tea Auction Committee (STAC) provide? Do they help exports in anyway?
Manik Chand Lohia (MCL): STAC’s function is to monitor the sale, and ensure that it is in line with the guidelines of the Tea Board of India. The Tea Board of India has framed certain rules, as per Tea Act, 1953, which have to be followed. An auction committee is also a licensee of the board and is there to just monitor. We have no role in exports. That is facilitated by brokers. A broker sources tea from the garden and sells it in the auction system, where it can be bought by any buyer member.
TDB: There are reports that several companies are moving away from auction centres and choosing to directly source from tea estates. Is this true?
MCL: No. There are a few buyers who want to buy tea directly from the garden, but not all. And the reasons for this are: (a) in the auction system, there is cash and carry, but in the private market you can buy on credit; (b) when the demand is more and the demand is not fulfilled at the auction, then one has to buy from the private market; (c) while buying directly from estates leads to quicker supply, in the auction system one has to compete with many buyers. But, despite all these factors, more than 50% of the tea is still sold through auctions.
TDB: Is only tea produced in West Bengal auctioned at STAC or is even Assam tea auctioned here?
MCL: Assam tea is also auctioned here, but only in small quantities. Mostly, tea produced in West Bengal gets auctioned here. Now, even some Bihar tea is coming here for auctions. Assam tea mostly goes to export markets, so they don’t send it to Siliguri. They have apprehensions that they might not get a good price here.
TDB: Which parameters influence bidding rates of tea? Do industry players indulge in cartelisation here?
MCL: No, cartelisation is not possible, since ours is an online system, in which the buyer’s name is not disclosed. It is a transparent and competitive system. It is controlled directly by the Tea Board of India. Irrespective of whether one is an exporter, a blender, or a retailer, bids are made depending on your demand. Most buyers first taste the tea and then put their bids. What is the value of a certain variety of tea is decided by the buyers themselves. Buyers know the valuation of the broker, but not the reserve price. So, he can bid at any price he wants.
There are four types of buyers. There are packeteers, who buy tea, blend it and then sell it in packet form. Then there are exporters, their buying depend on the country they want to export to. The third type of buyers are blenders like Tata Tea and Hindustan Unilever. And then finally, there are retailers.
TDB: Tell us about the tea tasting process. How important a role does it play in valuing tea?
MCL: Tea tasting is main process. A good taster will find out what is a good ‘keeping value’ of the tea he is tasting, since that is also dependent on the season. First flush teas have less ‘keeping value’ – they will have the aroma, flavour and taste for only one or two months. A tea taster’s role is very significant. His judgement is based on experience and palate. Tea gets points for leaf appearance, cup colour, taste and infusion.
TDB: Help us understand the different tea mark codes at STAC. How are the premium varieties like Kumargram distinguished from the rest?
MCL: Tea mark codes are given on the basis of appearance and taste. So, there are three things (a) leaf, (b) liquor appearance, and (c) infused leaf. For infused leaf, again, there are three criteria – appearance of the leaf, (b) appearance of the cup, and (c) taste and the infusion. If infusion is good, it means the tea can be preserved for long, its quality will not deteriorate. This is only one aspect. So, the buyer sees all this and evaluates the price accordingly. STAC’s role is only monitoring and keeping records of the tea that comes in and gets sold. It’s the buyer who tastes the tea and finds out their worth. Sometimes if the buyer is not sure, he takes help/directions from established buyers.
TDB: Do you have adequate infrastructure? What are the main challenges for the tea industry? What government support would help India’s tea exports?
MCL: Availability of labour is an issue for us. There is a paucity of managerial staff too. The tea industry is not getting managerial staff because no one wants to go to the garden. Any intellectual, with a bit of knowledge, will not go to the tea estate. Managers’ salary, today, with 10-15 years of experience is, on an average, Rs.10-15 lakh per annum. And they have to stay at a remote place. Their children have to study in good schools in other states and the cost of education is very high. The salary does not meet these expenses. Secondly, you have to fight with thousands of labourers on a daily basis. You have no place to socialize. You get confined within the estate. On top of all this, there is no respect for the manager. The labourers are not cooperative. So, why would anybody take up this job?
If the tea industry has to survive, we have to produce less quantity. Now, we are producing more than 1,200 million kg and our consumption is about 900 million kg. So, we have a surplus of 300 million kg, out of which, we are exporting 180-200 million kg. The remaining 80-90 million kg is carried forward. For the survival of the tea market, we have to produce only what we need or export more. So, either we need to increase the demand or decrease the production. This is the economic formula. Price will then arrive at an equilibrium, based on demand and supply. And to create demand, we have to make good tea. In India, people are shifting to cold drinks and coffee. Why? It’s because people do not like tea. Moreover, we need to give incentives for value added tea exports in order to remain competitive.
“Strict GI checks have seen a fall in demand from blenders” - Girish Sarda, Partner, Nathmulls Tea
TDB: Darjeeling Tea is a Geographical Indication (GI) – the first one in India’s GI registry, approved in FY2005. What difference has it made to exports?
Girish Sarda (GS): A certain amount of check has come in, not in a very big way where we have been able to check the entire spurious stuff going out, but yes, there is a check. What I feel is that maybe over a period of time, maybe in 5-10 years, we will be able to check quite a bit. It is a good headway for sure. But it is a half-hearted step. The government needs to check on everything, as far as tea sold as Darjeeling Tea is concerned. You have to check at all levels. Nepal Tea, for example, is a very big problem for us because it has got similar characteristics. Hence, they get mixed up with Darjeeling Tea. So, the government needs to implement policies that will stop Nepal Tea being used as Darjeeling Tea. But the situation is definitely better. Today, if someone wants to export Darjeeling Tea, he/she has to produce a certificate, which is issued by the Tea Board of India and can definitely not be manipulated.
TDB: Besides ensuring strict adherence of the GI, what else the government needs to do to help the industry?
GS: Tea exporters should be provided with tax benefits. Earlier, income on exports was not taxed. But in the last 5-7 years, even export income is taxed. So, there is no real incentive to export, except for a small duty drawback. Special credit facilities from the Tea Board of India, wherein we can get inexpensive loans, and access to international trade fairs, are two things that would help.
TDB: What kind of premium does Darjeeling Tea command in international markets?
GS: It is the best tea in the black segment. When you say Darjeeling Tea, you are referring to its aroma and flavour. It does command a premium, since people want it. It is a very strong name. The GI is also very important. If the government can be strong enough to check all the spurious stuff, this brand will become even stronger. It’s like Scotch Whiskey – no one can play around with it. Scotch Whiskey is also a GI product and their government has been able to check all spurious stuff in its name in a big way. The same can also be for Darjeeling Tea.
TDB: Why is it that only about 1/5th to 1/10th of the total tea imports of top importers like Russia, USA and UK are catered to by India?
GS: Cheaper tea coming in from Kenya and other places is a reason. Kenyan tea is sold at lower prices and, hence, gets readily picked up. One reason for not being able to cater to the huge demand is that our cost of production is high. So, we need government support very badly.
TDB: Since sanctions are being eased against Iran, will India’s monopoly in the Iranian tea market be affected?
GS: India has to become more competitive as this monopoly is bound to get affected. We don’t export to Iran, but a lot of Kolkata-based exporters export to Iran in huge quantities. So, their margins will, probably, come down. If you are exporting to Iran, you have to become more competitive, because now others will be offering them the same kind of tea at cheaper prices.
TDB: Of the top five tea exporters of the world – Sri Lanka, China, Kenya, India and UAE – why is India’s per unit export price the second lowest?
GS: There are several reasons for this. Sri Lanka, for instance, is value adding a lot. We are not value adding. The packaging of their tea is amazing, and increases the value of their exports.
TDB: Tea exports are entitled for just 1% duty drawback. Do you think this is enough?
GS: Nothing is ever enough. Thanks to drawback, at least something is coming back to us. But since it is a very small amount, we don’t even claim it as claiming it is a big headache. It is not worth the effort. If it’s higher, then we would definitely like to claim it. But, I am sure, it will never go beyond 2-3%.
TDB: What kind of tea consumption patterns are you currently seeing in the domestic, as well as the export markets?
GS: There is huge demand for Darjeeling Tea within India. Currently, my sales are 60-80% exports and 20-40% domestic. But domestic sales are growing faster. There is increasing consumer awareness within the country. The hype is green tea. Darjeeling, though, is traditional black tea. Both these segments are growing. White is in the premium segment, since it’s a rare kind of tea.
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