Indian Tea Association suggests floor price for hit growers
Following a rise in production costs and poor realization, which has caused financial hardship for tea growers in West Bengal, particularly in Darjeeling, the tea industry has proposed to the Ministry of Commerce the establishment of a floor price for green leaf (payable to small tea growers) and made tea (payable to tea producers) that is indexed to the cost of production.
Because the Indian tea market has been unable to address the low price cycle, the Indian Tea Association (ITA) stated that instituting a floor price would be an immediate solution to address the uncompetitive price of tea at no additional cost to the government. This has already been done by the government for sugar.
The West Bengal government’s Commerce and Industry Department has supported the proposal to introduce a tea floor price and has written to the Union Commerce Ministry requesting that the floor price proposal be considered favorably. According to an ITA release, the Assam government has also expressed its support for the proposal and has asked the Ministry to grant it in-principle approval.
Tea prices are uncompetitive
The West Bengal tea industry, particularly Darjeeling tea, has been experiencing a severe financial crisis in recent years, with tea prices failing to keep pace with rising production costs. West Bengal tea prices have grown at a CAGR of around 4% since 2014, while vital input costs such as coal, gas, MOP, and sulphur have grown at a CAGR of 9-12% during the same period.
Darjeeling tea auction prices have been lower than the overall West Bengal average price, with a CAGR of only about 2% since 2014. Given that the cost of production in the Darjeeling hills is significantly higher than in the plains, the majority of tea estates are struggling to stay in business.
‘There is an urgent need to mitigate the escalating costs to ensure the tea industry’s continued sustenance,’ the release stated.
Weather conditions that are unfavorable
The new tea season 2023 has not started well for the West Bengal industry, with unfavorable weather conditions affecting crops in several tea-growing pockets in the Dooars and Darjeeling. Many gardens in North Bengal have reported widespread hail damage to their second flush crop.
Although official Tea Board data for March is still pending, according to available ITA membership crop data, the Darjeeling crop is expected to be down 39% in March. Crop decline has also been reported in several Dooars pockets.
‘Against the backdrop of stagnant prices and increasing financial stress among tea producers, the ITA is deeply concerned by newspaper reports suggesting that the West Bengal government may increase wages of daily rated tea plantation workers.’ This move will exacerbate tea producers’ financial stress and render tea estate operations unviable, according to the release.