Background

Tea is one of the most popular, lowest cost and second most consumed beverages in the world. Today, India is the second largest global tea producer right behind China. In the last few years, the tea production of Kenya, Sri Lanka, Vietnam, Turkey and Indonesia has also been significant from the global perspective. Figure 1 depicted worldwide tea production by leading countries from 2010 to 2019. In India, a total of 1390 million kilograms (mkg) of tea was produced in 2019. This increment of 51 mkg marked gain of 3.82% which was highest ever production so far for India. This is mostly due to small tea growers (STG) segment accounts for almost 36% of the India’s total tea production in 2014. The Tea Board of India defines STG as a person who has a tea cultivation of up to 25 acres but presently most growers own less than 2 acres of land. But it has been reported that the share of STGs has increased to 49% during April to August, 2019 (lsifinance.com). However, the increased production has outstripped domestic consumption which sometimes led to stagnancy in the market. This resulted mismatching between production cost and the average price realization. World tea production has increased at an average annual growth rate of 4.4% over the past decade to reach 5.812 million tons in 2019 (statista). The global tea production has increased at a CAGR of 2.97% between 2014 to 2018. China has always been in number one position and production share of China used to be 40.23% in 2014 increased to 44.67% in 2018. The share of India which used to 23.18% in 2014 decreased to 22.4% in 2018.

Figure 1  Worldwide tea production by leading countries from 2010 to 2019 Source: Tea Board of India (www.teaboard.gov.in); nationmaster (www.nationmaster.com); statista (www.statista.com)

India is home of CTC (Crush, Tear and Curl) tea, whole leaf orthodox tea, green and organic tea. Unlike other many tea producing nations, India has a manufacturing base for both CTC and orthodox tea in addition to green tea (Figure 2). CTC became the dominate type of processed tea in the major exporting countries of Kenya, Sri Lanka and India. Orthodox production is comparatively more expensive and labour intensive than processing of CTC teas. India offers high-quality specialty teas, such as Darjeeling, Assam Orthodox and the high-range Nilgiris, which have a distinctive aroma, strength, colour and flavour. The orthodox teas are in general found to be expensive compared to CTC type. Standard Assam orthodox can be priced as INR 600/kg which is almost double the price of CTC tea. Presently, green tea is becoming popular particularly in the cities and suburbs.

Figure 2 Processed grades of Indian teas

The main tea-growing regions are Northeastern (mainly Assam) and in north Bengal (Darjeeling district and the Dooars region). Tea is also grown on a large scale in the Nilgiris in south India (Figure 3). Assam is the largest tea producing state of India and the largest tea producing region of the world. Approximately 52% of the Indian tea and nearly 11% of the world tea produced comes from the state of Assam. India topped the world black tea production table with Kenya following at a distant second and Sri Lanka third thereafter. The world black tea output rose to 2,290.5 mkg in 2019 from 2,266.8 mkg in 2018. This increase of 23.7 mkg marked a growth of 1% (www.globalteadigest.com) only despite Kenya and Sri Lanka producing lower output. 

Figure 3 Tea production volume across India in 2019 by states

1 Consumption Pattern

Tea has always been the most favourable drink and act as a fuel that drives the majority of India’s billion-plus inhabitants. Per capita consumption of tea in India, China, other producing countries of Asia and Africa has continued to increase over the past 10 years. India is one of the world’s largest consumers of tea and 1090 million kg (19% of the world tea) of tea consumed in 2019 (Figure 4). From roadside shack to high-end mall, a cozy corner can be found out with this drink in hands. Mainly due to urbanization Western and Southern states show higher percentage of out of home consumption in comparison with North, Central and Eastern population. The Economic Intelligence Unit (EIU) reported the average tea consumption globally stands at 35.1 litres/ person—higher than carbonated beverages (30.6 litres) and coffee (21.1 litres)—and has been growing steadily in recent years (gfs.eiu.com/product/tea-forecast). EIU further confirms that the Covid-19 outbreak “…affected consumption in the out-of-home sector, but there is evidence that this has been more than offset by rising at-home consumption.” EIU estimates global tea consumption increased by a “modest” 1.5% in 2020, “but that will pick up pace in 2021-22 growing by 2.8% and 3.5% respectively”. Global consumption of tea was 281 billion liters in 2019 and is forecasted to reach to 297 billion liters by 2021 (Figure 5). India and China, two major producers and have huge consumer markets, and retained more than 70% for home consumption (Balasundaram, 2015). As per EIU report, China is now accounting for drinking I kg/head/year and 40% tea produced in the world. There is still untapped demand. The other major producers like Kenya and Sri Lanka, however, sell their 90% produce to third markets since they grow tea as an export revenue crop. Despite having a strong tea culture in India surprisingly per-capita consumption of tea is lower in comparison with different European and Asian countries. India’s per capita consumption is 786 gram/year only against 3.2 kg in Turkey, 2.4 kg in Libya, 1.68 kg in the UK and 1 kg at global level. The consumption rate in India has increased at a CAGR of 2.95%. According to EMR report, nearly 1.10 million tons of tea consumed in India during 2019 and expected to attain 1.40 million tons in 2025 (https//:www.expertmarketresearch.com/reports/Indian-tea-market).

Figure 4 Consumption volume of tea in India from financial year 2014 to 2019 Source: Tea Board of India, statista

Figure 5 Worldwide annual tea consumption from 2013 to 2021 Source: Tea board of India; Indian Tea Association (ITA)

Although there is a high awareness of tea across India, but the quality of tea consumed in majority areas is unfortunately quite low. The reason behind this low price/low-quality preference is that tea is perceived by most as an essential daily consumption product and not a sybaritic or pleasure-seeking item. However, taste and strength of liquor are important factor in rural India. Chandrakumar et al. (2012) analysed the buying and consumption behavior of tea in Coimbatore, India. They observed good taste (82.67%) was the most important factor considered in rural and urban areas while purchasing tea followed by flavour (64.67%) and brand name (51.33%). Globally, strong taste, brand and smell are the prime factors for purchasing tea (Figure 6). The consumers of both urban and rural India are switching from unbranded tea to national and global brands since spendable incomes are rising. The market share (by value) of leading manufacturers in India are depicted in Figure 7. Tea found in India is categorized into 3 types namely Assam tea (highest cultivation), Darjeeling tea (Superior quality tea) and Nilgiri tea (subtle and gentle flavors).  Now a day’s youngsters in India prefer their tea cold and with exotic flavors – obsession for green and black tea for the health benefits, has led to some of the best innovations. Today, people beat the heat and chill in the winters with different flavored tea (www.indianchamber. org/sector/tea). 

Figure 6 Consumers (%) considers factors while purchasing tea from the market Source: statista

Figure 7 Market shares of leading tea manufacturers of India Source: BASIC, ET Bureau

Recent study of Tea Board of India revealed some fascinating consumption patterns among Indian tea drinkers. These are:

• About 80% tea drinkers in India consume it either with or before breakfast.
• The West Bengal, Eastern state have a remarkably high tea consumption when compared to other Indian states viz. Maharashtra, Uttar Pradesh, Gujrat, Rajasthan, Madhya Pradesh etc.
• In India, 64% of homes where 96% of the family members residing therein tea is regularly consumed.
• More than 80% Indians prefer their tea with added milk. Addition of ginger therein is one of the key trends. Green tea and lemon tea are the popular choice for non-milk drinkers.
• About 70% of Indians prefer buying tea from local grocery store.

• In the cities there is an increase shift of preference of consumers from loose to packet teas.

India’s lower-income consumers particularly in the Eastern and Southern states offer a considerable market for loose tea, which is a typically priced below branded and bagged equivalent. It has been observed that the average price of tea was highest in Mumbai as compared to other major cities in March 2019 (Figure 8). One kilogram of loose tea was valued at INR 270 in that month. In comparison, the Kolkata retailed at INR 140 in the same month. However, the national average price was INR 209 (statista). India sees routinely annual increase in its production (Figure 1) and usually when production increases cause fall of price but the same has not been the case due to the rise in domestic consumption (Figure 4). Further, the Wholesale Price Index (WPI) of processed tea of India was 163.61 in September 2020 which was 19% increase from the base year of 2013. The increment of WPI was inconsistent over the years (Figure 9).

Figure 8 Average retail price of tea in India in March 2019 by major city Source: statista

Figure 9  Wholesale price index of tea across India from financial year 2013 to September 2020 Source: statista and www.ceicdata.com

FAO/IGG Tea Secretariat reported that in tea producing countries, major factors contributing to the expansion in consumption in tea are the growth in per capita income, the increased awareness of the health benefits of tea consumption and the product diversification process attracting more customers in non-traditional segments including young people. In the recent first virtual edition of the Annual North American Tea Conference hosted by The Tea & Herbal Association of Canada, Ian Gibbs, chairman of the International Tea Committee (ITC) said “tea consumption in India rising rapidly like other producing countries and identified a pool of 54 million tea consumers of India drink tea 786 gram/year/person (more than one and less than two cups/day). Two billion people currently drink two or more cups per day which means 3.7 billion people drink less than one cup daily. According to him increasing consumption by one cup per day in developed countries would eliminate a persistent surplus that is depressing prices. However, the recent changes noticed on consumer preference of Russia, the U.K., UAE and Germany, the four largest markets of Indian tea.

The rapid growth of black tea consumption in China is due to the popularity of brick teas, such as Pu’er, which are heavily promoted for their health benefits. But the pace of growth will be outstripped by that of green tea, fruit tea, herbal tea, rooibos, purple tea, and high-quality organic tea, reflecting their greater reported health benefits and aggressive marketing according to EIU.

It has been observed form a Global Consumer Survey that the hot drink is drunk regularly by almost as many people in the U.S. as bottled water and probably doesn't need to be promoted there. According to the survey, 49% of the people surveyed for the study drink tea regularly, behind soft drink, coffee and water (Figure 10).

Figure 10 Favourite drinks in the United States Source: statista

2 Indian Tea Market

The comparative price and fine quality have made Indian tea highly desirable among the versatile consumers of the world. High quality orthodox black tea has always worked as flag bearer in Indian tea export. Black tea occupied major share and presently expansion of green, herbal and flavoured tea has been seen. Indian market is expected to grow annually by 6.8% as against 9.8% globally (CAGR 2020-2025) (Statista). During seventies India accounted for around 53% (in 1971) of world’s tea trade and this fallen to 15% in 2016 (Anonymous, 2019). This may be due to higher production by other producing countries, low competitiveness, low efficiency of value chain, high cost of inputs, availability of substitutes, and high domestic consumption (Talukdar and Hazarika, 2017). In India, an export target of 300 million kilograms set for 2020 but based on year-to-date production totals it is unlikely to meet this goal (Bolton, 2020). Tea exports fell both in volume and value terms between January and June 2020, but the declining trend between April and June further deepened in volume terms though price realization during this period was a little higher compared to the prices realized between January and March. However, total exports are expected to be lower around 210 mkg during 2020 (Figure 11) and lower exports might have a dampening effect on tea prices, and the market is extremely volatile, but it still hopes to be in profit when the year ends (Vivek Goenka, 2020, private communications). The prices are certainly dependent on the demand, and presently demand has been steady (businessline.com). However, the tea export in 2020 may decline to in between 180~185 mkg and export earnings will be restricted to US$ 709 million in 2020 as against US$ 830 million in 2019 (Anshuman Kanoria, 2020, private communication). Despite, there is scarcity of shipping containers therefore it might altogether be difficult to equal its last year export totals. It has also been observed that presently Indian exporters must contend with prices doubling for shipments to US, 60% more than 2019 in Europe and shipping a container of 20 foot to West Africa now costs US$ 2,200 compared to US$ 1,000 paid pre-pandemic (Bolton, 2020). Quarantines due to pandemic further interrupt the normal availability of containers by keeping late return of the same.

Figure 11 Tea export of India for the period from 2014 to 2019 and forecast for 2020 Source: Tea Board of India; BS Research Bureau

India stands fourth in terms of tea export after Kenya (including neighboring African countries), China and Sri Lanka during the period from January to August of 2020 and 2019 (Figure 12). The price realization was 3030.46 crores in 2020 (Apr. to Aug.) and 3759.44 crores (Apr. to Aug.) in 2019. However, the unit price was INR 228.71 and 229.50 respectively which is decrease of only - 0.34% in 2020 (www.teaboard.gov.in). Russia imported around 47 thousand metric tons in fiscal year 2019. Iran and Russia together constitute 36% of India’s total export market and they are the preferred export destinations of Indian tea. Iran imported 46.47 mkg worth around eleven billion INR in FY2019 (statista.com). Currently, Iran imported 20.93 mkg during the period January to July, 2020 as compared to 36.76 mkg in the corresponding months of 2019. Pakistan, Russia are in the list of world’s top tea-importer but is no longer the primary destination for Indian tea. Further, the import of UK and US also down to 3.28 mkg and 6.11 mkg in 2019 and 2020 respectively.

Figure 12 Tea exports of major four tea producing countries for the period from January to August during 2020 and 2019 Source: Tea Board of India

The global tea market was valued at over USD 52 billion in 2018, and is expected to rise to over 81 billion dollars by 2026 (statista). The declared value of global tea exports depreciated 18.8% year-over-year in 2019. According to analyst Daniel Workman at World’s Top Exports, sales from export of tea was $6.4 billion in 2019. But five years ago, world over shipments valued at $7.3 billion (Bolton, 2020).

Despite COVID shock and border standoff, black tea export from India to China and Iran have taken off. Iran started importing new season orthodox tea during current year. The other major tea export destinations are the United States, the Commonwealth of Independent States (CIS) countries, United Kingdom, Germany, the United Arab Emirates, Egypt, Pakistan and China. Indian share in global export was 12.6% during 2019 (http://worldtea exporters.com). Export value of Indian tea in top ten destination country during 2019 presented in Figure 13 and Iran and Russia were the top two export destinations. Export value of Indian tea reached US$ 535.13 million in FY20 (till November 2019) (Source: Directorate General of Commercial Intelligence and Statistics (DGCIS), Govt. of India). The global tea export and import was about 1.854 and 1.758 million metric tons respectively during 2018 (Peiris, 2019). Global tea market reached a volume of 6.2 million tons (mt) and sales of tea estimated USD 6.4 billion (I USD = INR 74). In 2019, India accounted for tea exports by value only 12.6%. Sri Lanka’s 11.3% market share by value and Kenya’s 5.7% share also contribute significant volume, but all of them have seen sharp declines in value as prices for CTC grades drop down. Last five years in Kenya the value of Kenyan tea exports declined by 71.3%. But it has been observed the value of tea sold for export by Taiwan increased 131.3%; sales of Japanese tea are up 59.6%, and the value of Chinese tea for export is up 46.5% during the same period (worldstopexports.com).

Figure 13 Export value of Indian tea in financial year 2019 by top ten destination country Source: statista

3 Auction Price

The average price of the grades of tea sold at different auctions in India during the period from 1^st January 2019 to 31^st December 2019 was INR 133.94 (Figure 14) and from 1^st January to 5^th September 2020 it was INR 166.10 (Figure 15) respectively. The highest price INR 226.50 and INR 239.47 concluded in Kolkata auction during 2019 and 2020 respectively. The average monthly prices were gradually increased from INR 188.77 in June to INR 260.63 in August and has shown declining trends fetching INR 252.87 in September and INR 206.26 in October 2020 (Figure 16). The auction prices were 2.5 times more since lockdown, which have impacted the gross margins in the September quarter. The Tea Board of India reports that tea prices in Kolkata and Guwahati have firmed up by more than INR100 (US$ 1.33/kg) a kg on a year-on-year basis. Recently, the price of CTC in Kolkata, used for mainly making for tea bags, averaged INR 313.58 up by almost INR 129.99 a kg. In general, it has been observed a 12% price increase might compensate for the 10% crop loss due to lockdowns (Prabhat Bezbaruah, 2020, private communications). Green leaf prices in Tamil Nadu, South India, also rose from INR 14 -17 to INR 22 in August 2020. India exported 93.93 million kg between January and June 2020 compared to 119.72 million kg exported in the corresponding period of 2019. This fetched a lower value of US$ 276. 22 million or INR 2,050.52 crore in 2020 compared to US$ 385.14 million or INR 2,698.13 crore in 2019. Average price in the export market between January and June was also down from US$3.22 and US$2.94 per kg in 2019 and 2020 respectively (www.teaboard.gov.in). Average global auction prices from the period from 2000 to 2018 depicted in Figure 17 and price was inconsistent and varies from 133 to 271 $cents. Overseas market seen low price due to pandemic and markets preferred cheaper teas (www.financialexpress.com). But Darjeeling Orthodox and second flush CTC have good interventions in the export markets since June to August are the high productivity months which might have partly increased supplies in the spot market during the period.

Figure 14 Total grades of tea sold in million kg and average price from 1st January 2019 to 31st December 2019 at Indian auction centres Source: Tea Board of India

Figure 15 Total grades of tea sold in million kg and average price from 1st January 2020 to 5th September 2020 at Indian auction centres Source: Tea Board of India

Figure 16 Month-wise price of tea at different Indian auction centres during the period from January to October, 2019 and 2020 Source: Tea Board of India

Figure 17 Average world tea auction prices from the period from 2000 to 2018 (US$ cts/kg) (1 USD = INR 73 during 2018 and 43.50 in 2000; 100 cents = 1US$). Source: statista

Since last few years it has become a trend in the auction centres of specialty tea from star estates fetching record prices although the quantum of tea is very small. This perhaps mislead the picture of present tea price and holds up a misapprehension that other estates can emulate this strategy to find an orbit out of their financial discomfort. But experts believe this is a marketing strategy undertaken by the manufacturers with brokers and buyers to draw attention respectively to their mark. Highlighting the production of exotic offerings for publicity gain may not be a good strategy as one need to have a ready and willing customer in place to achieve the desired results (Prabhat K. Bezboruah, 2020, private communications). Although in the present situation, tea estates with high yield, having a premium quality profile with moderate production cost sustained by low overhead would be the priority for the tea producers.

4 Impact of COVID-19 on Weekly Auction Price FOB

Freight on board or Free on board (FOB) price is frequently used in shipping terms where tea price quoted by seller including the cost of delivery of the materials to the nearest port. Rest all other expenses to its final destination has to be met by the buyer The FOB price in the current year (2020) started decreasing after first three weeks and it has come down to $ cents 122/kg from 224/kg and then price increased from 23^rd week in June. Price shoot up to $ cents 414/kg in 35 weeks in September (Figure 18). COVID-19 is an unprecedented challenge for India; its large population and the economy’s dependence on informal labour make lockdowns and other social distancing measures hugely disruptive. India declared a three-week nation-wide lockdown till mid-April in the initial phase, which has subsequently been extended till May 3, 2020 for achieving satisfactory containment of the spread of COVID-19. The factories and offices were mostly closed and teas in and out came to a standstill. India’s tea output is likely to drop by 120 million kgs or 9 per cent in the current year as the lockdown initially forced plantations to suspend plucking during the opening harvest (in March) - the prized first flush - and then operate with about half the workforce. The pandemic blow comes just at a time when unit prices of Indian tea were on the rise for its better quality, but lockdowns severely affected the Indian auction price till 22^nd week of 2020. Exports decline by 34% in March. Darjeeling was hard-hit at the start of the first flush, its light body full of delicate flavours draws the highest prices of the year for the manufacturers. The lower elevation gardens had begun producing first flush towards the end of February, while the ones at higher elevation had only just begun manufacturing when the shutdown came. Darjeeling tea planters lost first flush production, a premium variety, by around 30 per cent. 30~40 per cent of the industry’s annual revenue (constitutes 20~25 per cent Darjeeling’s total production around 8 million kg) is generated from the sale of first flush which is produced mostly between March 15 to April 15. Growers in Assam could only deploy half their workforce. India’s tea production is down in every growing region. The March lockdown in the Nilgiris region in southern India reported April volumes lowered by 23% compared to 2019. The month of April and May was found most productive and qualitative months during 2019 and it was 6.3 and 9.3 per cent of the total annual production.  

Figure 18 Weekly auction prices FOB of India and some other tea producing countries during 2020 (Data source: www.vanrees.com/)

In China, however, the spread of Covid-19 in tea-growing areas created significant economic setbacks and business shutdowns in tea operations. The factories and offices were mostly closed, and teas in and out came to a standstill. Fortunately, the brunt of the virus came at a time before most spring harvests, especially for teas for the global market. Operations in the ports were in full form and business returned to normal from the end of February. Most of the teas for export are harvested later in the season. However, shipments of tea from mid-March resumed and business returning to normal (Walker, 2020). However, the country fared better from an export standpoint. There were delays caused by CIQ (China Inspection and Quarantine) and transport related issues, but overall, exports continued their upward trend in value, despite a slight decline in volume (1.65 percent to June).

Sri Lanka’s tea industry has just dodged a potentially devastating COVID-19 shutdown by swapping a 19th-century way of buying and selling with 21^st-century digital innovation. Industry leaders have quickly deployed a virtual e-auction system that keeps buyers and sellers of the worlds’ widely consumed beverage safely apart and socially distanced. Further, e-auction system has transformed the lives of almost two million people in Sri Lankan tea industry by sheltering them from the consequences of COVID-19 shutdown. The average price varies from $ cents 322 to 392/kg which was higher than Kenya, Indonesia, Malawi and till 24^th week of India (Figure 18). Production was down 15% to 179,000 metric tons during the first eight months of 2020 (Tea Report by Dan Bolton, 2020; STiR 9(6): 22-24).

Kenya’s tea industry, in fact, has seen minimal interruption to harvest since March but experienced some transportation disruptions from the tea producing areas to the port of Mombasa where it is auctioned and loaded onto freight containers destined for the Arabian Sea, despite some consequential disruptions of cash flow. Since tea is an essential commodity in Kenya, manufacturing has not been affected and factories have been operating as normal. Additional shift at the factory started and workers arrive in the evening before curfew and leave in the morning after the curfew is lifted. The price varies from $ cents 173 to 223/kg. Rating agency ICRA report said while the Kenyan production significantly increased by 34% Y-o-Y in eight months of 2020, the shortfalls in production 19% and 16% from India and Sri Lanka respectively are likely to result in an overall decline in global tea production in 2020 (Anonymous, 2020). According to Kenya Tea Development Agency (KTDA) the green leaf production by its affiliate factories grew by 28.5% for the year ended June 30, 2020. Yields set a new record of 1.45 billion kilos, up from 1.13 billion during the same period in 2019.

In Indonesia, the main problems of the tea trade due to the COVID-19 are on the logistic side. The infection spread to all 34 provinces between March and April. Tea production continues with social distancing and other safety measures. PT Kharisma Pemasaran Bersama Nusantara (KPBN) is the marketing agent that conducts the Jakarta Tea Auction every Wednesday, and they switched to an online auction on 25 March. The teleworking was severely hampered due to imposition of lockdown.  Quarantine, customs, port and shipping companies all are operating slower than their normal efficiency. In Malawi, tea producers are experiencing adverse effect on the operation of tea market and flow of cash due to low traffic on sales and movement of goods. The World Bank’s reports (Commodity Markets Outlook, April 2020, 100p) almost all commodity prices declined sharply during the period from January to April 2020 as the COVID-19 pandemic worsened. The prices of most commodities have fallen especially to those that are related to the transportation industry. The pandemic has affected both the demand and supply of commodities through the impact of mitigation measures on activity and supply chain. The tea prices declined 9% in 2020Q1 (Jan to March - first quarter month of 2020) (q/q) and are 3.4 per cent lower than 2019 (q/q), mostly in response to a plunge in Kolkata and (less so) Mombasa auctions, which reached 13-and 6-year lows, respectively. The decline in tea prices reflects ample supplies in Kenya, disruptions of tea shipments to various importing countries, disappointing demand including a lockdown in India, especially during the second part of 2020Q1. The World Bank further reported that average auction prices are expected to drop 10% in 2020, mostly due to weak demand before gaining 3% in 2021. Baffes (2020) listed out following long-term implications on the global commodity markets which will affect both commodity exporters and importers in the context of COVID-19.

· Increasing transport costs due to additional checks

· Permanent unwinding of supply chains

· Increasing substitution among commodities

· Changing consumer behaviour

· Restrictive policy responses

After considering the impact of COVID-19 across the world, Indian tea market expected to grow at a CAGR of 4.2% between 2020-2025 according to EMR market research firm (https//:www.expertmarketresearch.com/reports/indian-tea-market). Another market research company, Report Linker (https://www.reportlinker.com/) recently assessed that the India green tea market was valued at USD $1,247.36 million in 2018 and is projected to reach USD $2,112.47 million by 2027 with an expected CAGR of 6.1% during the forecast period.

The impact of COVID-19 on tea markets may persist for an extended period. In the short term, the deepening economic contraction may further reduce demand for tea, causing additional declines in prices. Lockdowns and travel restrictions imposed by governments of several countries have resulted in supply chain disruptions and a shortage of workers at production units. It would take some more time for supply chain to stabilize. It is true that the pandemic has exposed the flaws in supply chains across every industry and this has prompted companies for change in their respective business models and policies. This would facilitate equipping the industry to handle future worldwide disruption if any. However, a large section of Indian tea arena is optimistic since there is strong demand for Assam and Darjeeling tea from the Europe and other countries. Transportation logistics are also gradually taking shape to facilitate export. The tea market has evolved dramatically in the past few years in line with consumers’ changing behaviour. Now-a-days the global demand has shifted to the point 50% revenue earned from the sale of orthodox and green tea. The markets of U.S., Western Europe, UAE, Iran and Egypt where these numbers rise 90% of revenue. High quality-orthodox is the priority global preference. Consumer awareness about the health benefits of green and other teas can further drive the growth of the global tea market. Known immunity boosting capacity along with affordability of tea will give it continuous buoyancy. In addition, the perception of tea has also changed, as it is viewed by younger consumers as a sensual and wellness drink. Further, shift towards the consumption of organic tea acts as an emerging trend which is having a positive impact on the growth of the tea market.

5 Revenue Earning

Tea industry is a cost-intensive industry. The labour costs account for more than 60% of the total expenditure. Despite daily wages, the tea workers of India receive fringe benefits viz. housing, ration, medical, woolen garments in cold areas like Darjeeling, firewood/coal, made tea etc. Tea sector of India now employ more than 3.5 million people in 1686 estates and around 157,504 small tea holdings. More than half of the employees are women mainly engaged for plucking. It has been reported that a mere rise of INR30 in the workers daily wages could increase the overall production cost up to 16% (lsifinance.com). Despite cost of daily wage, the expense of all other inputs like fertilizer, pesticides, coal/etc. have also leading to overall production cost of tea.

The revenue earned by the Indian tea industry during 2019 was US$15.82 million (Figure 19) in comparison with globally US$ 199.38 million in 2020. In relation to total population figures, it has been forecasted that per person revenues of US$11.46 will be generated in India during 2020 (statista). A gradual increment of revenue from USD 6.5 billion to USD 14.97 billion during the year from 2012 to 2019 respectively have been observed. Further, revenue forecasted to US$21.24 billion in 2025. The year-on-year (Y-O-Y) growth rate of the Indian tea industry has reduced significantly over the years. It was 21.38% in 2013 declined to 5.7% in 2019 (Figure 19).

Figure 19 Revenue earned by Indian tea industry for the period from 2013 to 2019 and estimated revenue from 2020 to 2025. Forecast adjusted for expected impact of COVID-19 Source: statista; lsiresearch

6 Emerging Financial Crisis of Indian Tea Industry

Since last few years Indian tea industry is facing with recurring problems like low tea price, high labour cost, unusual weather etc. Recently, different tea associations, brokers and tea companies have requested government for reforms in auction system, expansion of tea areas to 20% from 5% at present, increasing domestic consumption, promotion of tea tourism, permission of export of tea waste, raising of present rate (INR 3 ($0.04)/kg) of incentive from Government for production of orthodox teas and working out a mechanism to exchange rupees for rubles to increase Russian exports. (Anantharaman, 2019). It has also been observed that the average auction price of Assam tea was INR 150 ($2)/kg in 2014, INR 156 ($2.15) in 2018 and INR 165 ($2.30)/kg in 2019 while cost of production was INR 200 ($2.78)/kg. Ninety percent of teas at auction sell for below INR 200/kg (Figure 20). These apart, 22% increment in the workers wage, 2% tax have been imposed recently on employers who continue to pay wages in cash. Due to various practical reasons, cash payments are preferred by workers. It has been opined that “there has been a stress in the tea sector because cost is going up and the wage pressure but prices are not rising in tandem…unless the overall prices do not go up, the sector will remain under stress” (Krishan Katyal, 2020, private communications). Further, labour in the regulated tea estates is the important issues and these estates have been facing the problems of labour shortage and demand for higher wages. Notwithstanding, tea estates are no longer an attractive option for employment for present generation and they are not interested to work as pluckers in the tea estates.

Figure 20 Average selling price vs average cost in registered tea gardens Source: Indian Tea Association, Kolkata

During pandemic, a large part of the population is working from home and drinking more tea which resulted a jump in at-home consumption during pandemic. Despite pandemic and intense floods in Assam and other tea areas, a sharp increase in tea consumption and price of bulk tea have seen a considerable uptick from June onwards due to creation of mismatch between demand and supply (Anonymous, 2020). A year-on-year basis production may fall 13% and 1% in Northern and Southern India respectively, assuming that no further material change in production takes place during September to December 2020. Consequently, full year price of North Indian (NI) CTC tea likely to be higher by INR 65/kg (46%) and NI orthodox price up by INR 50/kg (25%) on year-on-year basis (Anonymous, 2020). ICRA report said, “Due to the favourable price-cost effect, the operating margin of NI-based sampled bulk tea companies set is expected to witness a significant improvement to around 10 per cent in FY2021, implying a 600-bps increase on a Y-o-Y basis". The price rise would certainly provide some respite to the beleaguered Indian tea industry which has been struggled with consistent increasing production costs since 2014. 

In a study on global competitiveness of tea production, it has been observed that in South Indian states had the labour and cost advantage and Assam, West Bengal states gained profit advantage for marketing of quality teas whereas in Kenya, tea production was more advantageous in terms of labour productivity in kilogram per worker and in Sri Lanka at profit advantage (Talukdar and Hazarika, 2017).

In conclusion, I would like to reiterate the fact that the Indian tea producers should limit the cost of production more efficiently by using modern technology (machines, Geospatial technology, crop and soil sensors), digitalization and diversification of their produce etc. We know that domestic expenditure to a certain extent is manageable, but the international prices/terms of the foreign buyers are not under the control of the stakeholders. Therefore, Indian tea producers should face market realities and needs to be competitive in all respect, produce graded and value-added tea, able to supply of unique product to the buyers which would be unmatched for foreign producers. If needed repositioning the product lines would be fruitful to improve demand for the offering.

Authors’ contributions

NGH drafted the text after analysis and interpretation of data. Also declares that he has no competing interests. I have read and approved the final manuscript.

References

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