COVID-19 deepens existential crisis for Assam tea sector; stiff competition, rising costs and diminishing prices threaten 180-year-old industry

The industry employs over 30 lakh workers and the lockdown losses have hit factory and garden owners, employees like a steel wall.

Ayan Borkotoky June 15, 2020 18:11:43 IST
COVID-19 deepens existential crisis for Assam tea sector; stiff competition, rising costs and diminishing prices threaten 180-year-old industry

The Assam tea industry in 2019 was synonymous with unregulated record production, a diminishing domestic consumption, stagnant prices and lack of active promotional strategies. It was at the zenith of developing economic distress and on the verge of a crisis in 2019.

In 2020, the Assam tea industry is at the peak of what looks like an insurmountable calamity and on the verge of extermination. Battered by pressing competition from teas of Sri Lanka, China and Kenya, the 180 years old industry ignominiously fell short of international standards. The orchestras playing this abomination are basic economics and morbid policy decisions.

Assam’s tea production in 2019 reached an all-time high of 715.79 million kg amounting to 51.5 percent of the all India production. Even with over 800 big tea estates in the organised sector, the emerging sector of small tea growers that produced the 44.81 percent is defining the future of Assam tea industry.

But, the lack of essential quality checks and penetrating, enabling regulations has led to the production of sub-standard tea. Various bullying and underhanded tactics by lobbies of brokerage firms and big buyers have significantly reduced the prices of tea forcing the small tea growers to go for quantity rather than quality to recover costs.

A major lacuna is a widening gap between the exponential rise in the cost of production and the sloth rise in prices of tea. A grim picture is portrayed by high prices of pivotal inputs like natural gas, sulphur, coal, electricity.

Proprietary maintenance of Employee Provident Funds without government help, high taxes and license fees in a stagnant market rub salt on the wounds of the industry. The dismal state of electricity supply in Assam with no dedicated feeders for the tea gardens amounts to prolonged power cuts during peak season. This leads to exponential burning of fossil fuels adding to the environmental degradation.

Since 2014, auction prices of Assam tea have hovered just between Rs 153 per kg to Rs 156.43 per kg whereas the average cost of production has touched Rs 200. The tea sector is cash-in-hand dependent for its working capital.

High loan instalments and almost break-even profits have led to distress in the companies’ cash flow in a cash-intensive industry. Banks have stopped providing loans to the industry. Many units are now under cash crunch and facing bankruptcy.

Further, Assam's tea industry is severely suffering from the COVID-19 -induced lockdown. As of now, the industry has incurred a loss of around Rs 1,059 crore in revenue. The tea industry is seasonal with first plucking beginning by mid-March after pruning or skiffing during late November-December.

On account of the lockdown, normal operations were under shutdown from 25 March till 14 April after which the government allowed factory operations with 50 percent workforce, various sanitisation and distancing guidelines.

In the meantime, the tea leaves have aged and overgrown during the precious first flush of March-April. A second skiffing became inevitable thereby delaying the green leaf production by an additional month. The present situation has resulted in is astronomically high prices of green leaf and fluctuating supplies for the production-ready factories.

The industry employs over 30 lakh workers and the lockdown losses have hit factory and garden owners, employees like a steel wall.

The ongoing global restrictions have made the potential overseas markets of Russia, Iran, USA, UAE, UK, China, Japan and Germany inaccessible. With the pandemic not looking to miraculously eradicate itself or gift the humanity herd immunity or simply turn out to be an elitist scandal or normal flu as speculated by some world leaders, tea exports in 2020 are unlikely to be financially profitable and psychologically rewarding for the producers.

Moreover, the emerging international security issue of climate change is bound to have impacts on the primitive Assam tea industry. Lack of innovation, equitable percolation of standard technologies and extreme dependence on uncertain climate are major threats to the industry.

It’s high time for authorities to cohesively regulate the green leaf suppliers and small tea growers to ensure proper quality standards. Modern and more in tune with the time's infrastructural inroads, better equipped and scientifically mastered production strategies should be the way forward for the modern Assam tea industry.

The ”Assam Tea Brand” is in need of the much talked about global marketing campaign. Now is the time for the government and the authorities to pull up their socks and aim for its niche-marketing.

The Assam government in its 2020-2021 budget has announced a slew of good measures including the mellifluous subsidy scheme for shifting of production to orthodox tea with effect from 1 April 2020 to stabilise the 90:10 CTC to orthodox production ratio in Assam.

But the prospect of changing production tactics for an industry reeling under the hammering effects of the pandemic eschews logic. Instead of aiming for a Faustian bargain, focus should be on formulating unabated blueprints for better incorporation of Artificial Intelligence with the industry to make it better equipped for the upcoming times.

Another budget highlight is the three percent interest subvention on term loans and working capital loans. However, the modalities are yet to be worked out. Moreover, the terms and conditions of certain government measures are imbroglio and cater to only a minuscule part of the industry.

Ranjit Barthakur, chairman of FICCI North East Advisory Council, highlighted that for the first time Assam government recognised the problems faced by the tea industry. But the industry longs for recognition of its problems by the Central government. The measures announced have rarely been implemented due to the COVID-19 crisis and the industry needs a comprehensive financial package to even leave the ventilator status.

The industry that contributes 5 percent to Assam’s GDP and constitutes 11.7 percent of global tea production will surely be one of the major revenue generators for Assam given that tourism in the post-COVID era is volatile. The road ahead is extremely rocky and the future irrefutably uncertain.

With the world slated to go into the worst recession since World War II, will the Assam tea industry employing over 30 lakh workers be able to survive the pandemic losses amidst the various cancerous problems that it was already dealing with?

Updated Date:

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