TEA SECTOR

OF
WEST BENGAL

PRESENTED BY-

SAYANI SUR ROY.

ROLL NO-261091117
 OVERVIEW ON TEA INDUSTRY
Tea is nearly 5,000 years old and was discovered, as legend has it, in 2737 B.C. by a
Chinese emperor when some tea leaves accidentally blew into a pot of boiling water. In
the 1600s, tea became popular throughout Europe and the American colonies. Now, tea is
consumed as a beverage throughout the world and grown widely in countries of Asia,
Africa and the Near East. Earliest mention of tea is from China in 350 B.C. It found its
way to Europe in 1559, to England in 1615, and to Indonesia in 1684. Commercial
cultivation began in India in 1823, and in 1867 in Sri Lanka (Wickramasinghe, 1978).
Tea grows ideally at about 2,400 m (8,000 feet) height above sea level. It prefers a warm,
humid climate, with plenty of well-distributed rainfall and long sunlit days. Therefore, it
flourishes nearer the equator.

Freshly harvested tea leaves contain about 75–83% of

moisture (wet basis) while the processed tea has a moisture content of less than 3%. Tea
production is simply a drying process. However some chemical changes take place by
natural fermentation, which give different varieties of tea. Though tea is produced
throughout the world in similar processing conditions, they differ from each other,
depending on the plant variety, climate, soil conditions, method of cultivation and nature
of shade. Mainly, the production process and the plant variety dictate the flavor, aroma,
color and stimulant characteristics of each kind of tea. Though there are many varieties of
tea produced in the world, black tea is considered as the major product worldwide.

TEA INDUSTRY IN INDIA

India is the largest tea producing country in the world producing about
870,000 tons of black tea in 1998. About 432,000 hectares of land is under tea
cultivation. Northeast India produces a wider variety of tea than any other growing area
in the world. India has over 300 major tea companies and has over 12,000 large tea
estates. Overall, India accounts for 1,300 tea factories and 37,000 of large and small
estates. They employ about 30,000 workers directly and about 1,000,000 people
indirectly.

Tea is cultivated mainly in the northern region of India, Bengal’s

Darjeeling, and Dooars, Assam and Cachar. In the south, tea is grown in Tamil Nadu and
Kerala’s hilly western Ghat region. Of the total 1998 production, 77% came from
northern India. Assam valley produced the highest share of 46% and Dooars produced
17%. Of the south, Nilgris of Tamilnadu produced 14%. Over 80% of tea manufactured
in India is of CTC tea and average Orthodox tea production is 13% (Tea Board of India,
2000).
 HISTORY OF TEA SECTOR IN WEST
BENGAL
Dr. Campbell, a civil surgeon of the Indian
Medical Service, was transferred from
Kathmandu to Darjeeling in 1839 as
Superintendent of this new territory and of the
Sanitarium. His first problem was to attract
settlers. In 1841, Dr. Campbell brought China
Tea Seeds from Kumeon and planted near his
residence in his garden at Beechwood, Darjeeling, 2000 m above sea level. He must have
been successful in raising the plant because the government, in 1847, elected to put out
tea nurseries in this area.

The experiment was followed by several others, for example Dr. Withcombe, Mr. James
Grant, of the Civil Service, and Captain Samler. The plants, by their healthy and vigorous
growth, gave much promise of the experiment succeeding. Dr. Hooker planted tea in
1848 at Lebong, a thousand feet below Darjeeling where also the tea plants succeeded
admirably.

By 1852 several plantations in various stages of advancement, both of Assam and China
plants were found including the ones at Kurseong and Pankhabari established by Mr.
Martin.

The first commercial tea gardens were Tukvar, Steinthal and

Aloobari tea estates. This was in 1852 and all these
plantations used seeds that were raised in the government
nurseries. By 1856 the experimental stage had been passed
and development was rapid. According to Darjeeling
Gazetteer, Alubari Tea Garden was opened by the Kurseong
and Darjeeling Tea Company and another on the Lebong spur
by the Darjeeling Land Mortgage Bank. Several hundred ha
of forest land was cleared, from 750 m elevation above the sea to 1800 m. By 1857 25 or
30 ha was planted , besides six nurseries, in which a ton of seed has been shown during
1857.

In 1859 the Dhutaria garden was started by Dr. Brougham and between 1860 and 1864
four gardens at Ging, Ambutia, Takdah and Phubsering were established by the
Darjeeling Tea Company and the gardens at Tukver and Badamtam by the Lebong Tea
Company. Other gardens which were started at this early period were those now known
as Maksibari, Pandam&Steinthal Tea Estates.

SEGMENTING INDIAN TEA INDUSTRY

Indian Tea Industry can be segmented into two geographical divisions ñ North India and
South India.In North, or particularly, Northeast India, Assam and Sikkim are prominent
in producing tea and arebetter known for representing Indian tea quality all across the
globe. For South India, it is, Tamilnadu(Nilgiri), Kerala and Karnataka, who contribute to
the remaining production of tea and majorly coffee.It is to be noted that in the current tea
production scenario, South India produced 129.29 mkg of total volume of 466.37 mkg in
2006 between January to July whereas, North India contributed three times higher
productivity at 337.08 mkg.

MAJOR TEA MARKETS

The 75% of total tea produced in India goes to France, Germany, Japan,
United Kingdom and United States. Tea exports to big markets like Russian Federation,
United Arab Emirates and Iraq declined sharply due to weaker demands. The Indian
exports continue to loose volume in CIS countries, Europe,US, and some middle-east
countries. However, it succeeded in regaining a part of its share in Iraq when it went up
from 13.36 mkg to 24.73 mkg in 2004. The year 2005 onwards, the exporters somehow
managed to retain earlier trade volume in the Japanese market. Nominal growths have
been registered in UAE and Iran too but dropped in Afghanistan and Pakistan market.

RECENT DEVELOPMENTS IN THE INDUSTRY:

 

 Tea has been the most common drink in the rural India due to its affordability and
healthiness. The Board is taking various health awareness programmers to push
the demand. We expect the robust demand from the rural market to continue.
 
 Tea suffers from staid and non-contemporary image. In order to counter the non-
contemporary image of tea consumption in India, the Tea Board and Ministry of
Commerce has launched promotion campaigns for communicating tea as a
healthy and lifestyle beverage and making it more appealing and contemporary.
These campaigns have been targeting customers from various age groups.
 
 Recently, Cabinet Committee on Economic Affairs (CCEA) gave the go-ahead to
set up a Special Purpose Tea Fund (SPTF) under the Tea Board to fund
replantation and rejuvenation activities aimed at improving the age profile of tea
 plantations. This is going to benefit the companies having financial constrains but
potential to improve.
 
 The CCEA also gave its approval for providing budgetary support towards
outstanding statutory dues, salary/wages in respect of defaulting CPSEs under the
department of heavy industry. The move is expected to “motivate” employees for
better output and prepare them to achieve the goal of revival of companies.
 
 
 The Tea Industry both in Assam and West Bengal have discussed with the Trade
Unions for the implementation of productivity linked wage rates for the tea
workers with a view to partially regain the Industry's competitiveness in the
global market. With the implementation of the above policy the operating margins
for the companies in the industry is expected to improve.
 
The recent developments in the industry give an early signal for the
revival of Industry, but the effects of all will be gradual.

 PROSPECT OF TEA INDUSTRY IN WEST BENGAL :

IMPORTANCE TO ECONOMY :
The tea industry has a very prominent place in the Indian
economy.Even the poorest of the Indian household buys tea for his daily consumption.
Tea is the country’s primary beverage (almost 85% oftotal households in the country buy
tea), which makes India the largest consumer of tea in the world.In terms of employment,
it is the second largest industry by employing more than a million people directly and 2
million people indirectly, of which 50% are women.The tea industry, to a large extent,
drives the economies of the regions ,where the tea gardens are concentrated, for example
West Bengal.

EXPORT GROWTH :

India is largest manufacturer (28 per cent) of tea in the world and an
important exporter (13 per cent of world exports). Further, certain varieties of tea (e.g.
Darjeeling) are grown only in India and are in great demand across the world. Upto July
2005, the domestic tea production was at 458.68 mkg whereby, 320.82 mkg contributed
by North India & 137.86 mkg came from South India. In July 2006, the tea production
recorded growth of 889.17 and total Indian volume at 466.37 wherein, 337.08 & 129.29
contributed by North & SouthIndia respectively. The productivity from southern part
declined while northern region had shown immense growth. However, a year back in
2003-04, the productivity from Northeast declined comparatively. The South Indian
exports were higher by 24.5 mkg where as North India reported areduction of 10.7 mkg.

India accounted for 458.69 mkg out of the total 926.17 mkg of world
tea production in July 2005, and now 466.85 mkg out of the 889.17 mkg of world tea
output in July 2006. The world tea production declined while India registered a
phenomenal growth of +8.16 increases in productivity over last year.

The total exports estimated during the period January to July 2005, were of value
9063277 INR (Rs.) at world tea auction rate @ 57.89 (Rs. kg) with a total of 95.73 (m
kg) qty. exported inclusive of both north and south India as against world exports of
590.60 (m kg). During January to July 2006, the exports were valued of 8309649 INR @
63.65 (Rs. kg) with total of 98.17 (m kg) qty. exported from both the regions as against
world tea exports of 595.22 (m kg). This represents negative skewness in the Indiaís

tea export graph due to low productivity, and decline in prices in the world and domestic
tea auction.Prices came down from the average of Rs.76.43 a kg in 1998 to Rs.61.71 in
2000 and Rs.61.66 in 2001.In 2003, the prices further were Rs. 56.03; in 2004, Rs. 64.57;
and in 2005, Rs.57.89 and till July 2006,Rs.63.65 with strong price variability.

The export situation improved due to the tea imports (for re-
exporting) as the total qty. exported increased from 95.639 mkg to 98.178 mkg, and that
the tea productivity as well as the unit price per kg went comparatively higher from the
northern region than the south as a benchmark of difference in the quality of the yields.
However, the exports from Southern part were higher compared to Northern India yield.
With the help of re-exports the total world exports made by India for tea stood at 95.64
mkg out of the total figure of 590.6 mkg in 2005, which grew marginally, to 98.17 mkg
with +2.44 increments for the period January to July, 2006 out of the total world tea
volume of 595.22. The overall world exports for tea also grew by 4.62 mkg in 2006.
 TEA BOARD OF INDIA

 Logo of the organization :

 Formation : 1953

 Type : Indian Government Organization

 Headquarters : Kolkata, West Bengal, India

 Location : London, United Kingdom,Moscow, Russia, Dubai, United Arab

Emirates

 Chairman : Basudev Banerjee

 Website : teaboard.gov.in

The Tea Board India is an Indian Government-controlled organization that regulates the Indian
trade in tea.

It was established by the enactment of the Tea Act in 1953 with its headquarters in Kolkata
(formerly Calcutta). It is headed by the chairman Basudev Banerjee and eparated into Standing
Committees referred to as the Executive Committee, the Development committee, the Labour
Welfare Committee and the Export Promotion Committee.The Tea Board India is responsible for
the assignment of certification numbers to exports of certain tea merchants. This certification is
intended to ensure the teas’ origin, which in turn would reduce the amount of fraudulent labelling
on rare teas such as ones harvested in Darjeeling. The excessive amounts of ‘faux’ Darjeeling tea
sold on the global market relates in stark opposition to the fraction of exporters which are
licensed by the Tea board India as legitimate traders of this region.The Tea Board India’s tasks
include endorsement of the diverse production and productivity of tea, financial support of
research organizations and the monitoring of advances in tea packaging as it relates to health
beneficial aspects.

It coordinates research institutes, the tea trade and government bodies, ensuring the technical
support of the tea trade in the global industry.
 INDUSTRY CHARACTERISTICS :

 Around 13 states contribute to total tea production :

Tea is grown in 13 Indian states and Assam, West Bengal,
TamilNadu and Kerala are the largest producers. Though the major part of the tea
production comes from big estate gardens, the contribution of the small grower segment
has shown an increase in recent years with many small farmers in Assam, North Bengal
and Bihar switching over to its production.

 Cyclical in nature :

Being an agricommodity, its fortunes are directly linked to rainfall

and temperature. These can cause the quality of the raw material, green leaf, to change
from season to season.Despite being exposed to vagaries of nature, the industry seems to
have stabilised in terms of production. In the recent years the industry has developed
processes to reduce impact of vagaries of nature on tea production.

 Sensitivity of Industry to Government Policies :

The tea industry in India is highly regulated. It requires licenses for

its import or export.While The Tea Act, 1953 controls production and distribution
activities, the Tea (Marketing) Control Order, 2003 regulates tea sales and stipulates that
a defined percentage of tea produced from each garden be sold through the auction
system.In addition to this central cess, States also levy sales tax on sale of tea. Profits
from production and sale of tea are subject to agricultural income tax by the states. Thus,
the residual income after paying corporate tax is taxed again. This tax is levied on profits
accruing to gardens located in respective state.100% foreign direct investment (FDI) in
tea industry is permitted subject to compulsory divestment of 26% equity of the company
in favour of an Indian partner / Indian public within five years from the date of
investment.

UNION BUDGET 2006-07,:

 Positive for Tea Sector :

The Union Budget for 2006-07 has Proposed contribution of Rs 1billion towards Special
Purpose Tea Fund, a 15 year programme,aimed at re-plantation and rejuvenation of tea.
Further, the customs duty on packaging machines proposed to be reduced from 15% to
5%.The allocation of Rs 1 billion towards the Special Purpose Tea Fund is likely to be
helpful for development of the industry. The reduction in customs duty on packaging
machinery is likely to benefit packaged tea manufacturers. Overall the impact of changes
in Union Budget 2006-07 is likely to be positive.

 Competition :
Competitive intensity in the Indian tea industry is on the increase
asthe sheer number of players has increased.On account of difficult export market
conditions better realisation in packet tea, more number of Indian players prefer to
concentrate on domestic market.Packaged tea has altered the structure of tea market in
India. Indian tea which were mostly sold in bulk from earlier, are now sold in branded
forms as packet tea and in tea bags. Out of the 0.76 mt of tea consumed in India, around
35-40% is sold in the form of branded products.

 Concerns :

One of the major constraint facing the Indian tea industry which
directly affect production, productivity and quality, include the old age of bushes
with more than 30% of the tea area being above the economic threshold age limit.
In addition the slower pace of replantation with the rate of replanting being less
than 0.5% as against the desired level of 2% and the consistent fall in auction
prices during the early-2000 has adversely affected the investment in the
plantations.

• Stiff competition from other producing and exporting countries like SriLanka, China,
Indonesia, Vietnam and Kenya.

• Various tariff and non-tariff measures imposed by some tea importingcountries, lower
off take by Russia due to change in consumer preferences, lower production of orthodox
teas which have a larger demand worldwide.

• Decline in quality of Indian tea which has been caused by mushrooming bought leaf
factories which produce cheap quality tea by buying and processing green leaf from small
growers.
 INTERNATIONAL &DOMESTIC PRICES OF TEA

Consistent increase in tea production has led to a global oversupply position, which had
caused the prices to decline. However, in 2004 and 2005, prices have improved.The slow
increase in prices was mainly because of an expected increase in world tea production,
which is estimated to have reached an all-time high. Slightly higher tea prices are also
due to steady demand in major importing countries, such as Pakistan, Russia,Ukraine,
South Africa, and Turkey. In India, average tea prices increased till December 2005,
before declining in January-March 2006.

CONDITIONS IN THE WORLD TEA MARKET :

India still remains the largest producer and consumer of tea in

the world. It also leads in global R&D in tea industry and in manufacturing and
exports of tea machinery. The reasons are Indian climate,soil and availability of
skilled labour that provides the absolute advantage.

India and China rank first and second, respectively, both in tea
production & consumption. Both the countries account for nearly half of worldís
tea output exporting about 75 percent of their production,and 25 percent for home
consumption. This is because of high consumption of tea in both these
countries.Their contribution in world tea exports is also equivalent at 17% but the
production accounts for 30% as against 23% of China. Other countries like
 Kenya, Sri Lanka and Indonesia produce only 25% of world tea but control 50%
of the global trade. They export more than 90% of their production.

The Indian tea production grew at an average annual rate of

2.3% during last four decades and at 1.4% per annum in the last decade. In 2004,
Indian tea production declined by 4.3 percent to around 820,200 tons due to
unfavorable weather conditions and the closure of up to 70 tea gardens in Assam
state.India accounted for 27.4% of world output, followed by China (24.6%), Sri
Lanka (9.75%), and Kenya(9.4%). However, the total world output was 3.2
million tonnes in 2004 which was 50,000 tons more than in 2003 and 75,000
tonnes more than in 2002, with increase in several countries producing and
exporting tea, some even with 100 percent exporters. While the overall world tea
production continued to grow, the world tea exports registered 1.4 million tonnes
in 2003, which was a 2.6% decline over 2002.

In 2005, the world exports showed +4.62 increase in figures,

from recorded 590.60 (m kg) in 2005 to595.22 (m kg) in 2006 during January-
July.

PROFITABILITY: RISING COSTS VS. RISING PRODUCTIVITY

While market prices for tea have been falling, the costs of production have been on the
rise, putting downward pressure on profitability. The rise in costs has been partially
outweighed by increases in yields and productivity, but the extent of this varies across
regions and according to whether it is a smallholding or a plantation.
Governments frequently worsen the problem of high production costs in tea manufacture
by levying excise tax, which is disconnected to the sale price and thus punishes factories
for the production process itself13. Moreover, the final manufactured product is routinely
under-utilised because whatever is left at the final point in the manufacturing cycle gets
dubbed ‘tea residue’, which cannot legally be sold, impeding further use of the leaf by-
product.
The world average for tea yields in 1999 were 1077.1 kg/hectare, but average yields vary
enormously from country to country. At the top end, Kenya produced 2123.4 kg of tea
per hectare in 1999, while Nepal has one of the lowest productivities in the world at 200
kg per hectare.
Sri Lanka has probably the world’s highest cost of tea production – a kilogram of tea was
estimated to cost US$1.47 to produce in 1994. This compares to $1.09 in India and $1.15
in Bangladesh.14 Tea production is land and labour intensive – but both these factors are
getting more and more expensive whilst international commodity prices slip. The
problem is only compounded by soil erosion and the degradation of land fertility caused
by over-intensive farming.
A major determinant of yield and cost of production in each country is labour
productivity. Labour costs account for around half of the unit cost of production and
approximately 75% of that labour cost is on plucking. 15 This explains the high cost of
production in Sri Lanka, where even high-yielding plantations have excess labour, except
during heavy cropping months when they are faced instead with a worker shortage.
Another factor influencing yield is the quality of seedlings and the land. Again, Sri Lanka
tends to retain old low-yielding seedling tea and the land is degraded. Availability of
chemical inputs can also be a factor. Kenyan smallholders have access to fertilisers on
credit from the Kenya Tea Development Agency, which may explain their relatively high
yields.
Differences in yields, cost of production and prices have made the profitability of
tea vary widely across the different countries. Among the various countries the
highest profitability has been obtained by Kenya (over $2000/ha), followed by
India (over $1,400/ha) with the lowest being Sri Lanka (c. $1100/ha).

With rising input costs and falling prices, there is pressure to limit labour costs,
which constitute around 55-60% of the total cost of production for tea. This has
damaging implications for workers on tea estates, who figure as a cost to be
minimised by plantation companies despite the desperate need for an
improvement in their working an living conditions.

SLY COMPETITION :

The domestic consumption dropped to 820.2 mkg from 857.1 mkg i.e. a fall of
36.9 mkg or - 4.3 per cent in 2003-04. There was a slump which was hard rooted,
witnessing lowering productivity and lesser gains from world trade in terms of
export values, whereas Kenyan tea production grew by 10.5 per cent the same
year. Clearly, Kenya eating up the world shares at a higher pace than any other
 country did.In 2004, the production raised up to 324.6 mkg from 293.7 mkg.
Kenya increased the production by 25times. Comparatively, as much as 33% of
cultivation area was expanded in India also to increase production but in Kenya, it
got multiplied ten times during the same period.

Ironically, Indian tea exports to Kenya registered a three-

fold growth. From 3.49 mkg in 2003 it went up to 9.99 mkg. The average price
earned from this market also increased to Rs 46.88 per kg against Rs 40.26 per kg
in the previous year. Kenya also emerged as an integral part of tea import in India.
India is clearly losing both productivity and exports.

On the other hand, the imports into India registered a

phenomenal jump. From a meager 9.86 mkg in 2003, it went up to 30.52 mkg
marking a growth of more than 200 per cent. However, the average import price
dropped to Rs 45.68 per kg from Rs 58.32 per kg. Fifty five percent imports were
from Vietnam at 17.28 mkg against a meager 1.11 mkg in 2003. Whereas,
Kenyan imports increased to 3.30 mkg from 1.22 mkg in 2003. Apart from these
two countries, imports from Nepal, Indonesia and Sri Lanka remained more or
less the same.

INDIAN SCENARIO :
 Growth in tea production :
In India, tea production increased 3.9% in 2005 to 0.93 mt, as compared
with a 3-year compound average growth rate (CAGR) of 3.9%. The growth was driven
by robust tea production in Assam, the largest tea growing state in the country. However,
declines were reported from West Bengal, while a modest increase in output was reported
from South India. Tea production has grown at a slow rate over the last few years,
because of the closure of up to 70 tea gardens in Assam due to the widespread recession
in the industry. The downturn was further exacerbated by unfavorable weather.
• Tea production during 2006-07 (April 2006 to March 2007) increased by 1.4 %(13.77
Million Kilograms) over the year 2005-06 and was estimated at 944.62 Million
Kilograms as against 930.85 Million Kilograms during 2005-06.

• Decline in tea production during March 2007(50.66 M.Kgs as against 58.12 M.Kgs
during March 2006).

• Tea production during the first three months of 2007 registered a decline of 11.29
M.Kgs as compared to the corresponding period of 2006.

• North Indian tea production declined by 7.37 M.Kgs during January to March 2007
over the same period of 2006 and registered an increase of 18.33 M.Kgs during the
financial year 2006-07 as against 2005-06.

TEA EXPORT BY INDIA FOR 2006-07 :

• Teaexports for the financial year 2006-07(April 2006 to March, 2007)increased by

3.2% in quantity terms and 1.7% in value terms (US$).Exports for the year 2006-07was
202.95 Million Kilograms for a value of US$ 412.90 Million as against 196.67 Million
Kilograms for a value of US$ 405.82 Million during the corresponding period of 2005-
06.

• During March 2007, tea exports from India registered an increase both in volume and
export earnings by 5.47 M.Kgs and Rs.51.71 Crores over March, 2006. Exports during
March, 2007 was estimated at 19.16 Million Kilograms for a value of Rs. 172.22 Crores
with an unit price of Rs.89.87 per Kg., as against 13.69 Million Kilograms for a value of
Rs. 120.51Crores with an unit price of Rs. 88.06 per Kg during March 2006.

• Increase in export of tea from India during 2006-07 was noticed to countries like Iraq
(6.04 M.Kgs.), Afghanistan (5.83 M.Kgs.), Kenya(5.64 M.Kgs.), Pakistan (3.36 M.Kgs.),
A.R.E (2.34 M.Kgs.). A marginal improvement was also noticed in the countries like
Ukraine,Ireland and Turkey during 2006-07 as compared to the corresponding period of
2005-06.

• During 2006-07 there was a decline in exports to CIS countries including Russia (4.08
M.Kgs), UAE (3.18 M.Kgs), UK (2.16 M.Kgs),USA (1.58 M.Kgs), Iran (1.13 M.Kgs). In
addition, marginal decline in exports to Germany, Canada, Poland, Saudi Arabia,
Singapore,Japan, Sri Lanka and Australia was also noticed as compared to the
corresponding period of 2005-06.
 CRITICAL ISSUES IN THE TEA SECTOR
Social issues
 Low wages :In India workers on smallholder gardens get paid at much
lower rates than at theestates and they have hardly any rights compared
to their plantation counterparts.The wage rates of tea garden workers that
fall under the plantation labour act(estates) are generally fixed through
bipartite agreement between the representatives of employers and
employees of the tea gardens and ranged from approximately USD 1.19
(RS 49, inclusive food grain) in Tiripura to USD 1.90 (RS 78) in West
Bengal in 2007.

 Housing: On the large tea estates, workers – permanent but often also
temporary workers -live on the plantation in houses provided by the
plantation company as long as they have work. The housing situation is
often far from ideal, however.

 Health and safety : Tea plucking is difficult, hazardous work. Workers

are on their feet for hours on end,carrying tea-collecting baskets on their
backs; back problems are therefore common.The uneven terrain and
sometimes steep slopes on which tea is picked raises the risks of
accidents and as a result fractures due to falling (from height) are quite
common. In addition they are exposed to harsh weather conditions (hot,
cold, wet), pesticides, mosquitoes and other insects, and poisonous
snakes. The distance from modern health facilities remains a problem for
plantation workers.

 Casualisation of Labour : Casualisation of labour is a major concern,

because workers are not guaranteed job security (contracts) and other
benefits that permanent workers accrue, such as pension rights and
access to medical care for their children.

Environmental Issues

 Habitat conversion :Habitat conversion is seen as the main harmful

environmental impact of tea production69. The reason being that the
habitat for cultivation is often located in more rugged and remote
areas, which tend to be those with the highest
biodiversity.Converting such habitats leads to species reduction and
due to the slope of the land,among other things, considerable soil is
lost before the plantations are fully established to protect the soil.
However even when a plantation is established soil erosion can be
high. If a forest is replaced with a tea plantation, the same surface
area may lose from 20 to 160 tons of earth each year .
  Energy use:Tea processing is energy intensive. Withering, drying,
grading and packing tea requires 4 to 18 kWh per kg of made tea,
which compares to 6.3 kWh for a kilogram of steel. Different types
of feedstock and energy are used, such as firewood, oil,natural gas,
electricity and sometimes hydroelectricity depending on the country
and area. Roughly 85 percent of the total energy used is thermal
energy, while the rest is in the form of electricity for the machines72.
The environmental impact of tea processing depends on such factors
as the use of renewable/renewed feedstock and the energy efficiency
of the machinery. Drying, the most energy-intensive phase of tea
processing, is mainly carried out using firewood from natural
forests73. In some regions of India, for instance, the use of firewood
has caused extensive deforestation.

 Agrochemical use : Different agrochemicals are used throughout

the growing cycle on tea plantations to protect tea bushes and to
enhance productivity. The types and amounts of pesticides
(herbicides, insecticides and fungicides) and fertilisers applied will
vary considerably between and within countries. Tea is often
produced in monoculture and plantations therefore lack natural
enemies and protection by diversity to pests. Therefore sometimes
large amounts of pesticides are used to control for pests. For example
crop loss is 14 to 50 percent in extreme cases in India. To combat
pest attacks in this country a huge quantity of pesticides finds its way
to the industry and this has led to indiscriminate use instead of
integrated pest management.

Economic issues

 Uneven value distribution :The tea value chain comprises all the
stages from green leaf production through conversion into a bulk
packaged product available for blending and sale to consumers.
Value is added to the tea leaves at each stage of the supply chain,
each with associated costs (see also figure 4). This includes the cost
of plucking and sorting, factory packing, internal transport,
warehousing, sales charges (auction and direct), freight, insurance,
interest, blending and packaging and retailers' sales costs. In general
across (agricultural) commodity sectors most added value is created
downstream in the higher processing and retail stages of a supply
chain. The tea value chain is no exception to this rule. While tea is
“ready to drink” when exported by producing countries, the
downstream stages such as blending, packing and marketing are the
most profitable. This part of the value chain is controlled by a
handful of multinational tea packers and brokers, which as a result an
considerably influence world retail and producer prices.
  Falling prices :It should be stressed that the auction share of the retail
price as depicted above is a relative share. It may be relatively low, but
in addition that same share has lost its purchasing power on world tea
markets over the years.. While real prices for coffee and cocoa have
plummeted even more, average real tea prices in the years 2000-2005
were roughly half of those in the eighties and 30 percent lower than in
the nineties90. World market tea prices are mostly under pressure
because of a situation of oversupply: global production is outpacing
consumption In addition the cost of production of made tea has
increased due among other things to increasing fuel prices and increased
labour costs91. At the same time,however, real retail prices over the last
two decades have remained constant. In other words, while the real cost
of tea has remained the same for consumers,sourcing costs for retailers
and packers have gone down, as has the income for producers.

Decline of real prices over the last two decades

 Smallholders : There is an overlap in the economic, environmental and

social issues affecting smallholders and large tea producers. However
there are also a number of factorsthat uniquely bedevil the smallholder
sub-sector. This section will be looking briefly at some of the most of
important of these, including low farm gate prices, poor extension
services, poor access to credit and low level of farmer organization.

Indicative prices for green leaf from smallholders in 2007 (in USD)
 CONCLUSION

As a result of overproduction, real-world market tea prices fell by roughly half

from1980 to 2005. This has put producers under pressure to lower the cost of
production.While there are no figures available on the cost of production over time,
historic productivity figures indicate that the average yield per hectare increased by a
third during the same period (1980-2005)155. Because wages, that account for the largest
share of production cost, have undoubtedly increased over this period as well it is clear
that the profitability in the industry is under serious pressure156. Meanwhile, tea trade
and distribution is dominated by a few international companies that benefit from stable
retail prices and, together with retailers, capture more than three quarters of the retail
price in Northern countries. There was little baseline data or evidence available to
compare the situation over time in the countries studied, so it cannot be said that
conditions have generally deteriorated over time as a result of factors such as falling
world market prices.

RECOMMENDATIONS

The case studies all make a number of recommendations that mostly deal with the issues
in their respective countries (see annex). Below we will present some of the more across-
the-board recommendations for the various stakeholders.

Tea-producing companies should:

1. Adopt and implement CSR policies that improve social, economical and
environmental conditions on and in the vicinity of the plantation or factory
2. Allow for multi-stakeholder monitoring and verification of the social,
economical and environmental standards adopted
3. Provide support to small tea growers through technical, financial and
marketing assistance for market access and quality improvement
4. Enable and facilitate sustainable tea production at supplying smallholders by
paying higher prices and engaging in long-term buying commitments with
producers that produce tea sustainably
5. Not lobby to dilute existing labour legislation which protects workers in the tea
industry, on the grounds of declining returns.

Tea-trading and packing companies should:

 1. Enable and facilitate sustainable tea production by paying higher prices
and engaging in long-term buying commitments with producers that
produce tea sustainably and offer technical and advice where needed

2. Adopt and implement CSR policies that are ambitious but take into
account local realities
3. Conduct multi-stakeholder monitoring and verification of the social and
environmental standards on the tea estates from which tea is procured
4. Take responsibility for conditions throughout the entire tea value chain
and in particular where they have more influence
5. Provide support to small tea growers through technical, financial and
marketing assistance for market access and quality improvement

Governments should:

1. Consider and adopt schemes that allow for management of tea

(over)supply internationally and nationally (eg. export quotas, minimum
quality standards)

2. Investigate and counterbalance monopsonies nationally and

internationally (eg.through competition policy)

3. Provide technical and marketing assistance to the small and marginalized

farmers, including in the area of crop diversification

4. Provide credit schemes and debt management services to the plantations

5. Ensure that labour laws are not violated on the large plantations

6. Procure tea that is produced according to high social, economical and

environmental standards

7. Strengthen the position of small tea growers by offering technical and

marketing assistance, credit schemes and debt management service

8. Create a conducive climate for CSR at the national level

9. Create a conducive climate for value added sustainable tea production at

the national level

10. Facilitate the creation and empowerment of small producer organizations

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