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The perfect storm in the cost-intensive tea industry is expected to spill over into 2022, as concerns over rising tea prices as well as subdued export demand continue to hurt producers.
Tea production is a high-cost business, with 60-65 per cent of the input costs going into labour wages. The rest goes for coal, gas, fertiliser, and other machinery. The rise in tea costs was led by the pandemic-led disruptions in the plucking activities, initially.
The leaves mature if they are left on the shrubs for too long, leading to deterioration in the quality of tea. Later, floods in some key tea growing regions of Assam and West Bengal also damaged crops and reduced yields. These two states produce the major share of the beverage in the country, almost 75 per cent of the total.
Then came the wage hike by both the state governments, just before the Assembly polls in the tea-growing states. Votes of tea labourers, who are sizable in numbers, play a crucial role in many pockets of these two states. Assam raised daily wages by Rs 50, to Rs 202, while West Bengal raised it by Rs 26, also to Rs 202.
However, production loss and rising input costs are just one side of the coin. Importantly, the export demand for Indian tea also dampened as consumption of the commodity had tanked sharply amid the pandemic globally.
As per the latest data available on the Tea Board of India's website, Indian tea exports during January-September fell 10 per cent to 138 million kilogrammes. The data for October and November is yet to be published.
Outlook for exports is still dim with the emergence of the Omicron Covid-19 variant, tea producers said.
"Outlook for tea exports is not very optimistic. Increased cost of production for crush tear and curl tea, as compared to African prices, are hurting the Indian market. African producers are making inroads in those markets, including Iran, where Indian tea was earlier dominant," said Anshuman Kanoria, Chairman of Indian Tea Exporters' Association and also an owner of tea estates in Darjeeling.
Besides, higher freight rates also add worries for the exporters, Kanoria said. "Subdued out-of-home consumption of tea in the UK and Europe (two major export destinations) amid the resurgence in Covid caseload will dent our export prospects further," he said.
Further, he said that the high percentage of absenteeism of tea workers from their daily work is delaying harvests, which, in turn, leads to deterioration in the crop quality.
To streamline absenteeism, he said that daily wage should be linked with the productivity of the plantation workers.