Tea in trouble

Are government policy and the trade unions killing the tea plantation industry? That question must be asked after both Tata Tea and Hindustan Lever have sold some of their tea estates.

To be sure, Hindustan Lever has pointed out that there are few synergies between the plantations and the packet tea business.

While plantations have an interest in getting the maximum price for the tea they produce, the packet tea companies have an interest in getting the right quality of tea at the lowest possible price.

The counter to that argument would be that vertical integration has its uses, but for both Tata Tea and Lever the plantations have been a drag on profitability""mainly on account of the huge welfare costs that tea garden managements have to shoulder under the Plantations Labour Act.

The consequence has been that Indian tea has become increasingly uncompetitive compared to tea from countries like Kenya, Indonesia, Vietnam and Sri Lanka, where the social welfare burden does not fall on the producer in the same way.

The cost of producing Indian tea is the highest in the world. This has been known for years. An inter-ministerial committee on the plantation sector had pointed out a couple of years ago that the welfare cost of tea per kg produced was as high as Rs 3.96 and Rs 7.17 in South and North India, respectively.

To be fair, it's not just the Plantations Act that is responsible for the rise in costs; the committee pointed out that the higher cost in North India is primarily on account of non-statutory but customary commitments on food and fuel (as high as Rs 4.28/kg of tea).

Strong trade unions and industry-wide wage negotiations have only compounded the problem. Over and above which, the tea industry has been used as a milch cow by governments, with a variety of cesses and duties being levied on it.

State governments have been quick to levy agricultural income tax on tea companies and the cumulative burden of taxation has been much higher than in competing countries.

Productivity could make up for some of these disabilities, but this too has lagged on Indian plantations. Mechanisation has not progressed very far, and even routine investments for ensuring regular re-plantation have often been ignored.

A significant proportion of India tea bushes are too old, in sharp contrast to the relatively young and more productive bushes in Sri Lankan and Kenya.

What needs to be done is very clear. The expenditure undertaken by the plantation industry on account of implementing the provisions of the Plantations Labour Act must be reimbursed to the tea estates by the government""the annual cost to the government on this account would be Rs 291 crore.

Next, the rate of agricultural income tax needs to be reduced. The tea industry has to be persuaded to take up immediate measures to improve productivity and invest in re-plantation.

Tea plantations provide a livelihood to lakhs of workers, and the government cannot afford to ignore the signs of long-term decline.