TEA INDUSTRY IN INDIA
Snehal Zarekar Abm09024
Tea Industry in India , IIML
LETTER OF TRANSMITTAL
Prof. M.K. Awasthi
Professor) Indian Institute of Management Lucknow, India Sir, enclosed is the project report on “Tea Industry in India”, which you authorized me to prepare for Agribusiness environment Course in Term 3. Sincerely Yours, Ms. Snehal Zarekar Abm09024
TEA INDUSTRY IN INDIA
Introduction Different types of tea Prominent regions growing tea in India Production of tea SWOT Analysis of Indian tea industry Tea Industry and its Crisis Ethical Tea Partnership Environmental and energy issues in tea industries Environment pollution-Tea Industry Pollutants from Tea industry Meeting challenges of the tea industry Indian tea markets Tea Exports from India Exports Share from South and North India Trend of Export to Various Destinations: Major Determinant Factors of Export from India
Tea isn’t simply tea in India but it is like a staple beverage here and a day without it is impossible and incomplete. Indians prefer their steaming of tea because for them it acts as an energy booster and is simply indispensable. It has a lot of health benefits too as its antioxidants help to eliminate toxins and free radicals, from blood. Originally tea is indigenous to the Eastern and Northern parts of India, but it has expanded and grown tremendously over the years, making India the largest grower and producer of tea in the world. It accounts for 31% of the global production of tea. The total turnover of this industry is roughly Rs.10, 000 corers. Since 1947, the tea production in India has increased by 250% and the land are used for production has increased by 40%. Different Types of Tea All the tea that we drink comes from the Camellia Sinensis plant. There are three different varieties of tea in the world the three main varieties are the India the China and the hybrid tea respectively. From these the different types of tea like the green, black, white and herbal tea and oolong tea are prepared.
Fig: Different types of tea. There are variety of tea offered in India; from Green Tea to CTC tea to the aromatic Darjeeling tea and the strong Assamese tea.Indians take a lot of pride in their tea industry because of the preeminence of the industry as a significant earner of foreign exchange and a significant contributor to India’s GNP.
Prominent regions growing tea The three prominent tea-growing regions in India are Darjeeling, Assam and Nilgiri. While Darjeeling and Assam are located in the Northeast regions, while Nilgiri is a part of the southern region of the country.The process starts with the plucking of tea leaves in the tea estates by women employees carrying a basket over the head and ends with the production of the ultimate tea. Production of tea There are mainly two ways of producing tea in India 1.CTC production 2. Orthodox production. CTC is an acronym for crush, curl and tear. The tea produced by this method is mostly used in tea bags. The production method consists of five stages, rolling, withering, fermentation, and drying finally storing. It is not always possible to compare the two varieties because their quality depends on factors such as rainfall, soil, wind and the method of plucking of tea leaves and both possess a unique charm of their own.
Fig: Production of tea
SWOT Analysis of Indian tea industry Strengths 1) The agro‐climatic conditions prevailing in the tea growing areas of India lend themselves to the production of a wide range of teas – black, green teas and organic teas. 2) Strong production base with 75 per cent of the production being by organised sector covering 1,600 gardens owned by 1,100 entities. 4) Competent managerial manpower. 5) Strong research backing from well established research institutions. 6) Availability of modernised and upgraded manufacturing facilities. 7) Small grower sector with young plantation profiles. 9) Availability of training facilities for supervisory staff, plantation managers and workers for continuous up gradation of their skills. 1) Old age of the tea bushes – nearly 38 per cent have crossed the economic threshold age limit of 50 years and another 10 per cent on the verge of crossing this limit shortly. 2) High cost of production mainly due to low productivity, high social cost burden. 3) Diminishing availability of workforce particularly in South India. 4) Remote location of the plantations and transportation of teas over long distances from tea gardens to sale points. 5) Poor infrastructure – approach roads to gardens, inadequate warehousing at ports, placements of vessels and high ocean freight charges. 6) Difficulties in the mechanization of field operations due to topographical and quality limitations. 7) Unorganized nature of small growers with fragmented small and scattered holdings leading to production of poor quality teas mainly due to non‐availability of technical know‐how at the doorstep –weak extension service. 8) Lack of quality monitoring mechanism for teas particularly sold through private sales. Opportunities: 1) Good awareness level world over as to the health attributes of tea leading to growing demand for good quality teas and specialty teas such as organic teas. 2) Narrowing down of the gap between supply and demand due to increased growth rate of consumption in the major producing countries. 3) Producing countries reaching an agreement for forming an exclusive forum for resolving their differences over common issues.
4) Positive response by the tea industry responding to the Government towards renovation of fields and processing factories. (Special purpose tea fund and quality up gradation initiative). Threats 1) Increase in the production in countries such as Sri Lanka, Vietnam. 2) Low cost of production of teas from Vietnam, Kenya and Indonesia etc. 3) Younger age of bushes (better quality of tea) of other producing countries. 4) Consistency in quality and high service quality perception of a. exporters of other countries. 5) Better developed packaging and bagging capacity of Sri Lanka. Assam Tea Industry and its Crisis: Assam is blessed with a high potential for development of resource based and demand based industries. Assam could not flourish with its resources and accelerate the pace of industrialization as it is subject to a variety of problems. Shyness of capital due to high cost of production, security inadequate economic and basic infrastructural facilities, dearth of technical personnel, lack of entrepreneurial motivation on the part of local people and low level of central sector investment etc. are responsible for poor industrial development of the state. Tea industry of Assam is the single largest one of the state playing a dominant role in the economy of the state. It does not only contribute a bigger share in state income but also contribute substantially to the national exchequer every year in the shape of foreign exchange earnings through its exports. Assam tea is not yet officially recognized as a brand or variety of tea by the government due to bureaucratic red tape, depriving the beverage of an exclusive label. As such this industry suffers from an identity crisis in the world market in the absence of official recognition as a unique variety. The demand of Assam tea is already in recession due to better quality tea supplied by the countries like Kenya and China. India’s tea market is facing yet another paradox which could be explained in terms of glaring gulf between the price received by producer and the price charged by dealers and retailers mainly because of unregulated market behaviour. Ethical Tea Partnership The Ethical Tea Partnership is a not-for-profit membership organisation but has been working with tea producers and tea companies to improve the sustainability of the tea industry since 1997. This industry-wide initiative, which was originally called the Tea Sourcing Partnership, was established by a number of large UK tea packing companies who took the decision to work together to improve the social conditions in their supply chains. On ETP membership opened up to non UK based-tea packers, and extended the scheme to include environmental issues as well.
The ETP works in all the main tea producing regions and has a London-based Secretariat, and 5 Regional Managers based in Kenya, India, Indonesia, Sri Lanka and China. Environmental and Energy issues in tea industries: Energy and environmental issues contributes major role in global climate changes and economy. The poor energy utilities creates more environmental problems in terms of polluting air, land and water bodies, and also increasing the final product cost. Tea industries are installed very long back with olden technology and equipment these claims that lower energy efficiency and high product cost. The management people only concentrating in the plantation and not concentrating about the production. The study has been carried out in the tea industry located in the Ootyone of the major tea plantation area in the India. The efficiency has been improved by adopting the technologies like maintaining the correct ID and FD fan capacity ratio, controlling the Excess air level, reducing the flue gas temperature, increasing the power factor, changing the single pass heat dryer (furnace) to 5 pass furnace, maintaining the good quality insulation material. The co2 emissions was reduced from 2.17 Kg of CO2per Kg of made tea to 1.96 Kg of CO2 per Kg of made Tea, the percentage reduction of CO2 was 9.52 % by the implementation of Energy conservation techniques. And 13.66% by changing the old furnace (single pass) and drier with new energy efficient furnace and drier (5 pass). By the adoption of energy conservation technique there is about11% percentage of reduction in specific energy consumption in the particular Tea industry. Environment pollution-Tea Industry: The tea industries generate waste in the different forms like Green leaf waste, Dust, Noise, Fermenting aroma, solid waste in this most of as is not creating any problems to environment. But co2 one of the major constituent of the GHG emission takes considerable attention in their environmental pollution, because most of the industries using coal, Firewood and lignite for the thermal energy sources. The furnaces in the tea industries are installed with very long back and it operating with very low efficiency that claims the higher amount of flue gases with very high temperature that mix with the atmosphere, this increase the atmospheric air temperature and also increasing the co2 level in the surrounding areas. Applying the energy conservation measures will increase the efficiency of the operation and reduce the environmental pollution, decreasing the flue gas temperature, amount of flue gas, and fuel usage.
Pollutants from Tea industry Withering Rolling/CTC Fermentation Drying Grading and Packing Flue gas and related, Rejected green leaves, litters, Pollutants, noise Waste leaves, noise Litters Fly-off/fibers flue gas and related pollutants Waste fibres, noise Challenges of the tea industry: Main problems faced by the tea industry today? Among the various constraints that characterise the tea production, problems included are poor management practice, old age of tea bushes and different infrastructural issues. Besides, there are also quality aspects such as lack of standardisation and quality - packing, pesticide and MRL problems that affect export of Indian teas. Various steps the Tea Board is taking to promote the industry in the country as well as across the world? Different market promotion scheme has been conceptualised to meet the challenges faced by the Indian tea industry in the domestic front (declining consumption) and in international market (competition and declining exports, lower price realisations, etc). The broad objective of the scheme is to increase the domestic consumption of tea and export of Indian tea and also promote the Indian brands in the world market .The major beneficial impact of the scheme would be in the form of stabilisation of domestic prices by maintaining a fine balance between the production and demand. By exporting 200 million kg of tea per annum it should be possible to bring in stability to the market condition within the country.
Tea Board's role change scenerio over the years vis-a-vis the industry scenario? The present Tea Board, was set up under Section 4 of the Tea Act 1953, and was constituted on April 1, 1954 functioning as a Statutory Body of the Central Government under the Union Ministry of Commerce & Industry. While the Tea Act mainly focuses on controls, the scope of the Tea Board's activities over the years has considerably changed. Currently the Tea Board is functioning as an apex body concerned with overall development of the tea industry in India by providing necessary assistance for R & D activities. These activities are aimed at increasing production, productivity and quality; facilitation of trade and promotion of exports so as to ensure maximum returns to the producers, including small
growers, as also safeguarding the interests of the workers and the consumers. They are also aimed at gathering statistical and other relevant data
Indian tea markets:
Tea Exports: Status and Challenges of India In a global context, developing countries in South Asia and East Africa account for more than 85 per cent of world tea production and exports. India and Sri Lanka are dominant in both these respects. Developed countries account for about 62 per cent of world tea imports. Kenya has dominated the world market for several years and its rate of growth is much faster as compared to other competitive countries, including India. India has 12.9 per cent of the market share and is ranked fourth among tea-exporting countries in the international market. While Kenya still dominates the international market with 19.9, China and Sri Lanka have declined their market share in 2006 as compared to the previous year. India’s exports on the other hand, have increased from 12.3 per cent in 2005 to 12.9 per cent in 2006. Table shows the recent trend of world export and the country’s position in a global scenario.
1636.9 corers. In 1997, for instance, it was 211.26 million kilograms with an export value of Rs. 2003 crores
As in production, export from India has also been increasing from 2003 onwards after the negative growth rate since 1997. Exports have surpassed the 200 million kilograms after 2002.
Tea Exports from India
Exports Share from South and North India As against the past, the share of exports of the total production from South India was significantly higher than North India in 2006. It was 117.12 million kilograms or 57.5 per cent of the total share exported, while exports from North India were a mere 86.74 million kilograms or 42.5 per cent. Exports have increased by 20.29 million kilograms from South India, while it has declined by 14.1 million kilograms in North India. Table 3.2 shows the recent export of tea from North India and South
Trend of Export to Various Destinations: Figure shows Russia, the UAE, and Germany were among the countries that imported a slightly higher volume of tea from India between January and June in 2007 compared to 2006. The other major markets include Pakistan, USA and Egypt. India holds a high market share in countries like the UAE, Germany, Poland and Kasakhstan. However, exports to Iraq have declined drastically from 23.42 million kilogram in 2006 to 3.35 million kilograms in 2007.
In these countries, India is the top sourcing partner for tea. Exports to the UK, UAE and Germany showed steady gains, but shipments to the CIS and Poland declined substantially. There has been a changing preference towards orthodox tea in India’s major markets. Considering India’s strengths and global consumption trends, thrust markets identified for export of tea include UAE, Iraq, Kasakhstan, UK, USA, Pakistan, Hong Kong, Netherlands, Canada, Germany, Japan, Russia, Poland and Saudi Arabia The exports share of India’s tea also goes to the EU market apart from the Russian federation. UK markets share the majority of Indian tea from the EU members. The norms and standards and the drinking habits also vary among the EU countries. The Indian tea industry also faces a serious threat from the export markets to EU countries as the industry and government failed to strengthen existing markets and penetrate newer ones. The emerging trend of supply from other countries forces India to make its policy more aggressive to improve the volume of exports to EU countries. Sri Lanka, China and Kenya dominate EU markets with their higher volume of exports. There is an emerging market in Pakistan and Iraq, despite the overall decline in exports, which explains the trade prospects in the Indian tea industry. The new trend in exports is Iraq, which is now the second largest importer of India’s tea after the Russian Federation and CIS countries. Though Iraq is undergoing political and economic instability, it is a favourable market for Indian tea. Iraq consumes an estimated 110 million kilograms of tea every year. Exports to Iraq from India were 44 million kilograms in 2002. However, exports dipped to 12.7 million kilograms in 2003 due to the war in Iraq. Exports to Iraq in the first three months of 2004 have risen by 0.9 million
kilograms from 0.7 million kilograms in 2003 to 1.6 million kilograms in 2004. Going by actual Iraqi imports so far, estimates of a 50 million kilograms order from Iraq appear to ambitious. It is expected that the export would rise to 9 million kilograms of tea in the current year and estimates that Iraq could import a total of 17 million kilograms from India. Major Determinant Factors of Export from India The international demand and export is also determined by the various standards and norms at the international and national level. The standards and norms vary from country to country. These norms may not be the same for other countries. The consumer’s consciousness and initiative regarding the issues have a major role in influencing sale practices. For instance, in New Zealand, the consumer has the option of choosing the packet by reading the label, which gives details of quality and environmental justice. In a similar way, organic tea producers in Tamil Nadu are selling their tea to the market through direct marketing. The tea packet describes the quality and procedures of tea production and their environmental consciousness. The high demand for organic tea from the EU countries and specifically for Darjeeling tea from the UK market can be considered specific choices of export. The price and quality are also important to the export of Indian Tea. The low price product from Kenya and other countries badly affected India’s export. Also, the new economic policies affect the export–import trend.The hike in the exports is attributed to the opening up of markets in Iraq, Pakistan and other Gulf countries. The emerging demand from the Middle Eastern countries is one of the factors for high exports growth from Southern India. Along with international demands, the increase in production of Kenya also affects monthly exports of India in 2006-07. For instance, in the first eight months of 2007, exports fell 19.3 per cent. to 86.03 million kg while the production remained steady, exports in July fell 46 per cent to 10.3 million kg. The high competition from other producing and exporting countries has affected competition in international market. Some other factors challenging the export potential of Indian tea include various tariff and non-tariff measures imposed by some tea importing countries, lower off take by Russia due to change in consumer preferences, lower production of orthodox teas which have a larger demand worldwide, quality problems and the higher cost of production and prices of Indian tea. New policies and opening up of route through the border areas of Pakistan also led to high increase in export in 2006-07. Exports from south India are expected to go up, following the opening up of non-traditional markets like Libya. International relations and political stability are also important to promote exports, for instance, exports to Pakistan and Afghanistan markets. The political and economic instability of Russia in the 90s, for instance, affected the demand for orthodox tea that was mainly produced in the Coonoor area of Tamil Nadu.
The political conflict and economic strategy of the ruling government also have a direct impact on trade-off between the countries. The tea export market in Pakistan is one of the examples of this regime. However, the export prospect to Pakistan is highly persuasive in the future. Industry sources said tea export prospects to Pakistan have brightened to some extent, after the country recently announced a five per cent reduction in duties from 30 per cent to 25 per cent. The reopening of the Iraqi market coupled with loosening import restrictions in Iran indicates that exports should grow in the near future.