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Crisis in Indian tea.

Crisis in Indian tea

India stands face to face today with the problem which she has been seriously considering for at least five years. The high rate of tea consumption is baffling production. International trading balance and foreign exchange need of the country desparately demands higher and higher exports of tea. Output has increased but is not keeping pace with the need for export plus internal demand combined. In the face of this situation appears to be one of shortage. Can this situation be saved by the cleverest moves in the field of marketing? Will it be a lasting solution? These are some questions being asked/discussed from the highest to the lowest levels of tea industry in India.

Drought conditions in Southern India and late rains in Assam and Dooars indicate a shortage in total production during 1989. Although North India production has started to reduce the shortfall since June, a total shortfall in Indian output to the extent of about 25 million kg. during the current year cannot perhaps be avoided. Currently it is estimated that total Indian production may finally finish at 675 as against 701 in 1988.

Sri Lankan production has already suffered by about 26 due to internal disturbances in that country. In addition, China is paying more attention to producing green tea to meet the country's internal requirement. As a result, Chinese tea is not seen in the export market as much compared to last year. In view of the above situation, it is not unlikely to face a global shortage of tea inspite of increase in Kenyan output.

In India the situation has started coming into limelight since May 1988 when tea prices in auctions were showing an upward trend. On one hand, board rooms of well managed producing companies were happy with prices rising at every auction--more profit - more dividend for shareholders. There was a spurt in stock market for tea scrips. Tata Tea which was Rs 140/ - in May shot up to Rs 201/ - in the first week of September. Another similar rise was seen in other tea scrips. Observing such an unusual rise, Calcutta stock market management had to apply a price band. On the other hand, there was an all-round concern for the high increase in consumer prices at the retail end. CTC teas, the variety popular with Indian consumers, shot up to Rs 57/ - from Rs 32/ - during these few months. The Government became concerned as the Indian consumer was being directly hit. With the general elections approaching, it is an odd situation to see the price of the popular drink of Indians rise so high.

Other steps being applied from the auction date of September 25 is that the domestic and export sales will be separated. This has been done to make sure that heavy demand for export market does not influence the domestic market and vice versa. This, however, is not altogether a new idea in Indian commodity marketing. For coffee, such a separate auction system has existed for years. Coffee sold at domestic auction cannot get mixed with coffee sold at export auction. One of the reasons for such smooth channelling may be that the curing houses act as agents of the Coffee Board. In the case of tea, warehousing is a free private business. The Tea Board will surely apply strict controls to ensure that the benefit of price differential does not travel from one group to another.

The industry argues that it has done its best within available resources. In 42 years after independence, production has grown 175 percent while the area under tea has increased only by 33 percent. ITA chairman, Deogun also urged upon the producers to fulfill their committment in creating the Rs 10 crore fund for research & development. Due to non-availability of sufficient land in tea growing states, industry relies on massive research & development activities.

Another step being widely talked about but no decision has yet been taken is that of importing tea. India had long been proud of being the highest producer, exporter and consumer of tea in the world. In order to maintain this position, she has to retain her 28 percent of the global market. After providing for the domestic market, such a position in the export market may not be possible to retain. Therefore, importing tea to supplement stock position seems a possible way. There are, however, strong opinions about this measure. Influential producing community naturally does not favor this idea. Arguments for and against tea importing quickly reaches emotional levels. Decision in this regard has been stalled but one never knows how the government will finally view this matter.

The Tea Board says the cause is due to a lower amount of tea in the auction. According to a previous order, 75 percent of produce is to be sold through auction centres and the producer may directly sell the remaining 25 percent. Relaxation is allowed if the producer exports packet teas manufactured in the garden. Strict application of this rule is under supervision. The Tea Board also insists on prompt enlistment of consignment in the auction to prevent any undue stock holding to take advantage of high prices.

Tea prices are high due to severe purchasing by Russia. According to a trade agreement with the government of India, Russia has been allowed to import 135 In the previous years, Russia used to buy mainly Orthodox teas. But now, in order to fulfill the quantity, she is buying CTC teas also in heavy quantities. Due to short opening stock--the internal buyers particularly Gujarat, Punjab and West Bengal--are buying heavily to ensure adequate stock in lean season. All these factors have created an unprecedented situation in the Indian tea industry.

To ease the consumers' pain with domestic high tea prices, the Government and industry decided to market a commoners packet at a low price i.e. Rs 40/ - per kg which is called `Janata Tea' (`Janata' means people). At the Indian Tea Association meeting in mid-September, the Union State Minister, Priya Ranjan Das Munshi, made an angry outburst when he was told that Janata Tea Packet would be made available nationally only before Diwali Festival (i.e. end October/early November). The industry was asked to take all possible steps to ensure that prices are kept at a reasonable level at the auction. Chairman of the Tea Board, Tripathy made a prompt declaration that withdrawal of lots from auction list will be severely punished. This was done to ensure maximum flow at auction in order to maintain the supply level in parity with demand.

Bimal Bose India Correspondent
COPYRIGHT 1989 Lockwood Trade Journal Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Title Annotation:export demand exceeds tea production
Author:Bose, Bimal
Publication:Tea & Coffee Trade Journal
Date:Oct 1, 1989
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