Covid-19: Tea firms fret about liquidity even as Centre allows production

Centre has allowed tea plantation companies to re-open
Tea companies are wary of the financial crisis deepening after suffering an estimated production loss of around 80 million kg (mkg) this year, even though the Centre has allowed plantation firms to resume tea manufacturing amid the lockdown.

On Friday night, the union home ministry allowed companies to resume plantation activities provided they operate with half the manpower at a time. The respective state governments and the district magistrates are now required to pass similar orders and come up with further guidelines.

“There was practically no income as production was stopped and transport wasn’t available. On the other hand, fixed costs like wages, loan repayment, interest and other costs cannot be controlled. This is going to further the financial imbalance under which tea companies are already reeling,” a promoter of a plantation company said.

Industry sources alleged that bank credit has been drying up over the years and most tea plantation companies are either reeling under losses or registering a steep fall in profitability.

For instance, during 2013-14, Warren Tea made a net profit of Rs 20.24 crore while during 2018-19, the company ran into a net loss of Rs 15.92 crore. The Goodricke Group had posted Rs 22.24 crore profit in calendar year 2014 but it shrank to Rs 9.49 crore during the financial year ended March 31, 2019. Rossel India too had posted a Rs 20.40 crore profit during 2013-14 which fell to Rs 0.57 crore in the last fiscal year.

“The financial situation is only expected to worsen given the production loss in the first flush season and we don’t know how the second flush will be given the current situation. While a repayment moratorium is being offered as per RBI guidelines, we need to understand the implications and then take a call”, an industry official said.

Companies are worried about the manpower rider in the Centre’s notification which might affect production level even at the onset of the second flush season.

“We need to operate at full strength during the peak production period which has already started. Operating with lower manpower will definitely hit production levels”, D.P. Maheshwari, managing director and CEO at Jay Shree Tea and Industries said.

According to industry officials, although the order allowing re-commencement of production has been passed, the first flush season is nearly over and the crop loss is revised at an estimate of 80 million kg (mkg) from the earlier 100 mkg. This roughly translates into a revised loss of around Rs 1,600 crore from the earlier projection of Rs 2,000 crore.

Planters are however contented that the necessary preparations for the second flush, beginning May, could be made but are unsure of production levels.

“Once gardens reopen skiffing needs to be done first and it will take 8-10 days before any tea could be made”, Atul Asthana, managing director at the Goodricke Group said.

Officials pointed that given the timeliness of the order, production cannot begin before mid-April.

“We don’t know what will be the extent of the Covid-19 spread and how things will pan out in May when the key second flush starts”, Maheshwari said.

Although plantation companies are of the view that atleast 70 per cent of the usual production levels during the second flush season can be maintained, availability of labour and the stance of the workers’ union is a concern. Nationwide, around 230 mkg or 17 per cent of the total tea produced in India is made during the second flush. This tea is the priciest and is of superior quality as compared to tea for the rest of the year.

“The state governments also needs to come up with similar orders and workers also need to cooperate so that production can commence”, P.K. Bezboruah, chairman at the Tea Board, who is also the managing director at Bokahola Tea Company said.

The Assam Chah Mazdoor Sangha (ACMS), the largest tea workers union in the world, which had previously mooted for garden closure is however, ready to cooperate with estate management.

“It is impractical that production should be closed for 3-4 months that too during the peak season. We are keeping an open mind and would cooperate with the state administration and the tea estates provided proper protection of the workers is taken”, Paban Singh Ghatowar, president at ACMS said.

Ghatowar wants estates to remain isolated and under self-quarantine with no outsiders allowed to enter the estates as the primary clause. Secondly, the ACMS is also demanding strict adherence to safety precautions and availability of rations for the workers.
  • Centre has allowed tea plantation companies to re-open
  • Only 50% manpower can be put to use at a time
  • Plantation companies expected to suffer an 80 mkg production loss in first flush
  • ACMS, the world's largest union, is support of re-opening of tea estates
  • Under the current situation, 70% of usual production in Second Flush can be maintained

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel