Stressed tea estates want to use a portion of land for other purposes

Faced with the spiralling cost of production and competition from bought-leaf factories (BLF), some estate holders are exploring the possibility of using a part of their land for activities other than growing tea.

The Indian Tea Association (ITA) has decided to appoint a consultant to study the alternatives for the large estate holders to contain falling profitability while retaining the existing labour force. Sources said possibilities like horticulture as well as building supermarkets, theatres and other commercial real estate projects were being thought of.

People belonging to the large tea estates said while they had to sustain a higher cost of production, small tea growers (STGs), who usually send their produce to the BLFs, incurred about 50 per cent lower cost of production. With tea prices remaining more or less flat, the estates have started to incur losses.

 
McLeod Russel, the world’s largest tea producer, reported a 35 per cent decline in its operating earnings before interest, tax, depreciation and amortisation (Ebitda) at Rs 110.44 crore during the year ended March 31, 2017, while its top line dipped by 3 per cent to Rs 1,870.82 crore. 

Warren Tea reported a loss of Rs 15.17 crore during the previous year against a marginal Rs 4.58 crore profit in the 2015-16 period. Jay Shree Tea & Industries’ bottom line shrunk by 53.74 per cent to Rs 24.46 crore during the past financial year.

Officials said rising cost of production, depreciation of plant and yield per hectare as well as their commitment towards labourer social security like housing, ration, education and others (as per Plantations Labour Act, 1951) were straining the estate tea sector across the country, gradually making tea “unsustainable to produce”.

Wages and employee benefits, which account for around 45 per cent of a garden’s annual expenses, spiked by nearly 12 per cent for McLeod Russel, while Rossel Tea saw a 10.5 per cent hike.

“STGs, on the other hand, are not required to abide by the Plantations Labour Act, 1951, which makes their cost of production around 50 per cent less than the ones borne by the larger estates,” an estate tea producer said, adding that STGs appointed seasonal and casual labourers only, unlike the estates and large growers who relied on full-time regular staff.

While the yield per hectare for estates stands at 1,000-1,400 kg in north Bengal and 2,000-2,500 kg in upper Assam, STGs’ yield is anywhere between 2,700-3,000 kg a hectare. “It’s not a level-playing field anymore between the estates and STGs,” the producer added.

 
While tea production in the country rose 4.26 per cent to touch 1,250.49 million kg (mkg) in 2016-17, from 1,197.18 mkg in 2014-15, the contribution from BLFs rose to 35.06 per cent during 2016-17 from the earlier 32.95 per cent.

In the last financial year, while production volume from the estates fell marginally, by 0.5 per cent, BLF production shot up by five per cent.

Industry bodies like ITA, Darjeeling Tea Association and others, in the recent past have made several appeals to the state governments to modify the lease terms for the plantation to allow growing other crops.

S S Bagaria, former chairman of the Darjeeling Tea Association, said unless the West Bengal government allowed a higher percentage of tea plantation land to be used for cultivating other crops and flower, or for commercial real estate development, viable alternative use of land could not be made and the stressed tea companies would decline further.

Under the current rule in West Bengal, five per cent of plantation land allowed for tea can be used for other purposes. The industry, however, wants the allocation to be increased to 25 per cent.

Ashok Kumar, managing partner at Goomtee Tea Estate, said the soil in the Indo-Bhutan border had turned alkaline, rendering the area unfit for tea cultivation. 

“Bhutan has been building their cement plants in that border area and the fly ash comes to this side, which has now turned the soil alkaline. Flowers and fruits do well in this kind of soil but not tea,” Kumar said.

Tea cultivation needs acidic soil and the yield per hectare suffers as the acidity level reduces.

Asked if the switchover by the large tea estates to other crops would hurt tea volume in India, several industry officials said the alternative use of land didn't necessarily imply a volume decline.

“Anyhow, the focus needs to be on quality and not only volume. Higher quality of tea will fetch better prices both in the domestic as well as the export market,” a large planter said.