Indian tea industry set for a turnaround, says ICRA

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New Delhi, Aug 10: The India tea industry has been plagued by closure of a number of tea estates or gardens. The main causes for sickness/closure include inherent weaknesses of the gardens due to poor yields arising out of poor condition of the garden and factory (affecting tea quality and price realisations), poor garden management, frequent changes of garden managers, and the management’s excessive reliance on bank debt with negligible fresh equity infusion. In some of the gardens, the neglect has been due to ownership disputes, protracted litigation and diversion of funds from tea gardens to other activities and in many cases strained relationship between management and garden workers, according to a recent study conducted by a noted credit rating agency, ICRA.

India’s tea production declined 1.2% to 944.7 million kg (mkg) in 2007, compared with increases of 1.1% in 2006, and 5.9% in 2005. During 2007, tea production declined in both North and South India. In the earlier part of the year, tea production had declined because of extreme weather conditions in Assam, severe drought conditions in most of the tea plantations in South India, heavy rains in Kerala, and labour shortages because of disease outbreaks. During 4M2008 (January-April 2008), India’s tea production increased 11.8% (yoy) to 169.97 mkg. After a decline during the winter months, tea production in North India recovered significantly during April 2008. Production in South India increased 18.8% (yoy) to 74 mkg.

Competitive intensity in the Indian tea industry is high because of the high number of players, which are backed by series of incentives. There are about 1,700 processing units engaged in tea production activities. However, while around 1,671 big growers have an annual output of 700-725 mkg, the estimated 0.141 million smallgrowers have an annual output of only around 237 mkg. India’s large tea plantations are most concentrated in Assam and North India. In these regions, a large proportion of tea is grown in large plantations of more than 100 hectares (ha). By comparison, India’s smallholder production is most concentrated in the Nilgiris, where they account for around 53% of total tea production in the region.