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.
However, the ICRA study gave hopes for the revival of the Indian tea industry. It said : ?After a decline in production during 2007, India?s tea production is expected to increase to around 960 mkg in 2008. Exports could recover to around 200 mkg mainly because of higher production in India, and lower production in some key tea exporting countries such as Kenya. Thus, India?s tea exports could increase to destinations such as Egypt, UK, and Pakistan. The opening of the tea promotional office could also help in increasing volumes?
However, the ICRA study cautioned that Indian tea producers could continue to face stiff competition from Sri Lanka. India?s tea exports could also increase in the medium term because of recent initiatives by the TBI to increase production of orthodox tea. Orthodox tea exports are likely to rise in the next few years due to higher demand from Russia and other European countries and stagnant production in Sri Lanka, a major exporter. Russia?s consumption is now shifting towards orthodox from CTC, and India is trying to increase its orthodox exports to the country to regain its lost share. Indian CTC tea quality is almost on par with Kenyan CTC tea. However, Kenyan tea is now preferred in the UK, and it may be difficult for India to increase market share over the long term. Although Indian tea has a good reputation in the UK, India?s tea exports are primarily of blends, especially of Darjeeling and Assam teas, which dilutes their high brand image in the market, and inhibits exports.