Harrisons Malayalam Ltd (HML) is India’s largest producer of rubber, south India’s largest cultivator of tea, and perhaps, the largest farmer of pineapple in the region. At present, the company cultivates about 14,000ha and processes produce from other farmlands in its neighborhood. With a production of about 9,000 tonne of rubber, 20,000 tonne of tea and 25,000 tonne of pineapple, HML is south India’s largest agriculture operator. The company also produces smaller quantities of other exotic horticultural crops like areca nut, banana, cardamom, cocoa, coffee, coconut, pepper and vanilla . Rajesh Ravi of FE talks to Pankaj Kapoor, managing director of HML, on the tea market and its concerns. Excerpts:

What is your take on the tea market and the price situation?

Prices are extremely good. The auction rates are already up by 25-30% compared to the price level of the same period of the previous season. Production is down in both south and north India. There is no way that the production fall can be recouped. Our production (HML) during the January-March period is down by 50% and for the Q1 of the current fiscal, the fall in production is around 23%. We anticipate the price to rally further up by 15-20% on the backdrop of global shortage.

Do you think India can exploit the global shortage and export more tea, since CTC producing nations like Kenya is reporting a production shortfall?

Exports are likely to come down as the production is short. The domestic market is huge and seen growing robustly around 4% per annum. Volume of exports will come down by 30-35%. Total value of exports may just manage to achieve last year’s performance due to higher unit realisation.

Are you happy with the price level? The market is likely to firm up again on the production shortfall.

In a way it is good. Tea plantations were in bad shape for the last ten years. But the sudden escalation of prices is not a healthy sign. It should increase slowly and remain stable. We are not sure if we can sustain the current rally. People tend to increase the cost of production in good times and laborers demand more wages and benefits. Prices are likely to come down after 6-7 months, but production cost will continue to remain high.

Are you satisfied with the re-plantation effort given the fact that most of India’s plantations are old and less productive?

Yes, it is true that most of the tea plants in India are more than 70 years old. Re-plantation should be done earnestly by everyone or India will become a net importer of tea. We hardly export 10% of our production. No new plantations are coming because of land shortage. The only way to keep a healthy balance between supply and demand is to increase productivity through re-planting. North Indian plantations are not very keen on re-planting. Most of them survive with in-filling (planting plants only in the vacant places without uprooting the existing plants).

What are the concerns of the tea industry?

Quality of the Indian tea, particularly from south India, is a major cause of concern. We need to improve the quality. While Sri Lankan tea gets good value, our tea is priced lower. Shortage of labor is another concern in south India. But the situation has improved with the downturn as absenteeism has reduced owing to lesser construction works. Wages are very high in India when compared to the competing origins. The social security benefits are also a big burden. Beyond a point the industry cannot absorb all the cost increase as we would get out priced. The government should share some of the social security costs.

Do you see mechanisation happening in the plantation sector?

Labour shortage has led to such measures already. Use of manual shears is a good example. It also helps in increasing productivity of laborers. They are also cooperating. In future, we may opt for mechanised harvesters.