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Storm in tea country

Print edition : Aug 19, 2000 T+T-

The small tea growers of the Nilgiris, who have borne the brunt of the prolonged downturn in leaf prices, launch a strong agitation demanding a reasonable price for their produce.

AN uneasy calm prevails in the Nilgiris. The prolonged downturn in tea prices has affected every aspect of life in the hills, particularly tourism and trade. The 50,000 small growers of tea in the area are restive. The phenomenon of the small gower, uniq ue to the Nilgiris, has meant that the crisis has affected a significant proportion of the population in the district. The agitation by growers, since April, and the police action against them, have focussed attention on the plight of small growers. Alt hough the situation appears calm, the presence of police pickets in the hattis (hamlets) around Udhagamandalam announces the fragility of the peace in the hills. Long-time settlers warn that an ethnic divide may be in the making if a durable solut ion to the problem of guaranteeing a fair and reasonable price to tea growers is not found soon.

The Indian tea industry has been in crisis since early 1999. Officials associated with the industry say that the beginning of the downturn was in the mid-1998 when the rupee-rouble trading arrangement, which governed Indian trade with the countries of th e erstwhile Soviet Union, came under stress after the collapse of the rouble. Tea exports, an important component of this arrangement, was an immediate casualty. Although India's tea exports to the Commonwealth of Independent States (CIS) countries fell by only 3.72 million kg between January and April 2000 compared to the same period of 1999, the decline in value terms had a severe impact. Although the volume of exports shrank only marginally, the value of Indian tea exports to CIS countries fell by Rs .89 crores in January-April compared to the corresponding period in 1999. This meant that the exports were being made to the CIS markets at highly lowered price levels.

According to an exporter who deals with the market in Ukraine, the CIS countries are beating down the price and have also established alternative sources of supply, Kenya, for instance. However, the considered viewpoint is that the decline in exports doe s not by itself explain the pronounced and prolonged downturn in tea prices.

The former Soviet Union imported Indian tea regularly, and particularly preferred the "strong" tea from the Nilgiris' gardens. Vikram Kapur, chief regional executive of the Tea Board (South), explains that prior to 1998 the strong rouble enabled Russian importers to "pay a good price for Indian tea". He says that when the Russian market collapsed, Indian tea could not gain access to "emerging markets" such as the West Asian and North African (WANA) markets. Indian tea lost the opportunity to other compe titors such as Kenya, Sri Lanka, China and Indonesia. Kapur says that Indian tea exporters were used to supplying to the "price-sensitive, but not quality-sensitive, markets in the Soviet Union". As a result of this emphasis on quantity, quality was give n the go-by in the tea industry. Instead of plucking two leaves and a bud, which would give finer tea, growers, he said, often reaped the entire tea plant in order to earn more. Factories, he said, in turn accepted just about any leaf. Lack of quality co nsciousness reached an obnoxious level in the form of tea adulteration. In order to rectify the situation, Kapur said the Tea Board had undertaken a drive to emphasise quality in the tea growing and manufacturing process.

The stagnation in Indian tea consumption is also cited as the reason cited for the collapse in prices. According to official figures, the per capita consumption of tea has remained stagnant at 0.66 kg a person a year since 1995. The Indian market, which grew at the rate of 3 to 4 per cent in the early 1990s, is now almost stagnant. This is surprising, given the fact that tea is clearly the poor person's preferred beverage. According to a Tea Board official, the claim that aerated beverages may have made inroads into the tea market remains largely unsubstantiated.

Another factor that is reckoned to have a dampening effect on the prices is the "excess production" from the 1998 crop - about 870 million kg. Sources in the industry say that even though tea production fell to 805 million kg in 1999, the "circulating st ock" of tea produced in the record crop of the previous year has kept prices in check.

Obviously, the collapse in the price of green leaf tea has been the most significant aspect of this crisis. Sunil Paliwal, managing director of the Tamil Nadu Small Tea Growers' Industrial Cooperative Tea Factories Federation (Indcoserve), explains that the human dimension of the problem has been more pronounced in the Nilgiris than elsewhere because a large section of its population earn its livelihood from tea grown on small plots with an average size of between one and two acres.

About 50,000 families grow tea on 75,000 acres (30,000 hectares) in the Nilgiris. Paliwal reckons that the green leaf grown by small growers results in the production of about 60 million kg of black or made tea in the 166 cooperative and private factorie s in the Nilgiris. In addition, about 25 million kg of black tea is produced in the integrated factories of the large estates. About 85 million kg of black tea was produced in the factories in the district in 1999, accounting for one-tenth of the Indian tea output. Applying the thumb rule that 4 kg of green leaf yields 1 kg of black tea, small growers would have supplied more than 240 million kg of leaf to the cooperative and private factories.

The tea-growing areas in the Nilgiris can be broadly divided into three sectors. In the Gudalur area, where the cropping pattern is more mixed, pepper, ginger and vegetables are also grown. There are about 20 bought-leaf factories, or private factories, in the Gudalur area. Kotagiri has the highest concentration of factories - about 65 - and the competition for tea leaf is intense in this area as tea is by far its dominant crop. Not surprisingly, Kotagiri has witnessed an intense agitation since April. The Kundah area, with a smaller concentration of tea factories, is the other tea-growing sector in the Nilgiris.

About 21,000 small growers, growing tea on 34,000 acres (13,600 hectares), are members of Indcoserve, the premier cooperative of tea growers in the district. Its members supply green leaf to the 16 Indcoserve factories in the Nilgiris (one factory was cl osed in April 1999). The Indcoserve factories produce about 14 million kg of black tea per annum. Growers supply leaf through the leaf collection centres on a regular basis. However, they receive payment only on a weekly basis. Growers are paid on the ba sis of the sale realisation of the factories. (They allege that this is a non-transparent method, which often penalises them for the inefficiencies of the factories.)

They also supply leaf to the 150 bought-leaf factories. Several factories also employ leaf agents to procure leaves from the growers. Small growers also supplement the requirements of the tea estates, many of which have their own gardens and integrated f actories.

Paliwal points out that although primary commodity prices often tend to fluctuate and have experienced downswings in the past (as in 1980, 1984, 1994 and in 1997), the current crisis has been more severe because the prices have been on a prolonged downtu rn. The average price of black tea at the South Indian auctions centres in Kochi, Coimbatore and Coonoor in 1999 was Rs.72.80 a kg, down from Rs.76.43 in 1998. More significantly, the prices have been sliding steadily since January. In January, the avera ge price for black tea at the Coonoor auction was Rs.43.21. By June the price had fallen to as low as Rs.34.73, a decline of nearly 20 per cent in just six months.

According to sources in the industry, the price for green leaf paid by a "representative factory" in the Nilgiris fell from Rs.10.36 a kg in 1998-99 to about Rs.7.73 in 1999-2000. Since then the slide has been relentless - green leaf prices fell to Rs.5. 00 a kg in April and recovered to about Rs.5.10 in June.

The price formation for tea is now a sensitive issue in the Nilgiris. Growers complain that the factories systematically beat down prices. A question that is being asked in the hills is, how is it that the price paid to growers has been sliding for more than a year, while the price that consumers pay for tea has not declined at all?

A senior government official admitted that this was indeed a "mystery". Growers are clearly unhappy about the manner in which the price for green leaf is determined. Unlike most other commodities, the grower does not have any idea about the price he will be paid when he delivers leaves to the factories. This arises partly out of the nature of the commodity. The leaf has to be delivered to the factory within a few hours of plucking. The grower is thus clearly a price-taker in the tea business.

There are also complaints about cartels operating on the auction floors. It is alleged that the bigger players, operating on behalf of the corporate entities, keep away the smaller brokers from the auction floors in order to reduce competition.

On April 10, more than 1.5 lakh people participated in a rally at Udhagamandalam, to demand a fair price for tea growers. The agitation was so intense that the annual flower show, the high point in the tourist calender, had to be postponed.

The Union and State governments' reaction to the demands resulted in an enhancement in the Tea Board's price subsidy scheme from Rs.1.25 per kg of green leaf to Rs.2 a kg with effect from May 1, for six months.

Vikram Kapur told Frontline that in recent weeks black tea prices at the Kochi auction had risen to about Rs.43 a kg. Based on the assumption that the factories would have incurred a processing cost of about Rs.15 a kg, these factories would have to pay Rs.7 a kg of green leaf supplied by the growers. Add to this the enhanced subsidy, he said the grower ought to get about Rs.9 a kg. The Tea Board said that it had disbursed Rs.1 crore to the growers in the Nilgiris. However, the growers are not sa tisfied with a temporary solution worked out by political interests. They demand a permanent solution in the shape of a minimum support price.

The Union government also announced a hike in the import duty on tea from 15 per cent to 35 per cent. Besides, it has banned the domestic sale of imported tea by export-oriented units. However, the fact that this does not apply to imports from South Asia n Association for Regional Cooperation (SAARC) countries, notably Sri Lanka, has been highlighted by the critics of the government. Although no official figures on imports from Sri Lanka are available, there are rumours in the hills that business interes ts in South India are importing Sri Lankan tea for blending with Indian tea, thus depressing the prices further.

The government has also announced a reduction in Central sales tax, from 4 per cent to 2 per cent, and general sales tax from 8 per cent to 4 per cent. An official explained that this would attract buyers from outside Tamil Nadu. However, critics of the government allege that this has only benefited the tea factories, brokers and the large companies, not the growers. They say that a system that depends on entrenched interests "passing on benefits" to the growers has to be replaced with one that protects their interests directly. This, they say, can only be achieved by introducing a minimum support price for green leaf.

Although the State government-appointed high level committee to inquire into the various aspects of the crisis submitted its report on June 30, the fact that it was not made public has only agitated the growers. In July, more protests, including a series of picketing actions planned by the joint action committee of political parties, were stopped by the police. On July 26, a group of demonstrators, including a large number of women, was lathicharged. There are allegations, backed with photographic evide nce, that the police stripped and beat some of the processionists. A tea estate owner and a prominent citizen of the hill town told Frontline that the police acted in a "completely high-handed manner". He says that the inquiry ordered by the gover nment into the police action will "only enable the issue to be put in cold storage".

There is widespread apprehension that the government's failure to hammer out a durable and just solution to the problems of small growers threatens to cause an explosive situation in the normally peaceful hills. Mainstream political parties seem to be lo sing their influence with the growers as the voices of reason and moderation among them are shouted down by those advocating more aggressive methods of resistance in the face of an obdurate government.