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Tea: Will Prices Fall? Author(s): Sharit K. Bhowmik Reviewed work(s): Source: Economic and Political Weekly, Vol.

25, No. 15 (Apr. 14, 1990), pp. 763-764 Published by: Economic and Political Weekly Stable URL: http://www.jstor.org/stable/4396157 . Accessed: 03/04/2012 19:24
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Tea: Will Prices Fall?


Sharit K Bhowmik

Unless drasticmeasuresare introducedthe tea industryis heading for a crisis. Ageing bushes and decreasingproduction do not make for a cheapercup of the popular brewin the future.
SINCE the middle of last year prices of all varieties of tea have risen steeply. In June 1989 tea prices doubled in the auctions and for the next few weeks they kept rising. Ordinary quality tea which could be bought for Rs 30 a kilogrammein early 1989 sold for Rs 60 or more six months later. This trend is still continuing and shows no signs of easing. The new government has so far ignored this price rise and the previous government only issued periodic war-ningsto the industry to take steps to bring down prices. The industry is understandably elated at the current situation though it has tried to provide lip sympathy by promising to sell tea at Rs 40 a kg. This has been done at some of the larger cities through a handful of retailers. How far this half-hearted attempt will benefit the average consumer is of course another question. The major cause for this rise in prices is attributed to the fall in production of tea by around 25 million kg by the middle of 1989. It is, therefore,assumed that this is a temporary phenomenon and prices will be stabilised once production increases. The fall in production in April-May 1989 was due to a drought in parts of Assam and West Bengal. These two states produce 75 per cent of India's tea. Production in this region starts in March and steadily increases during the next few months reaching its peak in July-August. A fall in production in the early season would indicate that total production will decline during the rest of the year. Speculators anticipated this and started hoarding stocks which led to the sharp increase in June. Hence if production increases during the current season prices should fall. However there are some deeper causes for the fall in production and unless these are tackled production is likely to stagnate. Obviously the main cause for the price rise is because production has not been able to meet the increasing demand. Tea consumption in the domestic market has increased rapidly during the last two decades. The Tea Board's draft seventh five year plan noted that the per capita consumption of tea was 0.40 kg in 1971 and it increased to 0.55 kg in 1981. During the past five years per capita consumption has been increasing at 20 gm per annum leading to an increase in internal consumption of 15 million kg annually. Production on the other hand has not increased sufficiently to meet this growing demand. This has adversely affected exports which have stagnated at 200 million kg per annum during the past ten years in spite of a favourable international market. Any increase in exports will make prices in the domestic market shoot up. In order to keep pace with the rising domestic consumption the industry has to increase its production by at least 15 million kg annually. An increase in exports will entail a higher growth rate. However, production figures for the previous decade show that the industry has failed miserably on this account. During this period production registereda fall in 1986-87. Production in 1987-88was 680 million kg, 110 million kg above that of 1980-81but still well below the 760 million kg target for 1990 as envisioned in the Seventh Plan. In fact that industry's achievements have never been anywhere near the targets set by the various five year plans. The Sixth Plan had set a target of 705 million kg by 1984-85 but production was only 625 million kg in that year. The Seventh Plan subsequentlyscaled down its targets even after increasing its outlay but this too has proved futile. The situation which has emerged now is quite bleak. Table 1 gives the Tea Board's assessment of the required levels of production if the annual per capita consumption increases by 10 gm and 20 gm respectivelyalong with the actual production. This assumes that exports will be restricted to 200 million kg annually. It is quite clear from the production figures that even if increase in per capita consumption is reduced to 10 gm the present production level will still not be sufficient. The question therefore arises, why has production not increased in spite of increasing prices? The common argument put forth by the planters associations is that the industry has reached its saturation and the only way out is by increasing the cultivated area. This does not seem likely because the tea producing states are not too eager to increase their area of teagrant land (land specially demarcated for tea cultivation). At the same time it is necessary to examine whether this claim of saturation is really correct. Let us look at the condition of the current holdings.
CONDITION OF CURRENT HOLDINGS

years of its life. Bushes beyond this age are considered to be uneconomic as their yield diminishes. The ages of the tea bushes are given in Table 2. We find that over one-third of the existing tea bushes (43 per cent) are past their prime and hence uneconomic. The future too does not hold much promise as only 6 per cent are below five years. With this age structure the possibility of a production increase in the near future seems unlikely. This large proportion of old bushes has affected productivity. As a result the average yield per hectare (see Thble3) has remained more or less static over the past decade. In fact this stagnation was noticed even a decade before. The averageyield per hectare was 1,221 kg in 1971 and it increased to only 1,461 kg in 1981. During this period new methods of cultivation were introduced such as double hedging (increase in the number of bushes per hectare), faster yeilding clones, etc. Whatever gains these new processes achieved seemed to have been offset by the declining yields from the old bushes. Efforts for improving the existing area through replanting have borne little results. The Tea Board has in its various five year plans disbursed grants and subsidies to the plantations to encourage replanting of new bushes in the place of the old ones. The results have fallen well below the targets.The Sixth Plan (1981-85) had envisioned replanting in 4,000 hectares annually giving a total of 20,000 hectares by the end of the plan period. However, it was able to achieve only around 30 per cent of this figure (see
TABLE 1: TEA CONSUMIriON

Year

(nldn DomesticConsumption kg) + Exportsat 200 mln kg Hlighl Low2 Actual

1985 1986 1987 1988 1989


Notes

668 693 719 746 774


* Provisional.

638 655 673 690 709

656 621 674* 683* NA

in percapita con1 Assuming increase sumptionat 20 gm per annum. in percapita con2 Assuming increase sumptionat 10 gm per annum.
Source: Cols 2 and 3. Draft Seventh Five-Year Plan for TeaIndustry, Tea Board Col 4, TbaStatistics 1987-88 (1985-87) and

Ministryof Commerce(1988).
TABLE 2: AGE OF TEA BUSHES (1986)

We can start with the condition of the tea bushes which provide the basic raw material. A tea bush takes around five to seven years to mature after it is planted. It bears its optimum yield within fifty

Age (Years) Below 5 5 to 20 21 to 50 Over 50 Total

Area (ha)
22,922

Percentage
6.10

75,979 116,091 160,745 375,737

20.22 30.90 42.78 100.00

3(ix)(b). Source: TeaStatistics, 1987-88, Table 763

Economic and Political Weekly April 14, 1990

Thible 4). A sinmilar area was to be extended annually but the results here too were not satisfactory (around 4 per cent). The Seventh Plan scaled down its target for replanting to 17,850 hectares and it increased the subsidies offered to planters for urndertaking this operation. Even this has not had much effect. During the first year of this plan (1986) the area covered was only 1,259.52 hectares. The SeveinthPlan decided to increase its target for extension of the area under tea to 24,450 hectares(4,450 hectaresmore than the previous plan's target) but the initial achievements here are not favourable. In 1986 extensions coveired3,435.14 hectares. The figures for the subsequent years hav-enot been released by the Tea Board but it is unlikely that the actual figures wil7lbe anywhere near the targets by the end of the plan period (1990). The existing age structureof the bushes along with the unenthusiastic pace at which it is being improved will naturally result in a decline in production. The sudden increasein production in the years 1986 and 1987 which was preceded by a decline in the past two years nmay give rise to hiopes that high prices will ultimately lead to high produetion. But this is a wiong notiotn. The spurt in production in these two years w-asdue to -.ome short-term (and short-sighted) measures adopted by the planters to make the best of the price increase at that time. Production was boosied by exteniding the plucking and delaying the pruning of bushes. The
YIELDPER HECTARE 3: AVERAGE TABL,E

plulckingseason in norti;least India starts in March and ends in lae, November. During the winter months the bushes are pruned so that they can be rejuvenatedfor the coming season. There are different methods of pruning. Usually light pruning is done where the top leaves of the bushes are chopped off. After a few years these bushes require deeper pruning. In this case the bushes will bear leaves after a longer period (by May or June instead of March). When bushes are old they can be rejuvenated through a process known as denther pruning where the bush is reduced to a stump and only one branch is left intact. These bushes will grow to their normal height after a couple of years. Deep or denther pruning will cause a decrease in production in the short run but will help increase production in the long run. Of late many of the planters have resorted to only light pruning as this gives quick yields. They have in addition sought to boost production by spraying fertilisers on the bushes as this increases the yield immediately and they are also able to continue the plucking operation beyond the season (i e, till December or later). Such practices have shown good results in the short run but they can be disastroug for the tea bushes if they are repeated continuously. The recent fall in production is a manifestation of these quick profit yielding methods. The

drought has only added to the problem. The current situation in the tea industry is thus leading to a crisis. Production is likely to fall further in future unless firm measures are taken to improve the situation. The government, through the lTa Board, has so far tried to induce the planters by giving subsidies and low interest loans for improving the condition of their plantations. These measures have had no effect till now as the wide gap between targets and actual performance show. The issue can therefore no longer be soft pedalled. The government must if necessary coerce the planters to improve their holdings through measures such as replanting, rejuvenation and in-filling of bushes in vacant patches of the planted area.

Governmentsin the tea producingstates (especially Assam and West Bengal) could amend their land laws relatingto tea-grant land. A clause could be inserted stating that a major portion (80 per cent or more) of the tea bushes in these lands should be below 50 years failing which the land lease will be terminated. The tea board too must ensure through effective legal measures that its subsidies and loans for development are utilised for the purposes for which they have been sanctioned. Such measuresare urgentlynecessary to protect this industry, its 8,00,000 workers and the consumers.

Ytear 1981 1982 1983


1984

Kg/ha 1,461 1,422 1,468


1,606

1985S
198'6

1,641
1,508*

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* Pro'visional. So-urce: 7sa Statistitcs, 1987-88, Table 3 (vi). oF,AREAANDREPLANTINC TABLE4: 'EXTE?NS>ION BUSHES C?;(in ha)

Year 1981 1982 1983 1984 1985


1986

Lxiension Replanting 1,986.50 93 1,981 1,945.89 2,414.82 2,356.58


3,435.14*

1,228.98 1,355.55 1,278.14 1,225.77 1,085.61


1,259.52*

* provisional. anniualtarget for each of the two Note : T7he heads in the Sixth Plan was 4,000 ha {i e, 20,i00 ha each by 1985). The target for the Seventh Plan (i e, by 1990) is 17,850 ha for replanting

and 24,450 ha for extension. Tha. Statistics1987-88,Table2(ii). Sow-rce:


764

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~ ~~Post Box4215. NewDelhi110048
Economic and Political Weekly April 14, 1990

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