• Q|A Prabhat Bezboruah

    India’s traditional tea plantation model is under regulatory scrutiny. The union government recently amended legislation from the 1950s to gradually loosen regulations, abandoning requirements that previously limited who could grow tea and where it could be grown. Amending the Tea Act and redefining the mission of the Tea Board of India will follow. In Part 1 of this extended Newsmaker Interview, Aravinda Anantharaman speaks with Tea Board of India Chairman Prabhat Bezboruah to better understand the current situation and the economic and societal forces driving change.

    Listen to the interview, Part I

    Prabhat Bezboruah, Chairman Tea Board of India on current challenges and expectations.

    Part I: Current Challenges and Expectations

    The Tea Board of India has been in the news recently for various reforms now underway. We spoke to Tea Board Chairman Prabhat Bezboruah to better understand the changes that are brewing with the Board and to learn his views on how the Indian tea industry is faring this year. Bezboruah has been chairman since 2017. An alumnus of IIM Calcutta and the Wharton School of Business, he is the first tea planter to hold the position.

    Aravinda Anantharaman: How has 2021 been for the Indian tea industry?

    Prabhat Bezboruah: It’s been quite bad. 2020, despite the lockdown and that tea gardens were shut for a while, turned out to be a pretty good year for tea. When supply is restricted, prices go up. This year, Indian volumes have recovered almost to 2019 levels, but demand is sluggish.

    I personally don’t believe demand contracted over the COVID epidemic. But it’s sluggish, it’s stagnant, growing at maybe 1% or so. 2019 was a bad year for tea, and 2021 will be a pretty bad year, especially for the South Indian tea industry where the prices are lower even than 2019.

    Aravinda: Are rising costs and slowing exports the primary reason?

    Prabhat: The primary reason is volume output. The crop has bounced back to 2019 levels. Remember, we had record exports in 2019. Last year, exports were about 210 mkg. This year they’re likely to be lower.

    [In 2020 tea production declined to 1,257 million kilos and exports dropped by 16% to 208 mkg, down from 249 mkg in calendar 2019. CTC, at 150 mkg, accounts for nearly 60% of the country’s total tea exports – Tea Board Production by Region 2019/20].

    The whole logistics chain is broken. There are various reasons Indian tea is uncompetitive. Kenyan teas are still available cheaper than equivalent Indian teas. South Indian doesn’t compete with Kenya. Orthodox exports from South India are decent, they compete with Sri Lankan exports. The South Indian CTCs are much lower in the value chain. Indian CTC exports are going to be very badly affected because Kenyans are available much cheaper. Overall, the export’s scenario isn’t very bright, and the domestic demand is also sluggish, prices are down every way.

    Prabhat Bezboruah

    Aravinda: Will growers carry forward tea again, this year, like in 2019?

    Prabhat: There might be some carry forward stock because exports are going to be much lower than 2019, but in 2019 we made 1,340 million kilos and we exported 250 million kilos. If our exports had been at the 2019 level, you wouldn’t have seen any carry forward this year.

    Aravinda: India’s hospitality industry has still not recovered from the pandemic. What is the impact on tea?

    Prabhat: Hospitality is a fairly large chunk of demand in India. Hospitality includes tea stalls, roadside tea stalls. That’s a big demand. But the total out-of-home (OOH) demand for tea in India is only around 15% of the total demand. In-home drinking of tea has increased to offset some of the droppings in OOH. I don’t buy the story that Indians are drinking less tea in 2021 than they were even in 2019.

    I don’t think you’re really going to see a very bad last quarter as far as demand is concerned. I don’t know about prices, but I think that demand will be there.

    Aravinda: You’ve spoken about the need to liberalize the market. What would you say is the current reliance on auctions as a price discovery platform? What needs to change?

    Prabhat: I’ve always thought that the auctions are a good place to sell your tea provided it’s the only place to sell your tea. You can’t have a system that acts as the primary price discovery mechanism – that’s the auction – and then expose it to manipulation. There’s no overt collusion among the main buyers because they are companies that are bound by very strict ethical codes and they do follow those codes. I would hasten to dispel the notion that there is any overt collusion between, at least the big boys, so to speak.

    In any auction, there’s what’s known as a demand multiplier. Even the biggest buyer, to get a million kilos of tea, for example, needs to bid for 2 or 2.5 million kilos of tea because they don’t get every lot they bid for. So if you take away demand from the auction if a buyer has a total tea demand requirement of 50 million kilos, and you permit him to buy 30 million outside the auctions, the level of competition in the auction will be affected not only for the 30 million that he doesn’t buy, but another 40 or 50 million that he would have had to bid for in order to buy that 30 million. It’s actually a no-brainer that if you have parallel systems running, even if there’s no overt collusion, you’ll be weakening the auction. So, therefore, the auction should not be the price barometer, but it is. I don’t believe that a dual system can survive. Now we need to sell 50% of our teas in the auctions, but buyers don’t need to buy 50% of their purchases in the auctions. So it’s a total hodgepodge. I have brought up the issue repeatedly at the Tea Board. Now they have Mahadevan’s report (a reference to the report by Prof. Mahadevan of the IIM-Bangalore, recommending the Japanese auction model) in hand. Even that is being implemented very slowly. That’s not a panacea, that will not be a panacea unless you ensure that 100% of tea is sold through the auctions. If you can’t do that, I feel that the government and the Tea Board should withdraw from the auctions. The brokers, who sell tea on behalf of the producers to the buyers can organize their own auctions. That won’t be a price barometer. It would be like any other sale.

    There would be competition. The marketing of tea, the primary marketing of tea would be liberalized in a way that would benefit everyone. The alternative, as I told you before, and I’m repeating myself, is to have everything sold in the auction.

    The tea auction should not be the price barometer, but it is. I don’t believe that a dual system can survive.

    – Prabhat Bezboruah

    Part II: Tea Board Reform and Changing Priorities

    During the past few months, the Tea Board of India has shown signs of change. Stakeholders, many of whom expressed concerns, have met on several occasions to better understand the prevailing views of the Tea Act of 1953. Several amendments were proposed and sections within the Act were revised or discarded. The Minister of State for Commerce and Ministry, Anupriya Singh Patel, also visited the tea regions, meeting various groups from the tea industry. IN Part II we continue our conversation with Prabhat Bezboruah, Chairman of the Tea Board of India, on the changes underway.

    Aravinda: How can the plantation model stay relevant in these changing times, as the small tea grower community is growing?

    Prabhat: The organized sector today is struggling because it has low productivity, low investment, large-scale theft and malpractice, and an inability to carve a niche out for itself. There are companies, even in today’s scenario, where small growers have maintained a cost of production that is half that of the organized sector, or maybe even less. There are companies that are doing well because small growers, the way they are set up, and the fact that they sell their produce to Bought Leaf Factories, cannot make very good teas. There are always exceptions. There are some Bought Leaf Factories that buy only the best quality green leaf from small growers. There are small growers who pluck very well. So there are exceptions. But the general trend in the small tea grower sector is that their quality is not as good as the organized sector. There are estates in the organized sector that make superlative teas. Their cost of production is much higher. Especially this year, they are getting huge premiums. I would like to bring to your attention that a medium Assam today is selling at INRs 180 – 200 a kilo. The best is 400 plus. So you have a quality premium of 200 plus and the cost of production differential is not 200. Therefore, people who aren’t focusing on quality – and I’m talking about really, really good quality – are going to lose out this year. They will lose out to people who are focusing on that kind of quality. And that’s the way to go. If you do go that way there would also be spinoff benefits for everyone because your volume will come down.

    It would be of interest to you that there are some areas of Assam where large-scale theft and dacoity [an act of armed robbery committed by a gang] of green tea leaves is taking place. And I’ve been observing that many of the companies, the majors, tea majors, as you would call them, who’ve had to divest their units the units that they’re getting rid of and the bulk of their assets are in the areas where this green leaf theft is rampant. I feel for them.

    The green leaf is sold to people who buy and there is no certificate of origin in the case of green leaf. If you have a Bought Leaf Factory and somebody brings two trucks of fairly acceptable green leaf to you, you will buy it. You don’t ask the seller where they got this from.

    Aravinda: Is something being done about this?

    Prabhat: The leaf is being stolen from the composite garden, estate gardens. The people who are doing the stealing are local people. And the government is doing its best to help. But it’s endemic in certain areas. I have a sneaking feeling that one of the big reasons for majors are having problems in the units is this. I started by saying that small growers can produce green leaf at half or less the cost of production of privatized gardens. But there are ways of handling it, creating niche markets for yourself. But if you have so many pressures on you and one of them is theft, then you buckle.

    Aravinda: You spoke of quality being one of the things to go after, but is there enough innovation happening in the industry that you think is going to help tea get better prices?

    Prabhat: Innovation is there at the front end, with really fantastic tea rooms and tea boutiques. This is one area where we should move forward. In Australia and in the US there have been new methods of brewing tea, like pressure steam rather than water which brings out more of the flavor.

    But we are dealing with an estimated output of 1,360 million kilos this year. These innovative methods of reaching the ultimate consumer are welcome, but they are not going to help bring that 1,360 or any sizeable percentage of that output out of the morass. It won’t.

    We need to be innovative in the field, which is not coming through. You need to be open-minded to new technology in the factories, which is not happening. Basically, the tea industry remains very hidebound. I believe that we do need to come out of our shells, and we need to be receptive to new technology.

    We need to be innovative in the field, which is not coming through. You need to be open-minded to new technology in the factories, which is not happening. Basically, the tea industry remains very hidebound.

    – Prabhat Bezboruah

    Aravinda: What’s the Tea Board’s response to challenges and concerns faced by the industry?

    Prabhat: We tend to give a lot of importance to the Tea Board, but the Tea Board’s ability to really help the industry is very significant ways is limited. However, the Tea Board can change its focus. What does the Tea Board do? One, they run the auctions. The auctions are not badly run. I don’t think that they did a very, very bad job, but the whole structure of the auctions is wrong. And the Tea Board hasn’t restructured that. We just took the manual auction and converted it into a replica, an electronic replica, where the hammer was replaced by the mouse. We had the option at that time, and the opportunity of redesigning the whole platform, the whole structure of the platform. We had the opportunity, but we lost it. That was in 2007-08.

    Now the Tea Board is overregulating the industry, issuing tea factory licenses, issuing licenses at its own whim. So, that’s really not the job of the Tea Board. The Tea Board should actually monitor what is being imported into the country. We can’t block imports [due to World Trade Organization rules] but we have to discourage it by having an import duty. We already have a 100% import duty but it does not apply to tea shipped here from every country.

    We can ensure that the tea coming into the countries is clean. The Tea Board must monitor this, but they are not doing that. Maybe they will now. I mean, so far, they haven’t.

    We talk about the young generation not being that enthusiastic about tea, moving on to other hot beverages, like coffee. What are we doing to ensure that packets are of reasonable quality?

    I’m surprised that there are packets that are being launched priced below the most economy packet. You have to try and attract new customers but I fear that this kind of strategy will actually push people away from tea. The whole concept of competing on price as they do in supermarkets in Europe and America, where a lot of things are price-driven, I feel that strategy should not be aimed for in India because of the much lower segment already in place.

    In supermarkets in America and Europe, the price of tea is fairly high compared to our prices. So, for them, it does make sense to compete on price. But in India, the cheapest packets are already very cheap. And if you try to offer the consumer even cheaper tea, you have to compromise on quality. And the kinds of consumers who are offered these very cheap and very poor-quality teas will get turned off from tea permanently.

    The marketing wars should be fought on quality rather than on price. And that would expand the overall market for tea. And I feel that the Tea Board has a role to play there because I feel we should look at the really cheaper packets and maybe the other packets and test them. We should also test what’s coming out from our gardens and ensure that all the tea that is sold in India is as safe as that which is exported. Because we talk about other importing countries putting non-tariff barriers on our tea by reducing the maximum residue limits. But I don’t think that’s wrong on their part. If somebody wants to protect its citizens more stringently, they have the right to do so. And we should ensure that our own citizens in the country are drinking tea which is as safe as that which is exported.

    Prabhat: There has been news about the various reforms underway at the Tea Board. What can we expect in the coming year?

    Prabhat: The government is going to revamp the Tea Act. It’s going to be a wholesale revamp. The role of the Tea Board is also going to be redefined. That’s a work in progress and it’s already happening. Even the Plantation Labor Act is going to get subsumed once the code on wages and the occupational safety and health hazards act is implemented.

    They’ve already passed this legislation but the implementation is being delayed a bit because the government is under a lot of pressure. The economy is under a lot of pressure due to the two COVID waves and the resulting huge disruption in trade. But as soon as it comes, the Plantation Labor Act will be subsumed by those two new acts. The two acts have a totally different take on the remuneration that a plantation worker should get. So that’s one big change that we foresee. It will impact the organized sector as well as the unorganized sector, as well as the small tea growers. And hopefully, create a more level playing field. The Tea Act is also being amended and once it’s amended the role of the Tea Board will change.

    The government is going to revamp the Tea Act. It’s going to be a wholesale revamp. The role of the Tea Board is also going to be redefined. That’s a work in progress and it’s already happening. Even the Plantation Labor Act is going to get subsumed once the code on wages and the occupational safety and health hazards act are implemented.

    – Prabhat Bezboruah

    Aravinda: Will we be seeing this in 2022?

    Prabhat: About the code on wages, I don’t know. If you bring in the code on wages and the occupational safety and health act now, suddenly there’ll be huge numbers of small and marginal businesses that may go under, and it will be a big disrupting factor in India. So I feel that the code on wages and the occupational safety and health hazards act will be implemented in 2023, not 2022. the Tea Act amendments and modifications will definitely come through in 2022.

    Aravinda: What about speculation that the Tea Board of India will move from the Ministry of Commerce to the ministry of Agriculture and Farmer Welfare? Is that something that the industry or the board has been pushing for?

    Prabhat: The board hasn’t been pushing for it. There was a meeting where this, among other things, was discussed, but the meeting didn’t reach any conclusion. There’s going to be another meeting and I think at the end of that meeting, we’ll have clear guidance about what’s going to happen in the future. As far as the industry is concerned, I think small tea growers are very keen that the board and the industry be brought under the agriculture ministry. As far as the larger producers are concerned and the associations are concerned, there is no consensus. I think some people would prefer to be under agriculture and others would like the status quo.

    Tea came under commerce because it was India’s most important export in the 50s. Up to about 1953-54, believe it or not, it was the biggest export, earning the biggest revenue, the biggest value. So, therefore, it came under Commerce. Today tea exports are just under $1 billion in a country where the total export value is around $275 billion, it’s like 0.3%. So, it doesn’t deserve to be in the Commerce Ministry, but for historical reasons, we are. Going into agriculture might help small growers. I’m not sure how much benefit it will bring. Taking it out of commerce might bring the export focus down and as I said, exports remain a large part of our business plan. Even though domestic consumption is almost five times greater, exports are crucial in standardizing the market and sorting a better price for producers. So I wouldn’t like the export focus to go.

    Aravinda: Should the Tea Board become the Tea Market Expansion Board once again, as suggested in the letter by the Guwahati Tea Auction Buyers’ Association, and focus on building the market and promoting tea? Should that be the Tea Board’s priority?

    Prabhat: Definitely. That’s what I’ve been saying for the last three years. I think that same letter was sent by the ITEA, the Indian Tea Exporters Association. So, people are realizing that the Tea Board should focus on marketing rather than on regulation. They need to ensure that good tea are sold in the country. They need to ensure that the demand for tea goes up.

    People are realizing that the Tea Board should focus on marketing rather than on regulation. They need to ensure that good teas are sold in the country. They need to ensure that demand for tea goes up.

    – Prabhat Bezboruah

    Aravinda: What about the tea brands that are coming up? What role can they play in building this market and supporting the industry? What would you like to see them do?

    Prabhat: I’d like to see them compete on quality. People like Teabox have some really high-quality offerings, but I would also like them to expand their markets faster than they are doing because these innovative marketing approaches are only barely scratching the surface. When you’re talking about a production level of 1,360 million kilos, if you have 100,000 or 120,000 kilos, going into one of these premium brands, it’s not really going to make much of an impact on the entire industry, but that’s not to demean their efforts. They are very important. Although Darjeeling produces only 7 million kilos annually, it acted as the flagship of India. Even today, when you talk about premium teas, the first thing that comes to mind is Darjeeling. These brands, which have come into the market recently, as long as they focus on exclusivity and high-quality tea, are able to lift the whole category up a little bit.

    Aravinda: They become a face of the industry, isn’t it? Because they showcase the best of what is available and the best of what is possible.

    Prabhat: Exactly. And you see what will happen then if somebody thinks that they would like it a lot and maybe they would try another few brands, their friends who can’t afford such high-priced teas would buy something else.

    Aravinda: Will the domestic market compensate for what is lost in the export market?

    Prabhat: Exports are now only 20% or less of our total production, so we need to get people in India to drink more tea and better tea. If we can do that, a lot of our marketing problems will be over, but exports are important because India needs exports, without exports, you can’t establish a stable and remunerative primary market for tea. So for both those reasons, we need to focus both on exports and boosting domestic demand.

    Aravinda: What about the move to organic production? Darjeeling seems to view organic cultivation as a way to survive. Do you think that’s necessary, especially coming on the back of what happened in Sri Lanka?

    Prabhat: Darjeeling needs organic because in Darjeeling the difference in yield between a conventional estate and an organic one is less than it is in Assam. Assam is a hothouse. Its temperature and extremely humid conditions are like a greenhouse. Under these conditions, conventional agriculture will give you almost double the yield, compared to organic agriculture. Since you produce so much less, you need to sell organic produce at almost double the price. In the recent past, or even in the last 20, to 30 years that hasn’t been the case. There is strong demand for organic tea but it’s at a price that is 30-40% more than conventional tea. And with that kind of a price premium for organic, it won’t be sustainable. And that’s what happened in Sri Lanka. That was a bold step they took. If they had stuck to it and if the entire global industry became organic, you would be seeing huge price increases. We would see prices moving into the $7-8 [per kilo] bracket worldwide, maybe more. But the whole industry, the entire global industry would have to convert.

    Aravinda: Do you remain optimistic about the future of the tea industry in India?

    Prabhat: If we evolve, yes, definitely. The organized sector needs to evolve and fast. As far as small growers are concerned, they’re definitely here to stay. That combination is unbeatable.

    In south India, the tea estates are doing many other things. There are tea estates that are into floriculture. There are tea estates that are making very high-quality orthodox teas, which are selling extremely well. In the Northeast particularly, and Dooars, tea over the decades has brought better returns and better profitability than the south. An easier environment breeds lethargy. In the north, especially the Northeast, we have become lethargic, and we are unable to change with the times and keep complaining all the time. And that’s really not the way to go. We have to be focused and optimistic.

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    Aravinda Anantharaman

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  • Folklore Tea

    A recent development in tea in India has been the rise of new brands, many that have their roots in tea regions. Almost all of them seek to bridge producers and consumers. Most rely on the narrative that accompanies a product from its place of origin. For consumers, it’s in part vicarious living and a window to another world. This is as good as it gets for those who want to know who made their tea and where it comes from.

    Listen to the interview

    A conversation with Subhasish Borah, co-founder Folklore Tea, Assam
    Birinci Borah at Folklore Tea

    Exceptionally Local Teas that Connect with Consumers

    By Aravinda Anantharaman

    Emphasizing the local characteristics of Assam (instead of crafting tea to the expectations of export markets) shows respect for the land, customs, and artisanal craft, according to Folklore Tea co-founders Subhasish Borah, an urban planner, and Bidisha Das, a business management grad.

    Folklore Tea founders Bidisha Das, left, and Subhasish Borah

    Folklore Tea, based in Guwahati, actively works with farmers to become something more than a marketing platform for their teas, explains Borah, 30, and Das, 29. The couple run the Kohuwa Collective, a space that comes with a slow food café and tea room, with rooms for collaborative clothing and pottery workshops – concepts that seem to drive their work. They launched Folklore early in 2020 and, as a brand, are keen to carry the farmers’ stories.

    Folklore is anchored in the idea of storytelling and connecting to consumers intimately. Each tea acknowledges the farmer who grew it. Each tea is given a name, and a poem accompanies it.

    Each eco-friendly packet is numbered with a handwritten note addressing the recipient. And while this helps connect with the drinker, it’s not Folklore’s unique sales proposition. That lies in the experiments and work they do with their farmers.

    Folklore works with three small growers, Beeman Agarwalla, Birinsi Borah, and Tarun Gogoi, who collectively cultivate about three hectares (seven acres) of tea. They also run Prithivi, a farmer producer company that now includes 56 members with farms ranging from 0.2 to 3 hectares in size. All the growers are geographically located close to each other, making this a community enterprise. Beeman, Birinci, and Tarun have chosen organic farming and work with the other members to convert inorganic farms to organic. The process takes a long time, up to five years, during which farmers have to face a loss in yield and income. The association supports them by way of small scholarships for children and providing compost from a small vermicomposting unit.

    Beeman Agarwalla and Tarun Gogoi. Behind it all, there are real people – small tea growers whose innovation improves the craft and whose land stewardship protects the environment and the quality of your tea.

    “Behind it all, there are real people – small tea growers whose innovation improves the craft and whose land stewardship protects the environment and the quality of your tea. It is their passion that makes the tea taste better.” – Folklore Tea

    In Assam, small tea growers sell their green leaves to bought leaf factories that manufacture and sell tea. Most of these factories make CTC tea, which is bought and blended for the domestic market. Farmers adopting organic cultivation find no advantages in price as CTC factories are not always organic. Here, the tea is mixed, and the source and style of cultivation are lost. With no advantages to producing organic tea, the farmer has no incentive to stay the course. And this is something that Folklore is trying to address.

    Subhasish describes a proposed project for a mini-community factory that will be used to manufacture organic CTC with leaves sourced from their own farmer community. Currently, they have six small units where their tea is made. These units are not heavily equipped with machinery, and even the CTC is made using traditional wooden tools.

    Related: A Local Movement is Brewing in Assam

    “Right now, there are 56 growers who have joined us. So, collectively, whenever we will be able to set up the factory then we have a huge leaf bank. If we get this funding, which I’m not sure we will get, then of course we go for CTC as it will help not only these three people but all 56 families. That means almost 180 people will be benefited with this factory, it will be huge change in the village,” he said.

    “Whatever we can do in terms of packaging, design, or marketing will help them,” he said.

    Folklore’s association with Prithivi is a close and mutually beneficial one. Prithvi and its farmers brought knowledge of cultivars and tea making, along with market intelligence. Says Subhasish, “Most of the small tea growers with whom we are working started back in the early 1990s. They planted whatever tea bushes they could get from nearby tea gardens. The knowledge of cultivars was not very prominent at that time.”

    The Folklore team decided to study tea and brought knowledge and the willingness to experiment in tea making. Their experiments are with clones, leaf-to-bud ratio, and processing methods such as pan-roasting and naturally scenting tea. Only a small volume of made tea, not more than 300-350 kilos, is sold under the Folklore brand, primarily black and oolong whole leaf tea and some CTC.

    On average a small tea grower can pluck 6-7 kilos of unprocessed tea daily to make 3-4 kilos of finished tea.

    They are experimenting with rolling techniques to improve appearance, experimenting with blending to get the right flavor. And they have also taken on the immense challenge that oolong brings to tea making.

    Artisanal tea making is still has a niche market within India. Folklore seems conscious of this, taking a B2C approach for India and a B2B platform that caters to a global market, with customers in the US, Canada, UK, and Australia. Since the scale is still small, the brand can sustain its relationship and customer base.

    As Subhasish says, there are two main challenges and opportunities of Assam’s tea industry: people who live in the tea areas of the state don’t know enough about loose leaf teas. The irony of producing one of the finest teas and yet sending them to faraway markets is the story across India’s tea-growing regions.

    “It’s very sad,” says Subhasish, “because people in their own region, especially in the villages and towns that are surrounded by tea gardens, the people don’t know much about loose leaf teas. It’s absurd that mainstream media is promoting the concept of green tea in Assam. Green teas have been grown here for years. It is supposed to be the other way around,” he says.

    “Paying 500 rupees for a kilo of tea is not a thing here,” he says. The economic status is not very high. Assam’s annual per capita income is INRs 119,155 ($1,700 compared to the all-India average of $2,100 per capita).

    “People collectively have less money so marketing loose leaf teas at a higher price is difficult. It takes a lot of effort to make loose leaf tea and if you’re selling it for let’s say INRs 300 to 400 rupees per kilo then it’s not giving me anything.

    “Consider that you can get a kilo of CTC for INRs 90 to 100 rupees ($1.20). In this scenario everyone is going to buy CTC but it’s weird. In Assam the culture of water-based tea is also very high but that water-based tea is made using CTC, not loose leaf teas.

    “Most of the growers face difficulties here, they don’t have the human resources or the financial resources to do marketing or packaging. Many people who start making teas go back to selling fresh leaves so that they don’t have to think about marketing again. And many people go back to inorganic because if they ultimately have to sell the leaves to bought leaf factories then then there is no point in maintaining organic because the factories are not certified to process organic tea,” he said.

    Due to financial limitations, few of our growers can afford the expense of the organic certification process, but the growers are far beyond it. They preserve ancient processing traditions and care deeply about their environment. They put their heart and soul into the teas they make naturally, says Subhasish.

    As much as the conversation is on branding and experimentation, ultimately, what will make a brand like Folklore work is its impact on the community. Already there are plans to set up a bamboo cottage on one of the tea farms open for experiential travel. Assam has a lot on offer, from textiles to food, and of course tea. “We want to bring people,” says Subhasish. We want to show the things that are going on here. That it’s not only tea, but a lot of associated cultural elements too.” He talks about the vision to make the area an open museum, where “the entire place can act as a museum, all the houses can act as a museum and the traditional tools which are used in the processing are living heritage.”

    Subhasish describes Folklore as a “passion project.” Perhaps that’s what Assam needs more of, passionate marketers who can join hands with farmers to create quality teas and find a market for them for the greater good of the community. And if it includes nudging local preferences towards better tea for their consumption, that’s a bonus. 

    Trouville Black Tea

    People have spun stories on my genesis.
    Was it a monk who discovered me? or
    Was it a king who dropped me in boiling water?
    Yet my origin is unknown
    Since then, I have grown
    And grew and grew some more
    Moving across spaces and borders
    A living chronicle of several cultures.
    I’m Trouville. I was found through pure chance.

    — Subhasish Borah

    • Assam oolong
    • Cupping
    • Finished tea
    Folklore’s artisanal teas are hand-plucked and hand processed. The company publishes a poem for every tea. The name Meraki means to incorporate one’s soul within their work.

    Birinci with his wife. Small holder farms ranges from a half an acre to seven acres.

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  • Tea Leaf Cuisine

    Pickled tea leaves may sound a bit out of the ordinary but not for Southeast Asian chefs. Burma, now known as Myanmar, is an ancient crossroads influenced by the cuisine of bordering Bangladesh, China, Thailand, and Laos. It is here that laphet has become a national dish that is now finding its way to US and European consumers as branded packaged goods.

    Listen to the review

    Tea’s popularity is not limited to the choice it offers as a drink alone.

    Laphet or fermented tea leaf, is used in a salad called the laphet thoke or mixed with rice. The uses of the fermented tea leaves are not limited to salad or a dish.

    Cultured Tea Leaves Flavor Many Dishes

    By Aravinda Anantharaman

    Tea’s popularity is as a beverage, and a versatile one at that. A single plant produces leaves that are processed, blended, flavored, aged, rolled, compressed, bagged, powdered into a product that finds its audience. But tea’s versatility is not limited to the choice it offers as a drink alone. As a green leaf, it’s also an herb but surprisingly this side of tea has yet been tapped to its fullest potential. Except perhaps in Myanmar (formerly Burma) bordering India, Bangladesh, China, Thailand, and Laos. Not surprisingly, tea is also cultivated here, but its most famous rendition is as laphet or fermented tea leaf, used in a salad called the laphet thoke or mixed with rice. The uses of the fermented tea leaves are not limited to salad or a dish. It’s immensely popular in Burmese cuisine – probably the unofficial national dish. It’s said that only the finest leaves of any harvest are used to make lahpet. 

    Burmese cuisine enjoys fantastic influences, surrounded by countries with culinary wealth. Its popularity may not have reached the levels of say, it’s neighboring Thailand’s cuisine but there’s plenty of offer. Overseas Burmese are now seeing that there is an interest in the lesser known, unexplored cultures of the world, offering an opportunity to promote their own. There are a handful of brands, including Burma Love Foods, a 5-year-old brand from San Francisco whose product range is built on laphet. Besides variations of the dressing, they offer do-it-yourself salad kits which should hold appeal. Myanmar Tea Leaf’s Paline is a homegrown brand producing laphet, said to be the first to brand the product. 

    “Tea you can eat” is an attractive opportunity for promoters of Burmese cuisine, to take something so familiar as tea but offer it in newer ways, and equally for tea businesses that are looking for deeper cultural connections with tea. 

    • Fermented tea leaves in olive oil
    • Stir-fried tea salad
    • Fried mushrooms
    • Laphet and rice
    • Hors d’oeuvres
    Myanmar Laphet (SO) single origin edible tea leaf is picked and aged at 5,332 feet above sea level in Namhsan, Myanmar’s original capital of tea, producing the country’s highest quality teas for the past 1,000 years.

    — Aravinda Anantharaman

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  • Q|A Anshuman Kanoria

    The recent sale of two iconic Darjeeling gardens drew attention to the ongoing challenges facing growers in this fabled tea-growing region. Jungpana and Goomtee were acquired by the Santosh Kanoria group, which owns tea exporter, Balaji Agro International. The group also owns the Tindharia estate in Darjeeling. We spoke to Anshuman Kanoria, chairman of Balaji Agro and also chairman, Indian Tea Exporters Association, about this acquisition. 

    Listen to the interview:

    Anshuman Kanoria discusses his company’s purchase of two iconic tea gardens in Darjeeling, India.
    Jungpana Tea Estate, Darjeeling, India

    Assessing Darjeeling’s Jungpana and Goomtee Estates

    Anshuman Kanoria is chairman, Balaji Agro International, and chairman of the Indian Tea Exporters Association. His company owns the estates Tindharia, Goomtee, and Jungpana in Darjeeling.

    Aravinda Anantharaman: What is the mood in Darjeeling? We hear of many gardens going up for sale.

    Anshuman Kanoria: The last three years have not been easy. Nature has conspired against us; we had the lockdown last year which affected quality. And this year, we had one of the worst droughts in Darjeeling that affected the first flush. The outlook for Darjeeling is bleak. 

    There was a time when people used to say that more tea is sold in the garb of Darjeeling than is produced. It was hoped that with the GI [2011 EU authentication and protection as a registered Geographical Indication*] the price for Darjeeling would improve, and there would be more real Darjeeling in the world. As it stands, it has become difficult to find buyers, even for 8 million kilos. Today, 8 million kilos are sold but not at a price even close to the cost of production.

    People like to blame it on aging bushes but to the best of their ability, people have planted, replanted, and rejuvenated their bushes. The real problem lies in a combination of climate change, insufficient pluckers, and various disturbances which have been occurring in Darjeeling on a regular basis over the last five or six years.

    Wages are a highly sensitive issue. [Jungpana was last sold in 2017, a sale that came on the heels of the Gorka agitation and 103-day tea worker’s strike.] I understand the need to pay much more for workers, but there needs to be a correlation between what a garden is earning and what it can pay for labor.

    You have to understand the breakup of Darjeeling production. Approximately 20% of Darjeeling production is the first flush, and approximately 20% is the second flush. Approximately 60% is rain production. Now we can break that down to the grades; in the first and second flush it’s 60% whole leaf, in the rains, it is at a maximum of 55% whole leaf while 45% are broken leaf teas and fannings.

    The average cost of production can vary from 10% lower to 30% higher, but let us say, the average cost of production of the garden is $10 (per kilo). So, 42-45% of your annual production, which is broken leaf, fanning, and dust, is selling for less than $4 a kilo; and you’re losing $6. In gardens with a higher cost of production, losses can be even more. Let’s say 60% is the whole leaf; of this, roughly 35% is produced in the rainy period and sold at an average price of less than $8 a kilo. That leaves you with 25% from which to make up that loss. This 25% is the whole leaf production from the first and second flush that is prized quality Darjeeling. We really need to be getting average prices close to $25 per kilo to make ends meet in Darjeeling, which is a very tall ask. Therein lies the mathematics of Darjeeling.

    What is the reality? Every year we see a winter drought, which means the first flush will get affected. Every year, we see heavy nonseasonal rain from May onward which disturbs the second flush. So the two periods which are your quality periods where you need to do well, are getting adversely impacted due to climate change.

    It is getting more and more difficult to get pluckers. As workers’ children become better educated, their aspirations are naturally increasing. And in the hills we can’t do mechanization, we can only do very limited shear plucking which is not good for quality. On top of that, there is so much pressure now on the industry, in terms of food safety and MRL [Maximum Residue Level] compliance. This is an additional challenge that Darjeeling is facing as well, now that everybody is heading towards greater requirements for compliance and certification. 

    Aravinda: What does the acquisition of Jungpana and Goomtee estates mean for your company? And for Darjeeling’s tea industry? 

    Anshuman: This is a decision where my brain kept telling me are you crazy. And my heart said, if not now, then when. Can I make it work? I can give it my best shot. Up till now, the people who used to own these gardens have been either plantation people or investors. Nobody has been in marketing. My forte has been marketing, my core company is Balaji Agro International which is an extremely well-known trading house and we’ve been around since the late 1960s. My father Santosh Kanoria was one of the pioneers in the field of export. 

    My focus is going to be quality. My number one concern is the back end. You can have a garden like Jungpana and call it the ‘Louis Vuitton’ of Darjeeling tea, but that claim is worthless unless and until the product is good. It should taste good. It should be aspirational. I can create a story around it, I can leverage the story of Jungpana but my first focus is restoring the quality and restoring the discipline of working in the plantation; of establishing much better plantation management. It’s shocking beyond my comprehension how these estates have been just left to flounder.

    We have already started to get them back on the road to recovery, putting different practices into play and much better administrators. I think the workers also recognize that now they have somebody much more serious about the tea. I’m praying that I get the cooperation of people to try and restore it.

    Am I a hundred percent sure I’ve done the right thing? Definitely not. Financially, it could be my greatest disaster, something that can really set me back in a massive way. I have no illusions.

    I think Jungpana is a much bigger brand name but it is also a much more adversely affected garden.  It’s a beautiful garden, it’s a beautiful brand but we are treading much more on a short-term basis. The challenges with Jungpana are immense. Frankly, we are giving it our best shot but I have to really consider if in the long-term I want to keep it.

    Goomtee is a garden that we want under our umbrella. My first aim is to make it 100 percent organic. We will begin the [three-year] conversion this year. I believe organic is the way forward for Darjeeling. We have a lot of plans for Goomtee but Jungpana – we have kept our options open in terms of our long-term holding of Jungpana.

    We ended up buying both the gardens because it was offered as a package deal and I did not have a way to buy only Goomtee.

    Aravinda: What about your other garden, Tindharia? What do you make there? 

    Anshuman: In Tindharia, in the first flush we make a conventional black tea. It’s doing very well. Almost all of it has gone to Germany with a bit of it going to Japan and the US. 

    In the second flush, we make conventional (conventional in terms of quality) black tea from our China and clonal section. But around the second flush period, that is some part of May, most of June onward, we turn the garden into a green tea garden.

    My father had mastered a very old art of making green tea, which does not use the conventional method. We bathe each freshly plucked green leaf to remove the bitterness from the leaf and all the dust that has settled on it. It is a much more extensive and worker-intensive method to produce it, but we produce it.

    The tea is very well received and hence the demand has been more than what we can produce. The garden produces approximately 65-70% green tea and 30-35% conventional black tea. It is an organic garden. In Darjeeling, if you want to survive in the long term unless you are to be a high-yield, low-cost production estate, in which case you might survive without being organic, but everybody else should really be organic.

    Aravinda: You also head the exporters’ association. What are your views on the export market? Is it still sustaining Darjeeling? How are the dependencies changing? How is Darjeeling holding out to the competition?

    Anshuman: I think we have mishandled a lot of things. For example, when the GI* registry was approved, there was a belief that our importers were cheating (that belief didn’t come from me, but it came from a section of the trade, which was very misguided in my view). They reasoned if they could prevent passing off non-Darjeeling as Darjeeling teas, they would have a great price discovery and there would be a financial boom for Darjeeling. I think the premise that [40 million kilos] of tea grown elsewhere was being passed off as Darjeeling was exaggerated. Secondly, it was presented to buyers in a manner that, ‘Okay, now we are the policemen and we are going to catch you wherever you go.’

    You can’t regulate your buyers with a stick like that. 

    The buyers had no benefit. They were told, ‘You are thieves, you are going to be regulated.’ And all these fancy logos that we managed to get… I mean what good is a logo if you don’t attach value to it? We have not pumped in any money behind our logo promotion.

    And, really, who is responsible for having popularized Darjeeling tea? I would say it is the German importers, to whom we owe everything. It is not the growers, it is not the exporters, it is not the government, it is not the Tea Board of India. It is the Germans who have taken the tea and made it popular around the world. They may have kept larger cuts for themselves, but we still owe it to them. They are the ones who are gunning for us.

    And instead of trying to take them along, we have really tried to be confrontational. I think that the GI registry, which could have done very good things for Darjeeling, started off on a very bad note and alienated a lot of people who were supporting Darjeeling. 

    The other big mistake was taking the auction online from a manual system. What used to happen was producers concentrated on producing tea while the marketing was being done by tea exporters. In a physical auction, the room used to be full, there used to be many people buying tea and they were all bitter competitors. So everyone used to make sure that nothing sold cheaply to anyone. How do you bring about price discovery? True price discovery comes from competition. The old auction system, the manual auction, used to create much more competition. Now we have almost every grower selling directly to a limited number of buyers. Where is the competition? The merchant exporters who used to be the backbone of the industry, have almost lost interest in Darjeeling. And each merchant exporter was catering to 20-30 buyers. If you had 20 people like that, you had competition coming from 300-400 sources. 

    The Germans are very keen to promote Nepal. They look at Nepal as something truly exotic. Production of hill-grown Nepal has gone up to something like 6 million kilos. They don’t have labor laws or food safety laws as we do. They don’t have a Plantation Labour Act like we do. They are not estates. They’re all small factories, which are buying tea from small growers. So their cost for production is in line with the market. So they can’t lose money. The small growers get what they can get. And the Germans are happy to promote it as something exotic. 

    Aravinda: Do you think the damage to Darjeeling’s reputation with buyers has reached the point of no return, or is there some hope to revive this relationship and see what comes of it?

    Anshuman: If I thought there was no chance I wouldn’t have gotten into all this. 

    I know that costs will increase. And I can only keep my fingers crossed that the labor union, the government will understand the plight of the industry and not try to impose such figures on us which are “unsustainable.”

    Every time I go abroad, participate in a trade show, or at a conference, the word I hear the most is “sustainable”. And we have the gurus of the import trade give us long-winded sermons about how we need to ensure soil sustainability, water sustainability. I have only one question: What about the financial sustainability of the estates? Every time we try to bring up prices, we are told there is a war among supermarkets and we have to keep prices low. Consumers want everything, but don’t want to pay for it. What do we do? Either we pay the labor nothing, which is not possible in today’s India, or we lose money to a point where we are not sustainable. Plantations are going to lose out to tourism or some other crop and tea will be secondary. There are maybe 5 or 6 or 7 owners today who have a real passion for Darjeeling and a real commitment for Darjeeling. It’s in our blood. This is why Darjeeling is still alive. Otherwise, even on a macroeconomic level, there is no future for Darjeeling. 

    Aravinda: What about innovation in the tea itself? 

    Anshuman: Well, take the example of Tindharia. If I had tried to run this as a pure black tea garden, the garden wouldn’t have survived. You have to basically see the leaf profile and the quality profile of your estate. And you have to think about what kind of a product mix you want to have based on what quality output you can get from your garden at any given time during the year. 

    We can do green tea and we have enough challenges with green tea because the whole leaf green tea has a market. But 40-45% of the smaller grade, which is the broken leaf and fannings, has a very limited market.

    Aravinda: So, is there a need for something like the Muscatel that sets Darjeeling apart from everybody? 

    Anshuman: All the new planting that has been done in Darjeeling uses clonal bushes. You hear fancy names like AV2, P123, etc, which are great denominators of quality in Darjeeling. But these are bushes with a very specific flavor profile. And the gardens in Nepal have very similar bushes and young bushes at that. And the thing about these bushes is, whether you are located at 2,000 feet altitude or 6,000 feet; or whether you are located on this side of the hill or the other side of the hill, your flavor character is going to be very similar. You might have a higher flavor or a lower less intense flavor but it’s going to be the same character. You’re not going to get a muscatel flavor from a clonal bush. The muscatel flavor comes from a China bush. And when you uproot your China bushes to plant clonal bushes, you are actually sacrificing the USP [unique sales proposition] of Darjeeling which is that Muscatel which you find in this bush. So we have to really strike that balance with keeping our China character which is something that Nepal can never compete with. That is what stands Darjeeling apart. I can understand replacing a lot of the Assam, the Assam hybrid bushes, with the clonal bushes. But I’m not really in support of replacing any good China sections with anything clonal.  

    Aravinda: What about the domestic market? There’s more talk about the domestic market these days than there ever has been. Do you think it’s not been explored enough and two, do you think the time has come, or is it just a desperate attempt to find a significant market?

    Anshuman: So I have a cynical view. Nowadays I’m seeing a lot of people, producers are investing in their e-commerce operations and their website management. There are a lot of other companies, smaller startups, which are trying to be a B2C e-commerce operation. I don’t think most of them are asking themselves the question, ‘What sets me apart?’ They just think this is a good idea, let’s do it, let’s try to make a little bit of money, we don’t have an idea of what else to do.

    Another category, which has done this in a bigger way, managed to get a hell of a lot of investor funding and they have their own USP. I quite admire what Vahdam Tea has done, for example, and the way they have positioned themselves in the US. But there are a lot of small startups who are really coming in the hope that they will get some footfalls, get acquired by somebody else, or let’s get some investor funding and make some money. I don’t know how much they really think they can really increase demand. And they’re starting off from a very low base of how much good tea they are selling on an e-commerce platform in India.

    If you give me any growth number in terms of percentage, it means nothing; if you’re starting off with 5 metric tons of tea and you say we went to 500 metric tons, that’s something.

    I think the Indian market has potential, there is no doubt about it. I think the pandemic has given an opportunity as well. Tea is associated with wellness. We all know the health benefits of tea. And we need to somehow combine the platform of health, great taste, and a lifestyle and build that story around tea. That’s a lot of hard work. I’m not sure how many people are really going to attempt to do that. I sincerely hope that given the employment numbers of tea, the fact that Darjeeling is so strategically located, that it is a flag bearer of quality for Indian tea, it’s a GI product for India, I truly hope that the government of India, will come and lend a hand because Darjeeling at the moment is struggling, after the kind of pitfalls it has faced, particularly during the strike of 2017 and the lockdown came right after, and then in 2021, the drought came. I don’t believe in government subsidies but right now, looking at the kind of situation we are facing, I truly hope the government will come up with some kind of scheme. It’s not about handouts, it’s about promotion.

    What can save Darjeeling? Some help from the government for promotion, some kind of a development package as a one-off thing just to help Darjeeling stand up again from the three blows it has received in the last few years, taking that into account. We need to completely focus again on quality.

    It’s also very clear that a tea garden will find it difficult to survive only as a tea garden. The government now allows you to use a part of your land for other activities, whether it is tea tourism or whatever. I think we have to all utilize our land and look at land parcels and also try to get revenue. 

    Aravinda: What do you make of the recent Tea Board mandate on the 50% production to be routed via auctions? 

    Anshuman: One of the problems with Indian tea, in general, is you have so many different marketing platforms. You have an auction that is over-regulated, micromanaged by the Tea Board. You have completely unregulated private sales where a producer can choose to give a 3-month credit to a buyer. You have a producer-exporter doing direct exports, you have a producer doing direct packaging for the domestic market. So in a multi-faceted marketing environment, what is the future of an over-regulated auction system by the Tea Board? We need the auction, for sure. But not with the current set of regulations and rules. This is something that the government has to take note of and completely deregulate and let the stakeholders run it.

    The Tea Board has many more important things to do, such as concentrating on tea promotion.

    Aravinda: Your acquisition of the gardens has brought some optimism to Darjeeling. Why is that? 

    Anshuman: Optimism came from the fact that there has been a lot of speculation as to what we have paid for the gardens. I refuse to go on record and confirm but it’s very clear that we have paid a hefty price. So a lot of the optimism came from other people who want to sell their garden and think now there will be a resurgence in the valuation of Darjeeling gardens. A conservative guy like me entering Darjeeling despite the odds will probably increase the prospect of others being able to sell their gardens at a reasonable price. 

    There was also some optimism from traditional tea purists who saw the garden changing hands from a group with no background or commitment to Darjeeling, to us, who really have a passion for Darjeeling and some understanding of it. I want to burst their bubble a little bit by saying that this acquisition was really not something my mind advised me to do.

    Wherever we are today, as a group in terms of our financial standing, in terms of our business tactics, I owe a lot of this to Darjeeling. These gardens have also played a role in helping us achieve something. So I just told myself that if I am going to lose a lot of money, I am paying it back to Darjeeling to give it one shot.

    When the gardens were owned by the Kejriwal family, I was deeply associated with these properties. And that is one of the reasons my heart took over because I have spent time in these gardens, I have bought thousands and thousands of tons of their teas over the years, and I have marketed these teas. 

    But should my acquisition give hope to people? God no! 

    There is optimism, but the optimism is for different reasons, some of which are selfish, some of which are daunting. As I said, I’m not here to make a statement. I know what I’m going to do. I have plans to make the gardens much better managed. They are already in play. We are seeing some differences at the ground level day by day. Other than that, is it going to be economically viable? I don’t know.

    Kanoria with his wife, Vrinda and younger daughter, Parthivi.

    *Beginning in 1983 growers in Darjeeling sought to register the 87 gardens there as a protected Geographical Indication. The European Union granted GI protection in 2011. Prior to that time, many teas sold as Darjeeling were blended with similar teas for consistency year to year, an accepted practice. In other instances, these teas were blended (up to 50%) with inferior teas and marketed as Darjeeling. The GI rules allowed a period of transition to deplete stock and then required blenders and growers to market only teas grown within the recognized boundaries as Darjeeling. Teas qualify for a seal of authenticity for marketing purposes and legal remedies if fraudulent brands are sold.

    This interview has been edited and condensed.

    Jungpana and Goomtee Tea Estates

    The two estates are located 12 kilometers from Kurseong in steep and remote terrain. Roads are primitive and the factory is connected through a snaking pathway, accessible only on foot. Jungpana, founded in 1931, is spread over 78 acres (32 hectares) at 3,300 to 4,900 feet above sea level. On arrival, visitors must climb more than 350 steep steps on a pathway to the garden factory that crosses a footbridge over Changey Khola, a small fast-moving mountain stream. Surrounding areas include the Goomtee Tea Estate, a 600-acre expanse of land with forests, mountain slopes, streams, waterfalls, and tea fields.

     -Dan Bolton

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  • India’s Tea Auction Mandate

    The Tea Board of India recently issued a circular mandating that 50% of the production from a garden must be sold via auctions. We ask Narendranath Dharmaraj, a veteran in the tea industry about his views on this, and what it means to the industry.

    Listen to the Interview

    Narendranath Dharmaraj

    Aravinda Anantharaman: The Tea Board of India recently sent a circular mandating gardens to sell a minimum 50% of their produce at auctions. What brought this on? 

    Narendranath Dharmaraj: To give you a little historic perspective, this started sometime in the early eighties through the Tea Marketing Control Order (TMCO) by the government of India.

    They stipulated 70% mandatory and in 1984, they made it 75%. That was about the time when the [Tea Distribution & Export Control Order – 2005 ] Export Control Order was also introduced. Tea prices were running high; as a matter of fact, at some point, I think it was ’83, ’84, there was a ban on exports from India, which was a huge setback for Indian tea exports – a situation which helped other exporting countries leading to permanent loss of market share for Indian teas.

    Narendranath Dharmaraj

    Beginning 2000, following the disintegration of the USSR, we lost our captive market. WTO and ASEAN came in. These enabled global movement of commodities putting pressure in Indian tea price levels.

    The soft underbelly of the industry was exposed. So we were sort of re-examining every aspect of the business. And one of the things that we did as a grower association from UPASI was to lobby against this 75% mandatory auctions. We had to do a lot of work on that, expose the huge gap between the farm gate price and the retail price. And then finally we managed to get the government of India to repeal that 75% mandatory auctions [repealed 2003]. 

    We also, at that time, studied the auction rules in detail and we were convinced that there were basic issues in both the principles and processes of the tea auction which are not leading to correct price discovery.

    Aravinda: Looking at the data since 2014, the percentage drop in volume of auction sales is not new, so by insisting on this, will there be any advantages to the tea industry?

    Narendranath: The basic thinking seems to be there is lack of transparency in the private sales and therefore the small growers are denied a fair price. That seems to be the spirit behind it. Nothing wrong with that spirit; it’s very laudable. But you know, we seem to be coming up with a remedy worse than the disease, in mandating compulsory auction sales. 

    All production and sales are being monitored and tracked by the Tea Board. There are hundreds of returns to be submitted. And if that was not enough, with the introduction of the GST, there is obviously a lot of transparency. So why private sale pricing cannot be tracked, I am unable to understand. 

    Now, going back to the inherent lacuna in the auction principles and process, as I said, we do believe that is not lending to correct price discovery, given a supply and demand situation.

    The auctions started before the introduction of the foreign exchange regulation act, the FEMA and FERA etc. At that time, the producers were the so-called Sterling companies, the buyers were the Sterling companies, the brokers were Sterling companies. So it was more a transaction arrangement than a scientific price discovery mechanism. 

    To that extent it was flawed as a price discovery platform and heavily biased in favor of the buyers. After the English left, everything was Indianized – tea business practically went into the hands of the Indian business houses. Indian buyers, obviously didn’t want to change the system because it was favorable to them. 

    The producer, unfortunately, the underdog in the whole value chain, has the bulk of the cost. It will be interesting to study the percentage of cost of the producer in the ultimate end consumer price.

    There is obviously a big mismatch between what is his percentage cost share vs percentage value share.

    Coming back to the flaws and the principles and processes of auction, there are a couple of things which are very glaring, which was affecting price realization.

    One was proxy buying; one buyer could buy on behalf of any number of buyers. So it’s literally killed the competition. Even in the e-auction, you can argue, that there is no proxy buying; but you know it’s all password managed so nothing prevents anybody from sharing their password with the others. The issue of proxy buying has not been resolved. 

    After e-auction came, they said there will be a pan-India auction, the restricted sale geography won’t be there. But it’s not happening for whatever reasons. Cochin sale is operated by Cochin buyers, Coonoor sale by Coonoor buyers etc. The pan-India auction is not happening. Only if that happens, the competition will go up, there will be more players. 

    The other problem is division of lots. The auction allows buyers to divide the lots between them. I have studied this in fair detail. Time after time, we could find that even the biggest buyer in the country was sharing lots with the smallest buyer. It seems so irrational and unfair. I am told that division of lots continues even now, which is anti-competition.

    One recommendation at that time was a divisibility premium where a buyer had to pay a 5% premium on divided lots. It was stoutly opposed by the buyer community. It was before the e-auctions came in. 

    With the e-auction, there’s the other issue, there is crowding at the last minute, because you have a time span, but it’s long and everybody will wait till the last minute and then, and the bidding will actually start in the last minute which again did not lend to correct price discovery. Unless you follow the Japanese system of auction, where the clock ticks, whether anybody’s buying or not, and the price keeps going up. 

    And in terms of transaction cost, again, that is two weeks cataloguing time, two weeks prompt and perhaps another week between production and packaging. You’re talking about a minimum of five weeks before the grower realizes his money. The two weeks cataloging time was introduced at a time when it took the ages for the tea and information to reach the auction centres from the plantations. Today, they come in 24 hours. Where is the sanctity of this two weeks catalogue time? It gives undue economic information to the buyer. He’s completely prepared and knows exactly how much tea is in the country two weeks ahead of the sale. So, you know, he’s in a, from an information point of view, is much better informed than the poor producer.

    And there is a warehousing cost on top of that. Although I remember ex-estate sale had been recommended, I don’t think it’s happening. So teas have to be brought to the warehouses, which are to be within the certain radius of the tea trade association. There is warehousing cost, there is brokerage, and there’s the horrendous thing called free trade samples. Tea in India must be the only commodity in the world to give away free trade samples. A sizeable quantity is being dished out as as free trade samples. At the end of it, the producer is not sure whether his tea will be sold or not.  

    The only thing that is of some value to the producer in the auction system is the robust prompt payment system. The buyer cannot default at the end of two weeks, because he’ll be penalized; there are conditions by which he will not be able to participate, et cetera.

    So that is something favourable.

    Aravinda: Why did producers move a significant part of their sales from auctions to private sales? Are there takeaways or insights from private sales that can be incorporated into the auction system?

    Narendranath: I would imagine that [prompt payment] is one thing which keeps the producers with the auctions. But there’s a huge price to pay for this in terms of low price discovery. If you develop a relationship with a private player or an importer, that there’s no reason why that prompt payment cannot be achieved, these are all covered by commercial agreements. So willy-nilly, the auction price is the lowest rung in the value chain. That’s why I say that the producers are the underdogs.

    They have to meet the wages every week, every two weeks and somehow or the other, they want to monetize their product. That’s the reason, at least some amount of sale is still taking place in the auctions. 

    And move to private or exports or brand is a way of disintermediation. Obviously you want to move up the value chain. Ideally they should retail but not everybody can do that for various reasons. Successful retailers don’t want to be bogged down with captive production because you can source teas at a lower cost from the market. As a channel, the next best bet would be exports because one, you don’t have a tax and there are indirect government subsidies. Secondly, if you’re a producer exporter, not the intermediary or the merchant exporter, you can get that margin on your price.

    Aravinda: Is the auction system still relevant today? Have e-auctions made a difference? 

    Narendranath: My answer is a big NO. No, they’re not relevant. There’s no auction in coffee. There’s no auction in rubber. Rubber claims they have the highest farm gate price for any commodity. Rubber prices are commensurate with supply and demand. The prices are scientifically arrived at by the forces of market independent of any rules that govern them. 

    Unfortunately, when there are auctions still going on, the private sales and exports prices are linked to auction; you’ll get auction plus something. That’s why I’m saying a big No towards auction. Let independent free trade find a price.

    E-auction is an improvement, no doubt. But these issues are still not getting resolved, the proxy, division of lots, last-minute crowding etc. I’m not saying the buyers are mercenaries. They are serving their business objective., which is to source the raw material at the lowest cost, consistent with all quality specs of course, just as a seller wants to sell his produce at the highest price (produced at the lowest cost). Buyers do have investments, business risks and costs. However, they have the option to pass on their cost to the next level of sale.

    It’s just that the system that’s prevailing largely meets the buyer objectives and not that of the seller. And that is a concern for the producers. 

    Again, it’s not that auction as a generic system is unscientific. It’s just that the history of tea auctions which has had a buyer bias, various interest groups will never be able to agree on a set of rules that aid fair price discovery, under a given supply demand situation.

    There an independent auction platform that’s happening in Jorhat. S. India is piloting a system which includes recommendations from IIM Bangalore, which includes the Japanese bid enhancement facility. It will be interesting to see the progress of these.

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    Aravinda Anantharaman

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