The tea sector in Bangladesh is expected to return to near pre-pandemic production levels after setbacks in 2020. Like neighboring Assam, Bangladesh experienced a spring drought, high temperatures, aggressive pests and the onslaught of the pandemic. Despite these challenges production through July is ahead of last year’s totals and estimated to reach 86 million kilos.
Caption: A monument known as the Tea Daughter at the entrance of Moulvibazar district at Srimangal, Bangladesh. Photo courtesy Faizi Tea Estate, credit: Shomoyeralo.com
Tea Gardens Benefited from Timely Government Actions
By Dan Bolton
Mohammad Musa, manager at Finlay Tea’s Consolidated Tea Plantations in Habigonj, and Moulvibazar, Bangladesh, writes that “Plantation work never stopped during the Pandemic. Workers were kept isolated in the tea estates itself and there were many more safety programs. Government support was encouraging, which really enabled plantations to continue running of the tea estates activities safely during the pandemic.”
Cyrus Anushirvan Faizi, Executive Director at Faizi Tea Estate, reports that the first seven months of the year brought favorable weather.
“Tea production has been consistently increasing thanks to the favorable weather and initiatives undertaken by the [Bangladesh] Tea Board,” he writes. “The distribution of fertilizer at subsidized prices started in the gardens at the right time this year,” Faizi explains.
In spite of the challenges of the COVID-19 pandemic, data from the Bangladesh Tea Board shows the nation’s 167 large and small tea gardens produced 86.4 million kg of tea last year, exceeding the 75.9 million kg targeted. During the past 10 years annual production has increased from 60 million kilos to a 166-year record of 96 million kilos in 2019.
The International Tea Committee in London ranks Bangladesh 9th among the tea producing countries. The industry employs 100,000 permanent workers and 30,000 casual workers. There are approximately 5,000 small holders producing tea. Exports by value fell 5.7% to $3.2 million, according to World’s Top Exports which reports International Trade Center data.
Early this year the Bangladesh Tea Board projected tea production will reach 77.8 million kilos. Halfway through the harvest year growers are optimistic they will exceed that total. “About 51% of the target has already been produced in the first seven months,” writes Faizi.
In 2020 production was greatly hampered due to the pandemic, a severe drought and insect attacks. A nationwide lockdown was imposed by the government in March 2020 to curb the spread of COVID-19 resulting in a drop in crowds in hotels, restaurants, and tea shops as well as a precipitous decline in tea sales.
“However, even during the pandemic, the tea estates were fully staffed and running smoothly which helped the industry to meet its production target,” writes Faizi.
“Plantations are mostly in isolated from the city or localities,” explains Musa who oversees 8000 hectares of tea producing 12 million kilos annually. “Workers were kept isolated in the tea estates itself and there were many successful safety programs against the COVID at the tea estates. Plantation management arranged harvesting on daily basis by observing all safety measures for the workers against the COVID and continue to make sure that workers wear masks, wash hands before and after starting the work,” he writes. Safe distances were enforced during leaf weighing and in the factories all sorts of safety precautions were strictly maintained and continued manufacturing of tea, writes Musa.
Musa writes that “logistic and supplies were interrupted during the pandemic though the plantation management somehow managed timely payments for the workers. Tea plantation really faced acute difficulties about the materials for the estates day-to-day activates.”
Tea production was also hampered by unfavorable weather and insect attacks during the first five months of the 2021, resulting in a 10% decrease compared to the previous year.
Musa writes that “one of the main adversities is drought. During the past couple of years tea plantations in Bangladesh experienced the equivalent of six months of rain less days every year.”
“This tropical region climate is already hot, sometimes it goes beyond tolerance for the tea bushes,” he explains. “To tackle this situation most plantations in Bangladesh are using shade trees to block at least 40% of sunlight over the tea bushes. During the drought plantations used irrigation systems ( mostly overhead sprinkler irrigation systems of various sizes). These irrigation sets were mostly used with the perennial water. Plantations also use mulching to reduce evaporation of water from the soil. Some are using subsoil watering to minimize damage,” writes Musa.
Tea producers in Bangladesh are now at a crossroads, according to Faizi. Improving their marketing performance in both the domestic and export markets has become crucial for survival and growth, he writes.
“Old saplings have been removed and new saplings have been planted. The tea planters have increased the scope of tea cultivation by making new investments,” writes Faizi, adding “If the trend of increasing production continues like this time, then there will be no need to import tea in large quantities.”
Faizi Tea Estate
Tea was first sowed in 2015 at the Faizi Tea Estate in Kulaura, a small village in Moulvibazar District in Sylhet, not far from where the first commercial tea garden was established in 1855 at Malinchhara Tea Estate.
Faizi, the garden’s executive director, is a lawyer and consultant with a degree from the University of London. He writes that “tea is a potential export product of the country with high demand abroad. There’s a lot that can be done for the development of the tea industry and the welfare of tea workers. The production will increase if the necessary support is provided, exchanging views with entrepreneurs in the tea industry.”
Faizi explains that “the tea industry has undergone a number of changes in the last decade. The government and tea planters have taken a number of steps to achieve record production in tea (2019). The government announced a roadmap in 2016 for the development of the tea sector, setting a production target of 140 million kilos annually by 2025.”
He writes that “The tea industry is currently making a significant contribution to the country’s economy through export earnings, contributing to a trade balance as well as generating employment. New tea estates have been established in new areas where the climate is suitable for tea plantations. Large corporate groups have begun investing in tea plantations in response to the rise in consumer demand. Bringing large corporate groups into tea farming is helping to increase production, as well as introducing more knowledge and technology. “
— Dan Bolton
Bangladesh is famous for its Seven Layered Tea also known as Seven Colored Tea. The recipe is a secret. Every year tourists visit the city of Srimangal in Moulvibazar just to taste this tea paying from 70 to 100 Taka ($1) a glass.
Can a world that has already eroded a third of the planet’s soils feed a population of 10 billion without intensive agricultural practices that rely on heavy inputs of fertilizer, herbicides, and pesticides that sustain monoculture farming?
To answer this question, the Tea Biz Podcast and Blog is undertaking a series of interviews with thought-leaders in tea from organizations such as the Rainforest Alliance, growers in Sri Lanka, where a nationwide ban on the import and manufacture of plant chemicals was instituted in May; and with multinationals like Unilever, a company with extensive tea holdings that recently unveiled its basic principals of regenerative agriculture.
Listen to the introduction
Unilever’s Principles of Regenerative Agriculture
By Dan Bolton
In a review of the World Resources Institute’s December report on the looming “food gap” The Guardian writes that “compared with 2010, an extra 7,400 trillion calories will be needed each year by 2050. If food production increases along current lines, that would require a landmass twice the area of India.”
As temperatures rise and rainfall becomes more erratic, attention has shifted to climate change on a grand scale and mitigation at the farm level. Tea is generally grown on hillsides at altitudes less favorable to food crops but the looming scarcity of land for food crops and the depletion of soil on existing farms present long-term challenges for the tea industry.
Unilever acknowledges there is no accepted definition of regenerative agriculture, but the phrase is widely used to refer to practices that include minimum or no tillage, a reduction in the use of chemical pesticides and fertilizers, extensive crop rotation and well-managed grazing for animals instead of industrial feedlots.
Regenerative agriculture is focused on the soil and the enhancement of soil organic matter – SOM is a mix of plant and animal debris, soil microbes in an enriched environment of carbon, hydrogen, and oxygen. SOM improves soil structure, reduces erosion, and retains water.
Extensive planting of cover crops also draws carbon dioxide out of the atmosphere where it is retained in the soil.
Unilever’s Regenerative Agriculture Principles (RAP) are focused on regenerating soils, protecting water quality, increasing biodiversity, developing climate solutions; and improving farmer livelihoods.
The intent is to optimize the use of renewable resources while minimizing the use of non-renewable resources; while keeping resource inputs as low as possible.
The goal of protecting topsoil from erosion and restoring existing soil finds widespread support, but some consider regenerative agriculture to be “over-hyped.”
As NBC News reported in 2019, “one much-cited estimate of potential soil sequestration published to date suggests that if regenerative practices were used on all of the world’s croplands and pastures forever — a huge assumption — the soil may be able to sequester up to 322 billion tons of carbon dioxide from the atmosphere.” That’s a long way from the one teraton that is sometimes claimed to be possible.
Sharon Kelly on Desmog.com writes that “A lot of studies that claim regenerative agriculture can have a huge impact “do not address scientific and practical challenges” involved in employing those practices, the World Resources Institute argues.
She goes on to point out that “Big agrichem companies have been marketing a form of regenerative agriculture that could keep farms reliant on pesticides and other chemicals. For example, farmers may use chemicals to kill off crops at the end of a season rather than using tillage. While that may keep the soil in place, the chemicals used can damage the integrity of the soil in other ways. So while it could be good for carbon emissions, it could perpetuate other environmental problems.”
Kelly writes that “While regenerative agriculture may be in-vogue, it’s not well defined. The term “regenerative” — unlike terms such as “organic” — isn’t defined by regulators and “regenerative agriculture” farmers are not required to show that they’ve followed any specific standards. It’s part of a wider suite of strategies that fall under the umbrella of “climate smart agriculture”, a similarly ill-defined term, which critics say can be used by companies to greenwash their images while avoiding regulation.
Giulia Stellari, sustainable sourcing director at Unilever told FoodNavigator that the stated principles are a starting point. It’s important the industry agree on a definition. “Without consensus, it’s difficult to have alignment amongst organization and therefore difficult to track progress.”
Beyond the Farm
Unilever also makes it clear that “The farms in our supply chain are a key focus for our nature regeneration work. But to do all we can to protect and regenerate nature, we must look beyond the farm and consider the wider impact of agricultural and industrial practices. Where we see an opportunity, we will work with suppliers and farmers to apply regenerative principles to restore natural ecosystems too,” writes Unilever.
“Here the opportunity is in working with local governments, technical organizations, NGOs, suppliers and peer companies to educate farmers and build capability and capacity for the protection of natural ecosystems.
“Regenerating nature requires a whole systems approach, and we are continuing to look closely at our role in the system, and the different places we can play our part.”
Next in the series is a conversation with the Rainforest Alliance on how regenerative agriculture differs from sustainable farming.
Unilever’s Investment in Sustainable Tea Estates
Kenya offers a model for developing countries where smallholders generate most of the tea consumed. In 2006, Unilever pioneered Farmer Field School programs with the Kenya Tea Development Agency (KTDA). Initially supported by the UK Government, and IDH (the Sustainable Trade Initiative) provided funding from 2008. This helped scale it into a program that eventually trained nearly 100,000 farmers – around half women – on good agricultural practices to increase yields and quality.
While the main aim was for farmers to meet Rainforest Alliance certification standards and improve incomes, they also learned how to grow other crops to diversify and protect themselves from tea price fluctuations, as well as good hygiene and nutrition practices.
Advances in sustainable practices are most evident at the Kericho Tea Estate which covers 22,500 acres (9,000 ha) and employs 5,500 full-time workers along with thousands more temporary workers during the harvest season. Kericho also buys significant quantities of raw leaf from local smallholders.
“We have worked hard over many years to improve pay and conditions and we now pay workers well above the industry average – about two and a half times the statutory minimum agricultural income in Kenya as well as health care, education and housing benefits,” writes Unilever. Benefits include transport allowances, paternity and maternity leave, health care, nursery and clean drinking water for the 40,000 people living in company villages.
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:
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.
*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.
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
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.
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.
Nepal’s tea industry reported record sales in 2020. The fabled tea land is growing greater quantities and greater varieties of loose and broken leaf teas thanks to a government-initiated expansion of the industry to high altitude gardens in non-traditional growing areas. Rural agrarian entrepreneurs are redefining offerings for an international market thirsty for the distinct taste of Himalayan grown oolongs, white teas, and premium black whole leaf. In this segment Aravinda Anantharaman introduces Aasha Bhandari, newly named to promote trade at the Himalayan Tea Producers Cooperative, a consortium of all orthodox tea producers established in 2003.
Himalaya Tea Opportunity
Aasha Bhandari is the International Trade and Promotion Executive at HIMCOOP, in Kathmandu, Nepal. She has taken over from John Taylor who resigned as Marketing Manager. Aasha was with the International Trade Centre working on a sustainable map project when she was invited to take over this role at HIMCOOP. In this segment she talks to us about her plans for HIMCOOP and what she sees as strengths, challenges and opportunities for Nepal’s tea industry.
Aravinda Anantharaman: You’ve recently taken charge of trade and marketing for HIMCOOP. What will you be working on in promoting Nepal’s tea industry?
Aasha Bhandari: We have good quality tea, but we need to focus more on marketing, pricing, and our strategy to promote it in the international market. Nepal has mostly SMEs, farmer-based production and strong factories. We may not be strong in terms of capacity or production but are strong in terms of the quality of tea that we make.
Aasha: Tea a growing industry and people are more focused on Orthodox tea rather than CTC. Even in Orthodox, there are varieties of tea – Nepal makes oolong, black tea and white tea. I’m seeing many young tea planters who are involved in the industry or who have started in the tea industry.
They are more focused on putting creativity in tea. One of the factories, a young factory, they are playing with the taste of tea and the processing of tea and that has actually produced a good output. I can see a lot of young people getting involved in focussing on quality.
Aravinda: What do you see as challenges and opportunities?
Aasha: I am excited about adding more SMEs. We have 20 to 26 producers at HIMCOOP, but I want to include more SMEs and go to the farmers on their field and convince them that they have potential marketing outside the country and in exports. For example, we have good teas, but the farmers are unaware about the pricing, about the packaging or invoicing even about the Exim Code (required registration for firms importing or exporting goods from Nepal).I am excited to give that information to them and teach them, or at least help them to think about export in near future. My first priority is to give SMEs the same platform that we are giving to our other producers.
I do feel the pressure that’s on my shoulder to sell the teas. To do better than last year when we had the biggest sale. This year, there is a little difficulty getting the samples to Kathmandu and sending it outside the country. DHL is expensive. Flights are also cancelled. When I started, I felt a little bit worried about not being able to match up the sales of last year or the work we were able to do last year.
I also feel that being very young, I may have to prove myself and that I can deliver.
Aravinda: How has it been so far?
Aasha: I am in touch with our producers and they are doing well. There are difficulties but they are managing. During the first flush, there were hail stones in some places and a few of our producers were sharing that the hail destroyed their tea bushes, especially the buds. But overall, it’s been good so far. I am hopeful about a good second flush. I’m looking forward the white tea actually, because that has good price and good market value. We have specific buyers, small buyers for white tea, and they’ve been inquiring about the white tea. Producers were not able to make white tea in the first flush because of too much rain.
Aravinda: What is the framework of the Nepal tea industry?
Aasha: We are small in geography; we have small gardens and a small production. But if I have to describe the model, how it has been operated, it’s fully based on a small cooperatives, SME models where a few groups of farmers run the factory. The farmers don’t own the factory, the factory is owned by the cooperative of the farmer groups.
At HIMCOOP, member producers have their own factories and some own their own garden also. A few, 10-20% of the factories, depend on the farmers. Since last three, four years, small factories are also being built by farmers themselves.
Aravinda: How does HIMCOOP play a role in the larger Nepal industry?
Aasha: HIMCOOP was officially started in 2003 as a consortium of orthodox tea producers. It was basically established as a joint market marketing platform for the producers. It was established to promote Nepali Orthodox tea in the international market. It works on a cooperative model. We work on samples. Producers send us samples. I taste the tea, characterize its quality and taste, place a price over that and forward to buyer. So that’s how it’s been done. Members send us sample every season, we find buyers and forward the sample to the buyers.
HIMCOOP has played a very crucial role to promote the Nepal tea industry because we have a lot of buyers through this platform. Even last year, with the COVID situation, we, as an organization, did not stop. In fact, last year saw the highest sales for HIMCOOP in its entire 18-20 years existence.
Aravinda: What are the factors that have helped create the brand identity of Nepal’s tea?
Aasha: I think it’s the location and the weather, the bushes are planted at an altitude of around 7,500 feet.
Second is the innovation. At HIMCOOP, we have different types of factories. Some focus on quality in volumes while there are a few small factories where they love to play with the tea making. I think, including all other factors, it’s the innovation and the creativity. There are a few factories that have been doing really well. Others are focusing on making good quality tea, not taking risks on the creativity and innovation. But there are different markets for all these teas.
Aravinda: Is HIMCOOP primarily looking at exports or also at the domestic market?
Aasha: On that point, actually last year we were in dilemma with the lockdown and how long it would last. It was end of March, the starting point of first flush when we faced a lockdown. I asked the producers about the local market and plans to market to them. But luckily, the COVID situation was not that problematic last year and we were able to sell all the teas. I bring up this topic quite frequently. Nepal has a limited domestic market. But it’s mainly CTC that is consumed by people. There are people who love trying different types of tea. I think we’ve not marketed… we lack marketing in domestic markets.
I’m not saying we should not export but I think we should also be able to hold the domestic market. I was quite surprised to know that a few of, most of our producers have never thought about the local market. The reason is often cost. They sayit’s not cost effective for them because here people would purchase on less price. I don’t agree because I have been to tourist places like Thamel where they are selling White Tea, SF, Oolong, and silver needle tea at double the price they are exporting. Of course the quantity matters. Domestic market might not be able to consume that much of tea, at the moment, but I think we should offer a percent to domestic market.
Many factories would gift us tea. It was a lot of tea for me alone and I would give it to my friends. They didn’t know that Nepal is producing such good teas. And they’ve been asking me where, which factory. I told them that it’s not for sale and that they have to contact the factory individually if they want to buy it. So there is a gap between the producers and the consumers here in Nepal. From my own personal experience, a lot of people that I’ve given tea as a gift, they want to buy that tea again. There are a few tea shops but either they quote a high price, or it’s tea from Darjeeling, Assam, Sri Lanka. I think we need to focus on the domestic market also.
Aravinda: Would you say, Nepal tea as a brand has been established?
Aasha: I would say it’s in the process. We have a long way to go. I think for now, for the factories that we are selling, for the buyers that come to us, it has already been established, not for the whole market. Buyers do recognize Nepal as being very good. They do expect that if it’s from Nepal, it will be good. I want to take HIMCOOP, establish it as a marketing brand in the future.
HIMCOOP (Himalayan Tea Producers Cooperative)
HIMCOOP is a joint marketing consortium of all Orthodox tea producers of Nepal. It was established in 2003 out of the need to link producers of high quality teas to buyers in the international arena. The intent is to jointly market tea by all producers on a common platform, through a one window sale outlet.
HIMCOOP forwards samples right through out the season to buyers all over the world and also provides any information required on Nepal tea and the Nepal tea industry. HIMCOOP represents estates that offer a variety of white, green, oolong, hand rolled and black whole and broken leaf tea.
HIMCOOP has respect for nature, people, social responsibility, and a commitment to maintain high standards in encompassing all aspects of cultivation and production of quality tea from Nepal.