Will the pandemic induced pivot to selling tea direct to consumers be the catalyst the farm-to-cup movement needed? 2020 accelerated a shift to digital media, one that many tea producers embraced. Did this bring more customers? Do online stores increase sales? Tea Biz posed these questions to Rudra Chatterjee, Managing Director of century-old Luxmi Group, a tea industry vertical that auctions millions of kilos annually. Last year the Kolkata-based Luxmi quickly adapted to selling 250-gram packets of tea directly to thousands of consumers, a pivot that Chatterjee says brings significant benefits.
Rudra Chatterjee Luxmi Group, Kolkata, IndiaLuxmi now offers teas directly to consumers from 25 owned estates in India and Africa
Will the Pandemic and Pivot Online be the Catalyst the Farm-to-cup Movement Needed?
Aravinda Anantharaman discusses a pandemic pivot with Rudra Chatterjee, Managing Director of the Luxmi Group, which owns tea estates in West Bengal, Assam and Tripura in India, and Rwanda in Africa producing collectively 20 million kilos of tea annually.
Tea Biz:How has 2020 been for you? Did you shift to selling online?
Rudra Chatterjee: This was the first time that we sold tea directly to consumers. And the reaction is amazing because, after all as growers of tea, it’s great to hear from someone who’s drinking that tea at home. Also, for us to get feedback one week or two weeks after we produce the tea. Because tea growing is, in some ways, quite a remote occupation because … you make the tea, it goes into the auction, you get a date which is a few weeks or usually a few months away. And then you just see a price and the name of a customer. Nothing more. But here you are getting emails, questions on how to brew the tea, pictures of how they are drinking their tea … It’s fascinating for us. We are getting more and more customers from around the world but also from within West Bengal, who are reaching out to us and actually subscribing to our teas – not just buying our teas but asking for delivery once a month or once in fifteen days. Which we love. It’s been energizing for me and my colleagues who are growing the tea in the estate.
We are getting more and more customers from around the world but also from within West Bengal, who are reaching out to us and actually subscribing to our teas – not just buying our teas but asking for delivery once a month or once in fifteen days.
Do you think selling direct to customers online is here to stay?
Chatterjee: It is not still the dominant way we sell. The dominant way we sell is the auction. We depend on the auctions. We depend on the large companies coming and buying tea from the auctions. This is a very small part. Each sale online is for 250g or 500g. It’s difficult or inconceivable for us at this point to imagine we are going to sell a lot of tea like that. But one thing I have learnt through the pandemic is that whatever I thought was inconceivable happened. So I don’t know what the future holds. Even if this doesn’t become a major source of revenue for the company, it is certainly a major source of conversation. Tea planters are always great at that from who bought their tea from different parts to actually googling the place the tea order came from. It’s great fun for us. I don’t know if it will be a major part but I sure hope people see that the tea is great and they continue ordering at least at the level they are ordering now.
Are there any consumer favorites from the various Luxmi teas?
Chatterjee: So our most successful has been Makaibari, Darjeeling, which is not a surprise. Makaibari has a name that people recognize, especially people who have lived in Darjeeling at some point, they may have been to Makaibari. And so that is popular. We are seeing quite a bit of demand for green tea, and also within India, which I am quite surprised by because green tea was never sold to the domestic market – it was always sold to Amritsar and from there, exported.
In general there has been interest in all our teas, whether it is the Rwandan teas … and the comments are very knowledgeable. There was one about how the Rwandan tea was very bright in colour which is exactly the right description for it, that is a tasters description, it’s a brisk and bright tea. And the discussion of the first flush vs second flush in Darjeeling. How the first flush is mellow. Also, I think people being at home, they probably had more time to brew the tea in the right way. People are much more curious when they buy from estates, what kinds of teas are being grown and produced this time of the year, so those kinds of conversations are very encouraging.
What are the advantages of selling direct to customers?
Chatterjee: I think one of the really interesting outcomes of being able to sell the tea is that there is a better margin for producers when they sell directly. There can be much more fair trade and what percentage of the revenue of these tea packets can go to the people who are working. Because we don’t see the front end of the business as producers and the front end who are the retailers don’t see the issues we are dealing with either. Even if we do very little of the whole gamut, even if it’s 5% of our business, we understand the whole issue and the challenges which are very difficult to solve. The workers, their wages, their education, their health, in an environment where there is no margin in the business as a producer. Yet there is significant prices that the final consumer pays. How much of it goes into packaging, on advertising and other things. And how much of it should come to developing healthier environment at the production site. All these conversations are things that will become more relevant, more discussed as we run the whole gamut even for a small part of the business.
Has it been challenging to get online and adopt to this new way of business?
Chatterjee: It hasn’t been challenging at all. Tea estates are designed for sending samples and we are sending samples to buyers around the world regularly. It just happens to be B2B buyers and we just happen to have a courier system that works. Someone who knows how to make that work. Doing a B2C sale – I guess the volumes are so small so it’s okay. If the volumes were to get bigger, we need to train some people in the estate which would be a fantastic thing for the people, to train workers to become logistics guys. That will be a great opportunity for the workers. I am quite excited overall.
I have set up an alarm when there’s a sale – it happens 4-5 times a day but when it happens I WhatsApp it to the manager who has produced the tea. Any email is immediately answered because people are very excited. It’s just the knowledge of what the customer says about the product, what they think about the brewing. There was one comment where someone said, I know you are not supposed to have Darjeeling with milk but I love my Darjeeling with milk, and the manager says, if you want it with milk, maybe I will make a stronger brew and send you something. As a consumer I am very excited as well, to be an individual customer and asking for your own processed product, in a product like tea. For many consumers, tea is like sugar and milk and you never thought you could get it changed based on your preferences. But you can. It’s cooking. So if you want your tea with milk you have to make sure you have a stronger leaf which holds your milk. And so all of these things are, I think it’s a good move, and combined with the fact that I have also seen – we have a hotel in the estate that we started a few months ago – I have actually seen people visit the tea estates. The combination of hearing from customers and seeing customers in tea estates is – the first time for more than 100 years in the history of Luxmi tea, this is happening. It’s quite amazing.
Tea families benefit from higher margins when companies sell directly to consumers
The devastation along Japan’s northern coast was near total after the March 11, 2011 T?hoku quake. Four hundred and sixty five thousand people were displaced by a gigantic surge that spawned 40 meter waves towering 133 feet – higher than a 12-story building in some inlets. The toll in lives exceeded 18,000 and the 40 trillion yen in damage that day makes the 9.0 quake the costliest natural disaster in human history.
The Tea Relief CaravanThe Shizugawa Public Hospital in Minamisanriku after the March 11, 2011 tsunami. Photo by Akira Kouchiyama.
A Story of Resilience after the T?hoku Quake
Five hundred miles south of the destruction, Yasuharu Matsumoto, vice president of the Kyoto Obubu Tea Farms, called for volunteers to travel north on a mission motivated by kindness.
Ten months after the tsunami the flotsam and rubble remained, with buses and boats precariously balanced on the roof tops of multi-story buildings.
I first met Matsumoto, “Matsu” a few months after the quake. His enthusiasm is contagious and his knowledge of tea vast. He is unusually social, an organizer who founded the International Tea Farms Alliance and in recent years the Global Japan Tea Association.
Moved emotionally by the continued suffering of his fellow countrymen months after the quake, he traveled 2,000 kilometers in a packed van in the middle of winter with a merry group of tea growers and volunteers. Their route was haphazard, their days jammed with scheduled and unscheduled stops in villages, nursing homes, relief centers and parking lots. They brought to all the warmth of tea and asked nothing in return.
Matsu: The Caravan continued for three weeks. I visited around 40 places traveling 2,000 kilometers. During the tour I met a lot of victims, I would say casualties, of the Tsunami and I poured for hundreds, sharing more than 1,000 cups of tea with them.
This is what he saw along the way.
Ninety percent of those who perished, drowned in the first hour after the tsunmi struck
Elyse Petersen, a former Peace Corps volunteer, was a student in Hawaii completing work on an MBA with a focus on Japan and a deep fascination with tea when she heard the call for volunteers.
Elyse: The tea Relief Caravan was my first trip to Japan. I landed in Osaka, spent the night with a friend and the next morning I took six different trains to make my way up to Tohoku to a small island village where I met Matsu.
We brought no propaganda, no message, just purely a tea party. We had gone to a nursing home. I remember that it was freezing cold. That was always recurring in my head. How not only sad the event must have been, but just how cold and empty feeling it was during that time.
We were still traveling through places where the damage had not yet been cleaned up so that sadness was in your face every day.
The tea parties brought so much light and happiness to all these communities. We were doing presentations in school classrooms with the children. We were doing them in community centers, having big dance parties and singing parties.
They had so much capacity for happiness. There was not one frowning face at any of these tea parties,” she said.
Petersen has since made tea her life’s work, beginning as an intern at a tea farm in Kyoto and later founding Tealet, a direct-trade tea supplier in Las Vegas.
The ad-hoc relief effort was both chaotic and cathartic. Matsu packed 10 into the van with chase cars joining. He said that he would phone ahead to speak to emergency services providers in the next village. Local media covered the adventure. Some calls were direct from victims, inviting them to visit. The caravan might stop at a bazaar, or brew tea at tables in a parking lot.
At the Namche Bazar, Shunsuke Matsuo, a student skilled in the violin, played selections for the crowd, leading Matsu to dance about in joy.
At each stop grateful recipients signed their name on a poster that was covered with the names of hundreds of survivors by the time the caravan pulled into Tokyo for its final stop in February 2012.
Matsu was 36 at the time. A decade later he poignantly recalls a conversation with one elderly victim.
“I now understand how tea is totally different from water,” he said.
Matsu: One of them told me so. She said that she drank lots of water in the evacuation places. ‘Since the tsunami days I survived, water is essential to life, but today when I drank tea with you, I felt a totally different feeling than drinking water. Just sitting next to you,’ she said, ‘I drank the tea and the tea absorbed [entered] my heart. So, I can live with water, but with tea I can open my heart to you, and I can tell this story to you.’ “
“That’s why tea and water are totally different,” she said.
“That story changed me,” said Matsu, now 47.
“I now know the difference between tea and water. My perception is totally different,” he said. Among the many encounters he recalls, “that conversation had the largest impact on me during the caravan,” he said.
“I now believe more in the power of tea.”
Epilogue
The group spent its last night in Minami-Ashigara before stopping in Tokyo to hold one last tea event “to share our love and hope with the victims in the area,” says Matsu who kept a digital journal from those days. In researching this post I discovered an archived tweet or two.
When I last interviewed him in 2012, Matsu told me that tea is restorative, that it brings relief in difficult times. I now see how he gained this wisdom by serving a thousand cups for a few weeks during a dreary winter as he listened to the venting of the sorrowful stories of those who survived.
A decade has passed and those who survived still live with the ghosts and grief of losing so much on a single day in a single hour. In these trying times I am certain they continue to turn to tea for solace and warmth.
“Tea is relief,” Matsu explained. Sharing a cup of warm tea is sufficient in crisis. Nothing more needs to be done.
Matsu and some of the Tea Relief Caravan volunteers. Elyse Petersen, center, shared these photos.
Education is the very core of what we do and believe. We aim to become the leading authority in education within the speciality tea sector and will achieve this through awarding recognised, authentic, verified and transparent certification. – David Veal, Executive Director European Speciality Tea Association.
A one-day Introduction to the tea industry’s newest professional certification program will be rolled out in March. Initially 12 European Speciality Tea Association Authorized Tea Certifiers (ATCs) will offer this course. Certifiers are based in Sweden, Denmark, UK, Ireland, Netherlands, and Germany. Covid-19 restrictions mean that training initially will be delivered online. This enables students from anywhere in the world to enroll.
Reviews and beta testing have so far shown very positive and encouraging results.
Alexis Kaae, vice president and Head of Education for ESTA said ‘This will be an inspirational and sensory journey into the newly unearthed world of speciality tea’
Liesbeth Sleijster, one of the initial ATCs from the Netherlands, added “we are launching this course hopefully as we come out of Covid restrictions and it will be like giving birth to tea in a new time.”
Register here if you are interested in becoming an ESTA Authorized Tea Certifier or if you would like to register for the introduction to tea module. Also keep watching for further modules which will be introduced throughout this year and remember that members of ESTA are eligible for discount off the prices of certification. Full information about the Tea Certification Programme will be added to this website very soon.
The Tea Certification Programme
· Instructors are ESTA Authorized Tea Certifiers. They can be individual educators, tea schools or academies, or work for a company.
· The Authorized Tea Certifiers will issue ESTA certificates which, as the programme grows, will become recognized throughout the tea industry as authoritative and synonymous with quality. It is expected that employers will refer to ESTA certification to help them recruit, and individuals will use certification to help their career progression
· The attainment of a certificate will also carry points for the student which when accumulated will help attain the ESTA Diploma
· Apart from the first module, Introduction to Tea, all subjects will be taught and certified at three levels, foundation, intermediate and advanced
· Introduction to Tea will be available from 1st March initially due to current Covid restrictions, on line
· The next modules to be released. later in 2021, will be Camellia sinensis, botanicals, hospitality and tea barista skills, followed by sensory skills, cultivation and processing, starting and running a tea business, sustainability and tea history, culture and ceremony
Neethanjana Senadheera, Amba, Buddika Dissanayaka, Forest Hill Tea, Udena Wickremoesooriya, Kaley and Chaminda Jayawardana, Lumbini Tea Valley.
Tea tasting webinars
Marketing is one of the most costly and daunting challenges for rural tea entrepreneurs in emerging markets. Digital marketing necessitated by the coronavirus pandemic adds another layer of complexity.
Since December seven artisan garden owners have combined their resources to present inexpensive virtual garden tours with live cupping attended by as many as 50 qualified buyers from around the world and a least one curious journalist.
The hour-long webinar on Feb. 18, hosted by the Ceylon Artisan Tea Association (CATA) and Kaley Tea Estate, is the third in the series. Buyers from major retail ventures in France, Japan, the U.S., and across Europe saw a brief PowerPoint explaining the association’s history and objectives, then set off on a trek into the tea forest where 150-year-old trees rise 30 to 50 feet toward the sky. The plot, formerly a pruned commercial garden, was abandoned and has since returned to its biodiverse tropical ancestry but this forest canopy is uniquely dominated by tea.
CATA began in 2019 as a collective based on a shared vision that focused on efficient micro-production that, in aggregate, could scale. It is a community-centric model that can be adapted by rural entrepreneurs in many tea lands.
The seven small enterprises have limited resources individually but collectively provide buyers diverse offerings in style and the distinct terroir of Sri Lanka’s growing regions. CATA expects to recruit additional gardens representing Nuwara Eliya, Dimbula, Uva, and Uda Pussallawa in the high mountains, Kandy mid-country, and Ruhuna and Sambaragamuwa in the low altitude coastal zone.
Estates are small. Amba grows its tea on only 30 acres. Neighboring farmers grow the remainder. But the price that Amba pays per kilo for fresh leaves is more than double the average in Sri Lanka. High rates encourage locals to grow tea naturally, adhering as close to organic cultivation as possible.
Last year the pandemic quickly decimated the island nation’s tourism sector. Tea sales to foodservice establishments declined at every level. Growers began the webinar series to maintain existing business relationships and later found ways to attract new buyers globally. Each garden sells most of its tea locally, but for overseas buyers, watching these videos offers tea retailers and wholesalers an alternative to sourcing in person during travel restrictions and mandatory quarantines.
A student intern with promising skills as a videographer followed Kaley Tea director Udena Wickremesooriya through the plucking, rolling, and processing steps, capturing Udena chatting with workers and pointing to innovations such as locally built drying racks and equipment customized to make the creative shapes.
Cupping table
Cuppings and the accompanying tasting notes are critical to effectively market artisanal tea. Seventy-five percent of consumers consider taste the most important consideration in choosing tea. No matter how compelling their brand story, growers rely on sampling to seal the deal, but no one has the time to sample all the tea in the world. Webinars that enable face-to-digital-face interaction and user engagement will likely continue long after the pandemic resides.
The live portion of CATA’s webinar delivered a satisfying glimpse of personality and pride a the cupping table with Kaley Tea Director Udena Wickremoesooriya and Buddika Dissanayaka, Director, Forest Hill Tea, Chaminda Jayawardana, Managing Director, Lumbini Tea Valley, and Neethanjana Senadheera, Production Manager, AMBA Estate. Each presented their best white tea, slurping and commenting. Webinar participants got a close look at the leaf and liquor along with descriptions of the tea.
When evaluating tea, considerations such as the precision of the pluck, discoloration due to oxidation, breakage, and leaf style all contribute to the buyer’s decision. Missing, of course, is the aroma, texture, mouthfeel, aftertaste, and overall organoleptic sensations. Fortunately, all this can be replicated in the buyer’s tasting room.
CATA’s webinars offer something more than samples: clues in the facial expressions, gestures, and the enthusiasm of tasters. The casual but informed banter reminded me of gaggles that formed after competitions like The Golden Leaf India Awards (TGLIA) organized by the United Planters Association of South India (UPASI) and the Tea Board of India.
These events, occasionally judged in Dubai, provided a cadre of international buyers an opportunity to discuss the results of skilled tasting judges such as Kurush Bharucha, tea expertise director and head of Unilever’s research and development, and Yahya Beyad owner of Britannia Tea.
Tasting notes with points awarded for specific characteristics motivate participants and provide bragging rights at dinner but vetting the best of the entire crop year annually also helped everyone to better understand the influence of seasonal dry spells, for example, and provided insights into the improving skills of tea makers. Artisanal innovations continuously break new ground as has been the case for centuries – but now, thanks to webinars and one-on-one tastings, innovations in tea are transmitted globally at the speed of light.
Hidden value
There is an interesting parallel in the growth of the organic tea segment that suggests public cuppings elevate the overall quality of tea. The TGLIA competition dates to 2005, a dozen years after Korakundah Tea Estate, part of the United Nilgiris Tea Estates Company, first produced organic tea.
Japan had begun labeling agricultural products in the 1950s and developed organic certifications by 1999. In 2000 JAS (Japan Agricultural Standard) adopted rules for “organic plant,” “organically grown plant,” “organic farmed,” and “organic” classifications. The United States Department of Agriculture organic program was authorized in 1990 but rules establishing the National Organic Program (NOP) were not finalized until 2002. The European Union first instituted organic rules in 1991 and by 2010 EU established an organic logo along with an indication of origin. During the past few years, all three certifications were harmonized but it will take even longer for consumers to understand the hidden value in organic.
To cash in on consumer fears about food safety and the environment marketers were quick to label certified organic products “superior” and “premium” leading consumers to pay a higher price for non-pesticide, ecologically produced teas, but evading an answer to the question: Does organic tea taste better?
Beginning in 2005 Korakundah won its first TGLIA prize. The garden won again in 2006 and for 15 consecutive years inspiring many growers to follow in their footsteps and demonstrating that organic farmed teas were equal in taste or better than conventionally grown tea.
Korakundah is part of a corporate network willing to invest in certification. Artisan tea growers recognize that third-party certifications help sell — but at a price. The webinars convey the hidden value of community building, educating youth, improving health care. Tea plantations economically purchase and maintain fleets of vehicles to bring their tea to market – Kaley chose not to buy vehicles, hiring trucks driven by villagers whenever tea needs to be transported. At Forest Hill, Buddika involves the villagers by commissioning packaging from them.
Transparency in action?
The webinars are the ideal media for demonstrating transparency. Buyers who witness the impact at origin of their purchases have more compelling visuals than labels on a tin.
A video capture of workers hand-rolling tea at Kaley Tea Estate near Kotapola, at the southern end of Sri Lanka
Tea Biz Podcast
A survey by the American Marketing Association last year revealed US marketers increased spending on social media by 74%. During the pandemic, investment in social media grew from 13% to 23% of total marketing dollars spent, according to AMA.
Tea marketers increasingly realized that traditional strategies such as advertising and attending tradeshows, while important for branding, convert only a few leads into buyers. This is because consumer expectation has evolved over time, making personalization and customization of marketing strategies essential.
In mid-February, the Ceylon Artisanal Tea Association (CATA), a collaboration of seven Sri Lankan tea farms, hosted their third garden tour webinar. Those who attended travel virtually to see the garden processing facilities at Kaley Tea Estate attend joint live cuppings where they met the principals, and asked questions face to digital face.
Simon Bell, managing director of Amba Tea Estate and a co-founder of the Ceylon Artisanal Tea Association, writes that digital marketing is often one of the biggest challenges for small growers and rural entrepreneurs in emerging markets. In this report, Bell discusses the effectiveness of this new approach.
Simon Bell discusses the benefits of webinars and virtual tours for small enterprise tea ventures.
Tea Biz:CATA has now hosted three online webinars introducing tea producers to buyers globally. Have these webinars been effective in achieving your objectives? How so?
BELL: Absolutely, ironically, for many of the association’s founding members, finding global buyers has never really been a problem. Nearly all tea in Sri Lanka is made in large factories, so when we started producing teas by hand the products themselves were so unusual that many of the world’s best tea merchants actually tracked us down from day one before we’d even begun any marketing. We’ve always had more orders than we can handle. However, with the advent of the global lockdowns, it was apparent that we were going to lose a lot of our sales locally as the market shrunk due to the absence of visiting tourists at hotels and restaurants around the island.
And it seemed like an ideal time to bring our teams to the attention of a wider audience, and frankly, the response has been far greater than we ever expected. In normal times if you asked a tea buyer if they’d like to join a virtual tea tasting where he or she would not even get to taste the tea, I think they would very politely tell you to stop wasting their time and to send them a sample. But with everyone around the world in lockdown, including our own customers, we were amazed that the CEOs, the chief tea buyers of many of the world’s most prestigious tea merchants have been joining the webinars – and are begging us for more.
Perhaps even more important, than simply showing off our teas, what’s great about the webinar format is the ability to tell the story behind the tea. You know when it comes to artisanal teas, it’s the terroir, the climate, the provenance, the social and environmental impact that is so important to our customers in terms of why they love these teas. And so, you know, during the webinars, we walk around the estate we show the plucking, the rolling and the other steps of the process actually happening, and that’s what makes the teas so unique. These videos show you the land and the people behind the tea. And as such, they can say so much more than static images or text.
Tea Biz: Collaborating on projects like the webinar series is one example of small growers pooling resources, explain other ways that banding together benefits buyers.
BELL: I spent much of my career advising small businesses all over the world about the virtues of combining their resources and combining their efforts through associations and cooperatives and so on, not just in tea but in other areas of agriculture, in tourism, in manufacturing and so on.
Our buyers want variety, but they want that variety in terms of terroir and technique. That doesn’t mean that we can’t pool our efforts in virtually every other aspect of operations.
Joint investments in research and development in developing new varieties and planting and testing new varieties in designing new types of equipment that suit our micro-scale teas. In commissioning equipment from engineering companies which wouldn’t be interested if we were just commissioning on our own from joint purchasing of packaging and certification services and other types of inputs like that that would typically only be affordable to larger enterprises. All across the chain, including, you know, making our voice heard with the government we are much better working together than we are separately. And perhaps most importantly, from a buyer’s perspective, we offer the opportunity to pool their purchases and their shipping, lowering costs. Two or three of our members are already working together and jointly shipping product to several customers around the world saving the customers time and money that they otherwise would be spending having to coordinate orders and shipments from multiple suppliers while giving them the variety that their consumers demand.
Ultimately, we hope to be able to offer buyers a one-stop shop where they can order a whole menu of different Ceylon artisanal teas representing all the different varieties in all the different growing regions of Sri Lanka.
Do webinars work?
The novelty of webinars waned from a time when 73% of B2B marketers and sales leaders identified webinars “as the best way to generate high-quality leads” yet 76% of B2B buyers used webinars in 2019. Last year the number of webinars soared, accelerated by the pandemic. Businesses all over the world are using webinars to attract customers, promote products, and build loyalty.
The Big Book of Webinar Stats, published in 2019, found that webinars were most commonly used by software, financial services, and consulting firms. Since that time travel and tourism, real estate, and retail use have increased. Health care webinars surged in the past year. Agriculture has lagged but travel restrictions, the additional costs, and the inconvenience of flying make webinars an ideal opportunity for small tea ventures to inform and attract buyers.
Go To Webinars analyzed 250,000 webinars to offer these tips.
The most effective channel to promote webinars is email. Expect 59% to register the week leading up to the event with 17% registering same day.
Thursday is the best day to schedule.
Mornings 9-11 am are the best hours for attendance
84% of attendees prefer webinar replays (vs live)
66% of webinars attract 50 or fewer attendees
Attendee engagement drops off at 57 minutes. The ideal length is 45-60 minutes but attendees will stay for about 70% of a webinar that lasts up to 90 minutes.
Narendranath Dharmaraj has spent nearly five decades in plantation and agribusiness management. In this conversation he talks about the viability of the Indian tea industry and in particular the outdated nature of the plantation model. Dharmaraj has proposed an alternative where he recommends that estate owners distribute land-ownership in favor of the plantation employees and buy back the raw material through a co-operative outfit. Here, we speak to him on how this model will especially address the issues of labour and wages that have hit an impasse.
A conversation with Narendranath Dharmaraj
What in your opinion, are the main problems affecting the Indian tea industry that have prompted the need for a structural change?
Dharmaraj: As in any other business, the three fundamental tenets of business are production, in this case, crop production, the sale price and the cost. What is unique about this business is that crop production is rather weather dependent, increasingly so in an era when we are well and truly feeling the impact of climate change. Tea is a rain-fed crop largely and in the recent past, the rainfall pattern has become very erratic. No longer are growers able to control the crops and even predict it with any degree of accuracy. So crop – not that it ever was – is increasingly out of the control of the management. Price, it’s a commodity and depends on the global supply and demand, particularly after WTO* has come in. Prior to that we had a protectionist kind of market, particularly, the south Indian teas had a captive USSR market as part of the rupee-rouble agreement. I remember the joke those days used to be that an Indian student going to study in the USSR was expected to take a container of tea with them. That’s how good it was.
But with the disintegration of the USSR and the advent of the WTO when quantitative restrictions were lifted, there was global movement of commodities. Consuming countries were able to source cheaper teas from southeast Asian producers like Vietnam, Indonesia etc. This impacted the Indian price very much. Our exports suffered. The year 2000 was a watershed year, since then the industry has been seeing a downslide.
Going back, the crop is not in your control, the price is not in your control, and that leaves only the cost. What is unique about our tea industry is that 65% of its cost is wages. That is, as you know, completely usual. In any business, the max will be 15% as the load of manpower cost. Here you are talking about 65%.
Having done operational plantation work for four decades, I am convinced that the only really controllable factor in this business is the cost, namely the employee cost. And employee cost is increasingly getting largely out of management. Because disposable income in the country and the world as a macro scenario is going up. Much as planters claim that although cash wages is less, we are giving them other benefits like housing, schooling and preschool, childcare, medical help etc., ultimately with the exposure that people are having through media and social media, they are comparing what they earn with the cash wages that the other industries are paying or that the urbanites are getting. There will be aspirational demand for increasing cash wages and of course, the one which is typical to plantation, the wage-related social and welfare cost will continue to remain. So wages are also beginning to be an aspect beyond the management control. You cannot run a business like that, where the three fundamental tenets of the business are completely beyond your control.
Everyone will recommend that branding is the panacea for all ailments. If you look at branding history in tea in particular, you will find that the packers and branders are not the producers. Packing and branding and retailing does give good margins but it’s not the producer doing all that. When producers did that by forward integrating, like what the Tatas did with Tata Tea and Tetley, and what Unilever did by backward integration by merging Tea Estates India and Doom Dooma India Limited with Brooke Bond, in either case they quit from plantations. I call this the “When milk is cheap why own a cow” syndrome.
When you can source teas cheaper from the market why bear the cost of having to produce it. So branding as a panacea, value addition, moving up the value chain, in my mind, unless it is done by the producer, it doesn’t make any sense. What happens is that when producers become successful in that, they say, ‘Well. I don’t have to necessarily produce.’
At work in the garden
All this makes one think what is the economic and socially sustainable model for the plantation industry, for both owners and the large number of workforce dependent on it. The industry is unique in that it employs hundreds of thousands of people, the rural population, in a manner of speaking. Therefore the model has to be such that it supports them from the social and economic standpoint and gives economic sustainability to the owners. As I said, wages will continue to rise, living conditions will continue to be under pressure. In today’s world, everyones looking for transparency in the value chain and thanks to block chain technology etc. consumers want to know the share that each stakeholder is getting, working backwards from the consumer price.
What this means is further pressure on the business. It’s already in trouble and these troubles will make it worse. In terms of data, taking 1985 as the base year, wages have gone up by 8 times in real terms, whereas prices have gone up 2 times. This is a huge disparity between wage increase and price increase and that gap is going to widen. The other standard response by producers is to increase volumes. In a business with 65% of its cost of production on wages any increase in volume also comes with a huge cost. Additional volume doesn’t always give you the contribution of a positive bottom line. So to my mind the standard response of trying to increase volumes is not going to help.
Ultimately we need to look at a model which is self sustaining, which is holistic in terms of how it will take care of the interest of the growers and the workforce. What we are looking at is a model, when I recommend distribution of land and ownership in favour of the workforce, We are looking at something similar to a Bought Leaf model. Bought Leaf business never loses money because you work backwards from the End Price. (End Price – Cost) – Margin = the price you pay the producer for raw material.
We are suggesting a model where existing employees become owners of the land, become smallholders who will supply raw material to the body corporate who will then process and market it.
In 2004-05, Tata Tea exited its plantations in Munnar, transferring ownership to its employees creating the Kannan Devan Hills Plantations Company Pvt. Ltd. (KDHP) But it hasn’t been without its share of problems. What would you say didn’t work here?
Dharmaraj: The KDHP model was an evolution in this direction. With KDPH, the Tatas diluted shareholding in favour of employees with the primary objective, I’d imagine, to create a greater sense of participation and accountability. But, taking a ringside view of it, I don’t think that purpose got served at all. For a couple of reasons: it was not backed by adequate sharing and communication because again, drawing from my own experience dealing with the workforce, unless you explain the scenario, that going forward if they don’t increase the output, the costs will escalate, the business will suffer… that kind of awareness was not brought. The employees thought that suddenly the company has become very generous and are giving them shares. So the sense of accountability didn’t really come in.
Even here, in the new model, it will be a big challenge because there is a mindset issue. If I say ‘brainwashing’ it will be a bad word but I am using it to convey the flavour of what I have in mind. They (Workers) have to be told that if this model continues the way it has been continuing there will be pressure on wages. More wages brings pressure on margins, which means more estates will close down, more estates will lose money… the same vicious circle will go on.
The KDHP model didn’t really work. I believe that Tata companies were not able to pay dividends beyond 2015 because the industry itself was in trouble.
As much as the workforce needs to be informed and educated, what would be the producers response to this model?
Dharmaraj: Before we address employees we need to address the producers. My own experience so far, of being a propounder of this concept, is that there have been some progressive employers who are looking at it positively, as a holistic and sustainable way forward. A lot of them will be skeptical about it. For the simple reason that they all think that this land is an asset. To my mind this land is no longer an asset. These lands, across India in tea growing areas, these large land holdings were exempt from Land Ceiling Act (LCA) because they were large organised industries. About five plantations, including tea, coffee, rubber, cocoa, were exempt from the LCA and were allowed to be held in land banks. The original ownership pattern differs from state to state. Kerala and West Bengal are leasehold lands while Tamil Nadu and Assam are freehold lands. Irrespective of what the title is, one stipulation which has made them qualify for the exemption from land ceiling is that they are mandated to use it only for plantation. In other words, you cannot alienate it for real estate or any other purpose. An asset gets its value only when it’s transactional. When it’s not transactional and when you can’t monetise it, where’s the value? It’s only on paper. So I think it’s a bit of a fallacy. I know it’s a mindset issue. People need to be made to look at stark reality. I am convinced the going forward plantation has to simply survive on operational margins. Gone are the days when you can say you are a landowner and give it a value and put it on your balance sheet… It’s a mirage, it’s no longer valid.
Land ownership is increasingly under a cloud. And also the ownership pattern. Before the 1970s these were pure line plantation companies. They made money, they put it back in plantation business, it grew like that. Today, after the FERA rules and ownership shareholding was mandated to be diluted, especially the English held, sterling companies changed ownership and became part of Indian multi business groups. To them, it’s yet another business and ultimately it will work on which business in their portfolio gives the highest returns. Even the management structure of plantations has undergone change, and therefore there is a crying need for a sustainable model.
How will the model you propose impact quality and therefore pricing?
Dharmaraj: Therein lies the challenges. It’s important to form a cooperative unit, ideally a group of estates supplying raw material to a factory becomes a cooperative unit. Now that cooperative unit is necessary in order to maintain the organised cohesive nature of this business enabling economies of scale, economies of efficiency, which tend to get a little diluted when there is fragmented ownership. Safeguards have to be built in. The technical guidance and supervision of these holdings should continue to remain with the body corporate so that they control the output, control the quality and provide a price incentive for better quality leaves, which even today is being done in the Bought Leaf business. Many factories give extra money for better quality leaf. Those to my mind are manageable issues. I am not taking them for granted but with proper agreements in place I think those can be achieved.
What about labour itself? The other recurring concern is shortage of labour. How would this model address that?
Dharmaraj: Just the other day I was checking about the workforce in Kerala. We were under the impression that the workforce was 3-4 lakh (300,000-400,000). I was surprised to get the number as 40,000. That’s how much the number has dwindled in time. That’s because the younger generation don’t want to work in plantations. Even if they were to get lesser earnings elsewhere they would prefer to work in white collar jobs than in plantations.
Shortage of labour is a huge issue. But I imagine the decentralised model will itself address the issue. Drawing back on my experience, when you frame them over a 8-hour period, the output is restricted mentally. When I was a young manager, once – without permission from the management and I got rapped on the knuckles for doing so – I said I am giving you flexi time. In an estate of 500 hectares with x number of workers, you can plan how much has to be covered each day. So I said, “As long as you harvest the fixed area, you can go home. They started going home by 3 o’clock, 2 o’clock and at one point, they were done by mid day. They are physically and mentally capable of higher output. You need to create the right working conditions for that. You can give people two types of incentive – money or time. In this case time was given as incentive. And it was working. Women could go look after their children. They have a kitchen garden and they had time to work on it. When you are owners you put in heart and soul in work you deliver.
In this model, in a way, a flexi working time will come because they are no longer employees governed by labour laws. They are their own owners, masters of their time. They know that green leaf of only a certain quality will be accepted or that this is the quality that will give them X+. They will adapt to it. It’s a spinoff benefit of this scheme that is driven in terms of leading to greater worker output.
How realistic is the adoption of this model?
Dharmaraj: Like all changes, everyone is not going to dance with joy. A lot of homework needs to be done. I have been speaking to progressive companies on this. Some are very keen to see this taken forward. There are many questions to be answered but there are progressive companies are willing to look at it carefully. It’s possible to find volunteers, and I have suggested doing this on a modular basis, maybe select a geographical area, establish the working principles of such a model.
This model will be particularly useful in reopening closed estates. There are many in Kerala and West Bengal. They are in bad shape, in the sense they are in economic and social disarray. What has happened here is that local power groups have taken over. In a way what we proposed is happening there by default but not in an organised fashion. Employees have taken over the land because employers have not been paying wages, they have stopped production, they have abandoned plantations. But what has happened is that some local leaders, or trade unions or local mafia become the controlling point. They make money, and the real reward and price don’t go into the hands of the workmen.
We are talking about a model that is deliberate, that is preplanned, that is blessed by the body corporate, that is blessed by the government, that is blessed by the workforce and trade unions who represent them. I am sure the government and trade unions will see this as a great step forward.
The plantation model is outdated. It still has a colonial ring to it. The dwellings of workers are called lines… I know that owners give them facilities. Many companies provide what they are mandated. But with all that, it still gives the idea of being a labour camp. Whereas give them a facility to create a dwelling for themselves, with an area earmarked for growing vegetables, then there is an emotive connect to the whole thing. It’s very difficult to quantify that kind of emotive connection. I think these are the things to be sold to the workforce. Someone asked, why should they opt for this when they are assured of wages? This is where information sharing and communication becomes important. If we continue the same way, more estates will be abandoned, companies will be unable to meet obligations. If we don’t check it with a disruptive model, five years down the line the industry will be in shambles, if not already, as portrayed by parts of Kerala and West Bengal.
It’s a reality we are looking at, and not just in India. The plantation business is in trouble in Kenya and Sri Lanka also.
On my part, I feel I owe it to the industry that has sustained me over four decades. It needs a breakthrough and if I can contribute to that, I will be gratified.
*India became a WTO member in 1995
EDITOR’S NOTE:
K. Mathew Abraham, managing director at Kanan Devan Hills Plantations (KDHP), asked that Tea Biz post this rejoinder.
Abraham writes that “Contrary to what is stated in the interview above, we would like to clarify that KDHP is one of the most successful large tea plantation companies in South India with an annual production of 25 million kilos of tea.
“Proof of this can be seen from KDHP’s performance since its formation more than 15 years ago. KDHP has been continuously generating profits, barring two years and KDHP has paid dividends every year.
“As further proof of the success of the model, we would like to highlight that plucking productivity has increased by more than 70% since inception, which is a clear indication of the involvement of the employees in this success story. In 2015, KDHP was ranked No. 1 for employee participation and involvement by Great Place to Work Institute India.
“Most interestingly, the communication cascade undertaken during formation of the company resulted in more than 98% of the workforce voluntarily becoming company shareholders with an employee director and a staff director nominated to the Board — probably the first of its kind in the industry.”
