• Q|A John Davison

    In November Luxemburg-based private equity firm CVC Capital Partners, with investments totaling more than $100 billion, out-bid several competitors to acquire Unilever’s tea portfolio, re-branded as ekaterra tea. Lipton Yellow Label, Brooke Bond, Lyons, PG Tips, and 30 more tea brands, many regional, have a combined turnover of $2.3 billion (€2 billion). The agreement is subject to regulatory review and will not close for several months, but there is no time to waste as CEO John Davison takes on the task of re-energizing the largest tea company in the world.

    • Caption: John Davison was the only passenger on the plane from Singapore to Judah, Saudi Arabia
    Hear the interview
    Ekaterra tea CEO John Davison
    “I’m much more of a grower than a cutter,” says ekaterra tea CEO John Davison

    Re-energizing the World’s Largest Tea Company

    By Dan Bolton

    The Singapore sun is high and the room alabaster bright when ekaterra tea CEO John Davison answers the Zoom call. It is the dark of night and snowing heavily outside my Winnipeg window in central Canada. Davison, 58, is energized. Singapore was quick to instituted mass lockdowns in early 2020, becoming one of Asia’s most stringent COVID-zero economies, largely sealing off its borders, and testing. After 18 months of isolation Davison has just returned from the COP26 Glasgow Climate Summit in Scotland and would soon depart for Judah, Saudi Arabia and to visit the company’s massive tea packaging operation in Jebal Ali, near Dubai, UAE.

    In March 2021 Davison was named to oversee a “carve-out” of the least desirable tea brands from the Unilever portfolio. Unilever CEO Alan Jope announced in January 2021 that the company would jettison underperforming legacy brands Lipton, PG Tips, Lyons, Brooke Bond, Red Rose ? all black tea stalwarts acquired in the 1980s and 1990s ? along with more recently acquired and fiscally promising T2 retail in Australia, TAZO, an American packaged good brand formerly owned by Starbucks, and Pukka, a fast-growing herbal tea brand founded in 2001 in a home kitchen in Bristol.

    Davison spent his first nine months at Unilever reorganizing billions in assets including 11 factories across four continents that employ 4,000 workers doing business in more than 100 countries. A big portion of Unilever’s suppliers and partners will transition to ekaterra at the close of the sale. Ekaterra will operate company owned tea estates in Kenya, Rwanda, and Tanzania and contract with thousands providing a livelihood for one million people.

    Davison, a Harvard Business School Graduate with a master’s from the University of Cambridge, spent five years at Diago as a strategy director during the merger with Guinness and worked for 11 years as a senior executive with Danone. His last job was managing the Asian division of Zuellig Pharma, a $13 billion global leader in pharmaceutical distribution. After leading a turnaround that he initiated in 2014, Davison spent the first year and a half of the pandemic focused exclusively on resolving formidable distribution challenges brought by COVID-19.

    Unilever, ranked 175 on the Fortune 500 with 400 brands and turnover of $58 billion, kept its most profitable and fast-growth tea gardens and factories in India, Nepal, and Indonesia and in North America remains in a joint venture with PepsiCo to manufacture and market Lipton tea in bottles and cans. The portfolio’s remnants are expected to generate more than $800 million annually, making it the world’s fourth largest tea company, according to Euromonitor.

    One man’s cast off is another man’s treasure. Davison is eager to make the most of CVC Capital’s $5.1 billion investment.

    Dan Bolton: John, when a private equity firm puts $5 billion to work they expect sizeable returns. In general, two patterns have emerged, one in which the management team cuts their way to profitability, trimming staff, investing in automation, and introducing efficiencies. The second is spurring growth.

    John Davison: Why would a company like CVC want, as you say, to invest $5 billion in taking ekaterra out of Unilever?

    It boils down to three key points: Number one, it’s a growth category. Tea is on trend, I think COVID, if anything has reinforced the dynamics that tea is a healthy beverage. It has a lot of medicinal qualities, as you well know, in terms of heart health, digestion, you name it. Investors like to be in categories that are on trend and have long term potential.

    Secondly, if you look at ekaterra, we are the largest, by some stretch, I think three times larger than the next player. So, we have a leadership position. That leadership stretches across 10s and 10s of markets ? 3,040 different markets. It’s not been something we’ve built on and really capitalized on.

    I think Capital Partners, CVC has seen that opportunity to capitalize and drive that leadership position to greater heights and with that bring the category into faster growth. That’s the second big reason, the strength of our competitive position, relative to the rest of the peer group in the industry.

    The third thing is the management team. I’m the rookie and just joined nine months ago, but the team we’ve put together in at ekaterra is highly experienced. Our R&D team is really strong. We have 3,540 tea tasters. When you put all that organization together, on top of a great brand portfolio in a growing category, it’s clear to see why CVC or anyone else would be interested in investing in the business.

    Now that said, we’ve now got to deliver on all the promise to your point. And that will be something top of mind as we start to engage with our future owners. And of course, these transactions take time to go through the process. There’s a few months now of anti-trust filings, regulatory processes and approvals to go. We won’t see the close of this deal probably till mid next year.

    Davison at his home office in Singapore

    Dan: At COP26 you sent a clear message that sustainable tea at large scale is doable. So, do you intend to be a tea company that is ethically mindful? Or an ethical firm that sells tea?

    John: That’s a trick question. I think you can be ethically mindful and kind of watch from the sidelines, right?

    We need to get in the game and drive the rules of the game. I don’t mean that in a threatening way, I think part of the reason we wanted to step out at COP26 was to make that point, which is that the status quo ? having a nice program to share with your customers and partners and consumers ? probably isn’t enough at this stage.

    If we don’t get beyond that, towards driving real change, and not just change inside of our business system, but industry wide, as well as with consumers, in 10 years time we’ll be really panicking about what we can do to reverse things that are probably irreversible by that stage.

    We need to get beyond watching and following. We need to get into the game and lead. We have the technologies discussed by the Ethical Tea Partnership, and a bunch of new technologies that are in development that were mentioned at COP26.

    We need to deploy that technology as soon as possible into pilots, which we’re doing. And as soon as we get them into pilot, we need to get them into action on our own tea estates and as soon as possible thereafter, broaden that to the entire supply base. And as soon as possible thereafter, the entire supply base of the industry. If there are technologies that can help other players, you know, I think we need to make them available. There’s no point in jealously guarding a technology that you deploy to 5% of the tea crop of the world, if 50% of the tea in the entire world is at risk.

    We need to develop proper resilience in climatic challenging circumstances, which you know, are becoming more and more difficult, as you said earlier, already affecting crop yields.

    If we can get these technologies properly piloted and properly rolled out, then we should be able to help our tea farmers manage much more productively much more resiliently in the face of real dramatic climate change. And that can only be a good thing, not only for ourselves, but for them and for the industry. And that’s something we’re going to work very hard to deliver.

    So, in that sense I think the answer to your question is that we need to be both an ethical company, as well as a tea company acting ethically.

    Unilever already set us on a wonderful course. It’s a great company. I think in many respects, we’re sorry to be leaving, and they are sorry to be losing us. But at the same time, it is for the best reasons to give us this chance to drive a leadership that I think would be difficult to do inside such a large multinational.

    Davison taking tea with the ekaterra staff

    Jebel Ali
    United Arab Emirates

    Dan: So, let’s talk about the core product. In this case, making tea that people are willing to pay a premium price to drink. I don’t think any brand wants to be known for making tea so heavily discounted that it is perceived as cheap or market blends that taste worse than in years past. Ekaterra tea inherits several brands on the rise, market leaders in 58 regions, but in the west sales are stagnant.

    Senior Beverage Consultant Matthew Barry at Euromonitor writes that “mass-market black tea bags are in consistent decline in nearly all developed markets. Unilever saw retail sales of black tea decline by $27 million from 2015 to 2020 in these countries, even with the benefit of a large 2020 pandemic-related retail spike.”

    Last year Unilever CEO Alan Jope set the dominoes in motion by declaring “insanity is carrying on doing the same thing and looking for different outcomes, and for 10 years we have been trying to ignite growth into our tea business unsuccessfully.” Black tea drinkers were blamed for getting older and starting to fall over, and that is the fundamental problem… said Jope, “younger consumers are looking for novel experiences, and the consumer of ‘builders’ tea’ was someone who was born out of habit and was not into experimentation and trying new products.”

    I know from personal experience tea quality is an issue. Do you agree? And what are you going to do to make better tea?

    John: The tea category within Unilever has been subject to a focus on bringing down costs to manage exactly what you described, declining pricing or stagnant pricing in the market. Any multinational would probably deal with that kind of spiral of decline on value by R&D engineering the product, so I think certain things we are absolutely going to put right very quickly. Other things may take longer to fix.

    We’re going to work very hard at making sure we get our blends back to the top of the tree, in terms of quality and in terms of value to consumers. We can’t live in an industry if we are the leader in that industry, with second rate teas or teas that are not absolutely the best they can possibly be.

    So, I think we’ve got a job still to do. We started that program in the last 12 to 18 months before I showed up and it’s something that we’re now accelerating. That will require clear investments in certain key areas, but also in the way we communicate benefits to consumers. I don’t think we’ve done a very good job on that, either. Historically, I think we’ve tended to pull back on consumer communications. And we’ve not played the powerful cards we have in our portfolio.

    “We’re going to work very hard at making sure we get our blends back to the top of the tree, in terms of quality and in terms of value to consumers. We can’t live in an industry if we are the leader with second rate teas or teas that are not absolutely the best they can possibly be.”

    – John Davison

    Dan: When asked by the online polling site YouGov, consumers say they are willing to pay more for products that are sustainable, and to reward manufacturers who close the loop; traders who reduce transit emissions and growers who conserve water and regenerate soil. So, on one hand we have a price premium of perhaps 20-30% at retail. The premium is similar to that paid for organic goods and by consumers who have demonstrated their willingness to pay more for fair trade goods.

    On the other hand, tea manufacturers face significant additional costs to cultivate and process premium tea. There is the expense of adapting to a changing climate, costs to comply with requirements set by third party certifiers, new equipment and more expensive plant-based tea bags and earth-friendly packaging, and set-asides to pay for carbon credits. Is the premium consumers are willing to pay sufficient to cover the cost of sustainable production? The desire is there, and there’s money on the table, can you operate ekaterra tea in a way that it’s both sustainable and profitable?

    John: That’s a great question. I think sustainability, and ESG [Environmental, Social, and Governance] philosophies and beliefs are at different stages of development and relevance in different parts of the world. At COP26, you could absolutely feel that the world’s eyes were on everything that was happening. But it’s a difficult balance to strike.

    I would like to believe consumers would sit down and say, ‘yeah, we understand all the packaging, we understand all the accreditations, we get it, here’s an extra 20%, 30%, no problem.’ But I don’t believe that’s going to happen overnight. And I don’t believe that will happen across the world, I think it may happen in certain societies. But it’s not going to be a wholesale phenomenon at this stage, maybe hopefully, in years to come.

    Which means we develop sound business cases to surround the decisions we take to drive a more sustainable approach to business process.

    This is why technology R&D is so important, because to remove plastic from your packaging, you must put in an investment to machines and the X number of factors needed to make that happen.

    If you had the technology to design a fully recyclable or biodegradable pack instead, one that can be made at a lower unit cost, then that’s a win-win.

    But there will be moments where we have to make tough decisions and say, ‘there’s an extra capex’ [capital expenditure] to fit this factory to be able to do X, Y, and Zed in a completely different way.

    I think we’ve got to be courageous enough to make those decisions and figure out how to make the pay back with or without the 20% to 30% extra help from the consumer.

    Right now, and you hear this from anyone you interview in consumer products, or any product category,  there’s an enormous escalation in input costs, not only from commodity crops, but also from logistics supply chain, from packaging, all over the world, big tidal wave effects coming out of COVID and the disruption caused to the planet. We’re digesting those changes, as well as thinking ahead how we motor on, on climate change.

    It’s a VUCA world [Volatility, Uncertainty, Complexity and Ambiguity] a lot of volatility, a lot of uncertainty. Because we’ve generally operated in so many different economies with those kinds of unusually volatile trends, historically, I think we’ve got a team that’s pretty creative, pretty versatile, and is well equipped to deal with challenges that often contradict each other.

    That’s why we are employed to do what we do, if it was that straightforward, it wouldn’t be challenging. It wouldn’t be fun. It wouldn’t be the adventure it is to be in this business.

    Davison signing a distribution agreement with Sheikh Abdullah Binzagr in Judah, Saudi Arabia. Binzagr Group has distributed Unilever products since the 1920s.

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  • Resilient & Resourceful: Evy Chen

    In 2020 US restaurant and foodservice sales declined by $240 billion (22% for the year) placing unprecedented stress on food and beverage suppliers. In Boston, Evy’s Tea founder Evy Chen watched as standing orders for her organic, sustainable, artisan cold-brewed bottled teas cease overnight. Revenue fell 82%. She persevered, observing that COVID lockdowns led to a surge in online transactions and altered long-established consumer buying habits. Within a year she had reformulated, rebranded, and relaunched online as a successful direct-to-consumer brand known as Evy.

    Resilient & Resourceful

    The tea industry globally demonstrated its ability to recover quickly during two years of disruption. Less is said about individuals who overcame pandemic-related obstacles and the resourcefulness of people that grow, process, and trade tea. To remedy that, Tea Biz is sharing stories of resilience, reinvention, pivots, and clever workarounds that exceeded expectations.

    Hear the interview
    Evy Chen on bouncing back after a dramatic drop in sales of her namesake cold-brewed tea.
    Evy founder Evy Chen

    A Story of Reinvention

    By Dan Bolton

    Seven years ago Evy Chen pioneered small-batch, cold-brewed tea in bottles. Her tea bar at 253 Amory St., Boston doubled in size in 2018 serving cold tea on draft, kombucha, sparkling drinks, iced coffee, and bottomless boba, as well as treats sourced from local businesses such as Pain d’Avignon and Fomu. In early 2020 her carefully constructed venture nearly collapsed. During the months that followed Evy reinvented the product line as a fresh-brewed tea made from concentrate and sold in cans and available direct-to-consumer.

    Dan: COVID lockdowns along the Eastern Seaboard shuttered foodservice operations and led to a surge in online transactions that altered long-established consumer buying habits. The impact on the beverage industry was severe. Tell us about those early days.

    Evy Chen: Everybody was freaking out. Right? People were scared, people were binge eating. A lot of people’s insecurities came out during COVID.

    I was sitting there watching everyone run around like crazy chickens thinking that’s been my world for, you know, the past 10 years.

    I didn’t have a lot to work with, so I had to be very resourceful. Being a woman of color and an immigrant, and a younger person, I think that resilience was always there.

    COVID really brought more of a focus and led me to say, ‘this is my game.” Looking around I said, “Okay, now it’s chaos, but within the chaos, where is the opportunity?’

    This is hands down the hardest thing I’ve ever done. Everything I’ve established in the past 10 years gone, products gone, clients gone, people gone. I practically had to rebuild a company with not much money during COVID.

    Evy Chen

    Dan: So what were your first steps? Let’s get granular for our listeners.

    Evy: Starting from retail pricing, you want to keep your costs at 25%. Right? You have to keep your margin at a certain level, and then it’s reverse engineering.

    So, we do an eight-pack right now on Amazon and www.evytea.com.

    That’s one single flavor so shipping costs exactly the same whether you buy one or two packs. The math becomes very simple. It’s not necessarily about cutting weight, per se, it’s about what kind of products and services can you provide to add value because your delivery cost is fixed. Our subscription service, for example, lets customers determine flavor and frequency and they are free to swap, pause or cancel at any time.

    From a shipping perspective, where we caught cost wasn’t necessarily at the very end of shipping to customers, it’s chasing it all the way back to the beginning of the supply chain and saying, okay, the containers now cost, you know, 15x more than before. So, how do we engineer this map and identify whose truck we can get on that’s already coming this way, instead of hiring our own trucks? We got really, really creative.

    We also had to figure out a way to raise more capital upfront and work out a contractual deal with our suppliers. You lock in costs where you can to control expenses. So, it’s a lot of tweaking the P&L [profit & loss statement], tweaking the clock, tweaking the engineering where it hurts the most.

    “No one had thought to cold brew tea before, but it brought out all of the great attributes that were lacking in cheap iced tea.”

    – Evy Chen

    Dan: Describe for listeners your innovation in brewing a tea concentrate to trim costs. Previously you steamed the leaf to release flavor and aroma then relied on small-batch brewing for 16 hours before bottling.

    Evy: We developed our own tea base that is a concentrate. It’s one thing I’m most proud of as a food scientist, to scale the exact sensory experience of a craft tea with the stability, the shelf life, and everything that you can imagine about being a larger manufacturer to capture the margin opportunity. So today we are shipping less water, shipping it less often to make more tea at one go. And then it’s a matter of just figuring out a way to stretch that supply throughout the year.

    Every single drop of Evy Tea I engineered from the very get-go. But from now on even scaling to 100 million gallons, the product quality will remain consistent, exactly the same. And the sensory experience is just as, if not better, than when I made you a cup of tea at my tea bar.

    Dan: How will your rebranding and direct-to-customer sales unfold in 2022?

    Evy: I’m not interested in capturing 10 million people next year. That’s a typical play, right, you raise a lot of money, you throw stuff against the wall and see which one sticks, and what doesn’t work, and you move on.

    And that becomes a very data-driven business and very data-driven marketing. I want none of that. I would like to capture people and keep them engaged. I want to keep that person as a lifetime friend because this is a long journey for me.

    I prefer a lower velocity working with our retail partners online and offline so that we can really tell that story and prove that story-centric marketing works.

    I’m looking at it as sourdough starters that I am naturally feeding. This is the best iced tea in the world hands down, I don’t have to sell them on that, all I need to do is to get the product to them and get them interested enough to taste it for the first time.

    Tea is a wonderful ingredient in beverages and food, it has a huge amount of history and culture and a story of humanity within. So why is it being minimized? Why is ready-to-drink tea mainly sugar water? Why are we, in tea, only worth 20 cents a pound?

    Grapes can be sold for $140 a pound. It’s not less labor-intensive, it’s, even more, labor-intensive, right? So why do we do all this work and don’t get the same value?

    “So I’ve done nothing more than simply decide that I’m worth more and that truly is the driver behind this whole rebrand.” – Evy Chen

    The only difference is that we’re not vocal and that we don’t think we’re worth it. Talk to any tea farmers, any distributor anybody you talk to in tea is the most humble human beings on earth, right?

    We’re really nerdy, we’re serious. We truly love this. But who is out there is talking to people drinking tea bags? The perception of value isn’t there. What do we have to do to change their mind? That’s the work we’ve been putting in.

    We need to figure out how to tell the same story in a different way, in a shorter format in a more heartfelt, emotionally filled format, and more truthful format, and throw that against the wall against all the other big companies who are nothing but marketing.

    We need to bring the whole industry into the next century not just the individual entrepreneurs but the entire global community of tea drinkers.

    So I’ve done nothing more than simply decide that I’m worth more and that truly is the driver behind this whole rebrand.

    Cold brewed superberry
    Eight pack 12oz cans
    Evy Palmer (tea+lemonade)
    Cold brewed tea on tap


    Evy
    Cold brewed
    Sourced organic, small lot, direct trade
    0 Cal (Unsweetened Green Tea)
    40 Cal (Black Tea Superberry)
    40 Cal (Hibiscus)
    70 Cal (Evy Palmer)
    $27.99 Eight pack 12 oz. cans

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  • The Timeless Taste of Tea

    Tea innovations date to antiquity. The beverage is constantly re-invented; in this instance, as a CO2-enhanced, nitro-infused, cold-brewed iced tea conveniently available in cans that pour a craft brew head of foam. The ancients might not fully comprehend pop-top cans but would instantly recognize the taste. East Forged tea co-founder Kym Cooper reminds us that tea’s simple, unadulterated taste is timeless.

    Kym Cooper describes the importance of making teas that taste like tea
    Kym Cooper
    Kym Cooper

    A Fizzy, Foamy Innovation in Tea

    By Dan Bolton

    East Forged teas, launched in Australia in 2020, are nonalcoholic sparkling adult beverages cold-brewed for 12 hours from organic whole-leaf green, black, and white teas and blended with low-sugar Calamansi, Pitaya, or Yuzu juice. Manufactured in a brewery and then canned, the teas get a burst of CO2 for fizz and nitrogen to add texture and a creamy head. The black tea tastes of citrus and is dry, not sweet. The Fujian-grown white tea is flavored with calamansi, a mild, wild citrus hybrid from the Philippines, ideal for social occasions.

    Dan: Kym, let’s talk today about innovation and the timeless essence of tea. What do you like most about tea?

    Kym Cooper: I love the taste of tea. The taste is clean and pure, described frequently by tea drinkers as delicate and light. I think we can agree that this is the natural baseline of tea.

    You can then find real enjoyment in learning more about the plant, its nuanced complexity, mouthfeel, and the process by which it has been created. These are all qualities that make other agricultural products and ingredients appealing, but somehow it’s just not bridged across to tea.

    I think our perception has been largely shaped over the years by what we can access conveniently in supermarkets, where food and drinks become dominated by enhancers to achieve commercial realities such as maximum shelf life. Becoming accustomed to synthesized tastes developed in flavor houses and then enhanced by sugars and sweeteners that still go under the guise of being natural, these products don’t reflect tea’s clean and untainted taste.

    It’s quite a real challenge to find tea beverages in the hot and iced tea aisles that represent unadulterated tea.

    Tania & Kym

    Dan: How do you interest consumers in tasting better tea? You mentioned that you encourage a broad tea-tasting experience. Let’s start with that.

    Kym: I think the best way is to make it approachable and accessible, in my view. When getting people interested in tea, suggesting their tastes need refinement is unnecessary. It’s about encouraging people to try something new and have a wider tasting experience.

    We interest people by drawing on some of the simple and natural benefits of tea and allowing them to enjoy it.

    “These teas are inclusive and social, suited to adult tastes, a tea for Sober Curious and the mindful drinking community.”

    East Forged Website

    When I teach people about tea, I encourage them just to take that first step, pick up the cup, taste it, and not have any predefined thoughts about what that tea should be. Then you can move on and decide what you enjoy.

    Cold tea drinks with added sugar and flavoring stray a long way from representing that natural taste. To introduce new consumers to the real taste of tea, we use quality leaf tea canned to meet production standards while still retaining the natural taste of the leaf.

    I would love to think consumers will eventually reach a point where they can compare and purchase a Japanese-grown Yabukita over an Australian-grown Yabukita, just as we might reach for something like a Granny Smith green apple here in Australia to create a baked apple tart over a red delicious apple as an example.

    Understanding the effect of seasons and harvests that we see across all agricultural products can help us be drawn into the world of tea.

    Melbourne Tea Festival
    Melbourne Tea Festival

    Dan: What is the best way to preserve the natural goodness of tea?

    Kym: Tania Stacey, who co-founded East Forged, and I hold a strong belief as tea specialists that we’re uniquely positioned to solve the problem of underrepresented natural-tasting iced tea.

    We use simple and natural ingredients; we source directly from a wide network of tea growers and farmers we’ve worked with over the years. We minimally brew and preserve the tea plant and its most delicate properties so that we are able to deliver that authentic tea taste.

    The tea is manufactured in a brewery. It’s a mix of tea knowledge and craft techniques. In the Australian market, craft beer is huge, and we love looking at the techniques they use to highlight natural ingredients.

    We’ve taken the simple and natural ingredient, with just a small amount of fruit juice, to elevate the flavor profile. We’ve also played around with the gases within our drinks. So, there’s a small amount of CO2, and we use nitrogen in our beverages to retain the best flavors of tea. Each gas works slightly differently in the flavor profile. At the end of the day, it’s still undeniably that taste of tea with really short ingredient list that highlights our East Forged difference.

    The brilliance in this short ingredient list is that it actually punches above its weight in terms of the taste, delivering a refreshingly new style of craft iced tea refreshment that looks deceptively like a beer and is completely nonalcoholic with natural and health benefits that come with tea.

    Product Specifications

    250ml cans
    0.3g Sugar
    1.8 Cal per can (Black Tea & Yuzu)
    3.1 Cal per can (White Tea & Calamansi)
    $29 Six pack
    Alcohol free
    Vegan

    These teas encourage people to add other inclusive drinking opportunities.

    East Forged

    There are strong tailwinds in the low-and-no alcohol category. In Australia, we see a trend towards alcohol abstinence (approx. 20%1), and at least half of our drinkers actively moderate their alcohol consumption, with 40%2 of those moderating specifically looking for low-sugar drinks that are both convenient and meet the occasion. Many brands enter this category with like-for-like alcoholic beverages (e.g., NA beers). But tea has a great opportunity to develop this category with a truly inclusive adult-tasting drinking option!

    At East Forged, we’re about creating this new wave of ready-to-drink craft iced tea for tea drinkers expecting that provenance of tea in every drop they drink. It’s a cold brew that I think any Sober Curious person will be surprised to find a bit cheeky.

    • 1 2019 AIWH National Drug Strategy Household Survey
    • 2 2020 Mintel Global Food & Drinks trends

    Prizes & Medals

    • 2021 World Tea Expo Innovation Finalists
    • 2021 Tasmanian Fine Food Awards
    • 2021 UK Spirits & Drinks Business (Low/No Masters-aperitif)
    • 2020 UK Spirits & Drinks Business (Autumn blind tasting)
    East Forged foamy tea
    East Forged foamy tea
    Kym sourcing tea in Japan
    Tania filling the cans
    Tania poses with pallets ready to load

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  • India Initiates Tea Industry Reforms

    India’s highest levels of government are reforming the basic structure of agriculture. The intent is to loosen regulations on pricing and storage and to permit direct sales of produce. These rules have sheltered India’s farmers from the free market for decades. In September 2020 Prime Minister Narendra Modi called the reforms a “watershed moment” for Indian agriculture but a year later was forced to abandon plans to end subsidies following widespread protests.

    In Part 2 of this Newsmaker Interview – Prabhat Bezboruah, Chairman of the Tea Board of India, describes a new board mission to increase consumption, promote tea exports and expand markets at home and overseas. He also addresses discussions underway to transfer regulatory oversight of India’s tea industry from the Ministry of Commerce to the Agriculture and Farmers Welfare Ministry.

    Listen to the interview (Part 2)

    Prabhat Bezboruah, Chairman Tea Board of India on expanding India’s domestic tea market and exports.
    Prabhat Bezboruah
    Prabhat Bezboruah, chairman of the Tea Board of India

    Part II: Tea Board Reform and Changing Priorities

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

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

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

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

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

    Aravinda: Is something being done about this?

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

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

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

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

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

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

    – Prabhat Bezboruah

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

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

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

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

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

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

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

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

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

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

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

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

    – Prabhat Bezboruah

    Aravinda: Will we be seeing this in 2022?

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

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

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

    Prabhat Bezboruah

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

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

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

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

    – Prabhat Bezboruah

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

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

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

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

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

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

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

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

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

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

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

    Tea workers
    Smallholders have replaced plantations it total volume of tea produced, but the tea is often low quality

    Part I: Current Challenges and Expectations

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

    Listen to the interview (Part 1)

    Prabhat Bezboruah, Chairman Tea Board of India on expanding India’s domestic tea market and exports.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    – Prabhat Bezboruah

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

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

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

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  • Q|A Prabhat Bezboruah

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

    Listen to the interview, Part I

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

    Part I: Current Challenges and Expectations

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

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

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

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

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

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

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

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

    Prabhat Bezboruah

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

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

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

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

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

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

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

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

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

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

    – Prabhat Bezboruah

    Part II: Tea Board Reform and Changing Priorities

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

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

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

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

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

    Aravinda: Is something being done about this?

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

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

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

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

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

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

    – Prabhat Bezboruah

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

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

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

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

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

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

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

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

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

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

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

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

    – Prabhat Bezboruah

    Aravinda: Will we be seeing this in 2022?

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

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

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

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

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

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

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

    – Prabhat Bezboruah

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

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

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

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

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

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

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

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

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

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

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

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    Aravinda Anantharaman

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