India is one of the world’s largest producers and consumers of tea accounting for 23% of the world’s production and around 13% of the world’s tea export. Currently, India produces close to 1,400 million kgs of tea out of which around 250 million kgs are exported while domestic consumption accounts for around 1,100 million kgs. Also, tea production has been gradually increasing over the decades primarily because of the emergence of the Small Tea Growers (STG Sector).
However, due to the low level of absorption, both for consumption and export, there is oversupply leading to price stagnancy year after year. But due to low output this year, given the pandemic situation, tea prices have soared significantly.
Considering this high price rise, the packet tea players and tea traders of India are considering importing teas from Kenya and Vietnam as tea prices have fallen there due to overproduction.
The Federation of All India Tea Traders’ Association (FAITTA) has demanded that the government allow importing of tea from these countries, that too duty-free. FAITTA has maintained that importing of tea would be a one-time affair and would not be practiced in the coming years.
If permission is granted by the government, India will be importing tea for the domestic market for the first time. The country has been importing tea earlier in relatively small quantities of 9 to10 million kgs annually. But this is used for re-export. This year the association has wished to import 40 to 50 million kgs of teas, that too for domestic consumption.
Further, tea attracts 100 percent import duty; the association has urged that tea be allowed to be imported duty-free this year.
“Prices of tea in auctions have gone up significantly this year due to a shortage of supply. But we are not being able to pass on the price to our customers because the economic situation in the country is not conducive for increasing prices. The pandemic has created economic uncertainty everywhere,” said Viren Shah, Chairman of FAITTA.
While the prices of CTC has increased by nearly 48% to Rs. 305 per kg in the Kolkata auction, the prices of Kenyan tea was about Rs. 138 per kg in the Mombasa auction. Vietnamese tea is even cheaper. This means the import of tea from these countries will be cheaper to the packet tea traders than the procurement of home-produced products.
The Consultative Committee of Plantation Associations (CCPA), the apex body of tea associations in India has written to the Ministry of Commerce and Industry against the demands placed by packet tea players and traders.
CCPA stated that the auction prices between 2012 and 2019 have grown at a CAGR of 1.7% only while input costs have grown at a CAGR of 8% to 14% during the same period. After years of stagnancy the tea prices have finally increased. And if the same continues, “it will contribute towards restoration of the viability of the ailing producing segment which has been incurring huge losses for the past few years.”
They pointed that there is adequate availability of tea in the system and given the fact that cropping months from August to December contributes 45% of the total production, the availability would increase further. Moreover, on account of the current global crisis due to Covid-19, exports in the current fiscal year is expected to be lower which would make more additional teas available in the domestic market.
Further, it was stated that pursuant to the outbreak of Covid-19, out-of-home consumption of tea which constitutes around 30% of the total consumption is reported to have decreased substantially. Therefore, inducing increase in imports through reduction of import duty or otherwise would affect the market dynamics to the detriment of the tea economy leading to depressed prices, losses, erosion in employment levels and threatening the livelihoods of millions of workers and small tea growers dependent on the tea industry.
“After seven long years, prices have shown some northward movement even though the cost of production has gone up 50-60% in the same period. There are 10 lakh workers engaged in tea estates directly. Their livelihood will be at stake if the import is allowed. Also, the market will be flooded with cheap Vietnamese and Kenyan teas which will hurt the Indian tea producers,” said Vivek Goenka, Chairman of Indian Tea Association (ITA).
In the letter to the union ministry by the Consultative Committee of Plantation Associations, they urged the government to maintain status quo with regard to 100% import duty on tea. The government was also urged to strengthen the inspection regime in India to ensure that teas that are being imported into India comply with the FSSAI guidelines and other compliances.