Small tea growers are threatening to “destabilize" the organized sector, says Prabhat K. Bezboruah, the first planter to be appointed chairman of the Tea Board of India. In his first interview since taking office last month, Bezboruah says though his term until November next year is “ridiculously short", he will push for reforms to level the playing field for all growers. Edited excerpts:
What are your key concerns for the industry?
From Rs7 a kg in 1954 to Rs140 a kg in 2014, tea prices increased 20 times in 60 years whereas prices of many farm products have appreciated by 100-200 times. Tea growers weren’t even able to beat inflation. Why? Because we were too conservative and perhaps myopic in the way we managed our business.
Planters thought their monopolistic control over the tea cultivation would last forever. Then, in the mid-1980s, the Assam government said anyone who was in possession of suitable land could start to grow tea. Today, 44% of India’s 1.3 billion kg crop is produced by small growers.
These small growers sell green leaves at Rs15 a kg and still make profits whereas the cost of production for the organized sector is Rs25-30 a kg. Small growers have younger bushes, no permanent workers and no social obligations.
The organized sector will not be able to cope with this for too long unless we change the way we do business.
But lifting restrictions on tea cultivation helped curb militancy in Assam…
Yes, of course, it was a path breaking step. A lot of militants gave up arms and started to grow tea. The move also created a lot wealth in Assam, but it came at a cost: these small growers are now threatening to destabilize the organized sector, which employs about a million people.
The ecological cost, too, was substantial: small growers in Assam, Arunachal Pradesh and Nagaland have encroached into forests and cleared up mountain slopes, leading to large scale soil erosion and destruction of natural habitats.
So how do you deal with this?
The local administration has to deal with encroachment. To level the playing field, we have to create incentives for small growers to lift the quality of leaves they pluck. In the short term, production will decline by say 30-40 million kg a year but their produce will get a much better price. In turn, this will change market dynamics by taking out poor quality tea. At the same time, the organized sector should look to mechanize plucking to bring down costs. Also small growers should be required to pay minimum wages and offer social benefits like the organised sector.
Do these people enjoy political patronage?
Yes, the small growers are a powerful constituency of say 100,000 people, worth on average Rs50 lakh each. They are also employers of a large number of people, and have transformed the economy of Upper Assam and the North Bank. So, the only way to deal with them is to create incentives for them to improve quality and join the mainstream. But these growers aren’t the only problem.
Even the standalone bought-leaf factories which process leaves sold by these growers care little for quality. These bought-leaf factories can digest anything—even twigs from tea bushes. They buy the worst leaves and sell at a small profit at Rs80-90 a kg, depressing the overall market.
In what ways can planters shore up profitability?
Our profit per hectare is pathetic at Rs20,000-40,000 a year whereas pomegranate farmers in Maharashtra earn Rs4 lakh a hectare. Time has come for the organized sector to be allowed to crop anything that helps improve profitability.
Tea auctions have been going through disruptions lately...
Growers are forced to sell 50% of their produce through auctions whereas buyers are free to buy anywhere. This is a strange asymmetry. You should either remove the requirement to sell 50% of the crop through auctions, or make it mandatory to sell everything through auctions. Because of the freedom they enjoy buyers are gaming the system to drive down prices in auctions. They don’t bid for their entire requirement in auctions, and then they buy cheaper directly from the estate at auction benchmark price.
The auction system needs to be overhauled for better price discovery. We do not need separate auctions in Kolkata, Guwahati, Siliguri and other centres. We need one auction which is open 24x7. And entry barriers for new brokers should be reduced.