India’s tea industry needs policy liberalization for rejuvenation
₹7-10 per kg of cost to the tea sold. Still, it generates large unsold odd-lots. In any case, only about 40% of the tea gets sold through tea auctions.
There is also a tremendous lack of standardization and classification of tea in India. There are reportedly about 800 types of tea manufactured or sold in India, whereas the industry estimates that there are essentially only about 25-30 major tea varieties. More than supply, it is demand that needs our attention.
Tea needs to be promoted as a good health drink. Certain ideas are simply not workable: Some tea industry interests have proposed making it mandatory to sell 100% of the tea through auctions and providing a minimum floor price guarantee for all tea produced at cost plus a 50% profit margin. The idea of cost plus 50% profit is borrowed from the system of minimum support prices (MSP) for foodgrains.
The MSP system, however, works only in the case of bulk commodities such as rice; that too, only when there is assured procurement by the government. The market price for the foodgrains procured rarely equals their MSPs. The cost plus 50% profit system will never work in the tea industry with no government procurement and the prevalence of price differentials of 5-10 times for different varieties.
Similarly, the idea to mandate 100% tea sales through the country’s limited auction-houses is completely impractical and unworkable. This will only burden the entire tea industry with unnecessary costs and single-handedly make Indian tea globally uncompetitive. The right solution: This involves addressing reform imperatives.
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