The Indian Tea Association (ITA) said that there is a need for introduction of a minimum floor price for made teas and green-leaf benchmarked to quality. The floor price would account for production costs, ensuring a self-sustaining model for all producers, large and small.
Tea prices are currently governed by demand and supply in the system, so when crop prices fall and production decreases, prices rise. ITA hired the consulting firm Ernst & Young and the law firm Khaitan and Co about six months ago to analyze the industry and provide a road map for self-sufficiency.
According to Vivek Goenka, Chairman of the ITA, the study should be completed within the next two to four weeks, after which the Association intends to present the study’s findings and recommendations to the Ministry of Commerce and state governments. It recently presented the initial paper to the Union Commerce Minister.
“Do not confuse this minimum floor price with the minimum support price”. Unlike the MSP, this proposal does not require any financial outlay from the State or Central Government, and ensures a self-sustaining model for all producers, large and small,” Goenka said at a virtual press conference on the occasion of the Association’s 138th annual general meeting.
Currently, nearly half of all tea produced is sold below the cost of production, which is around $220-240 per kg. The average auction price of tea increased from 125 per kilogram in 2012 to 140 per kilogram in 2019. The Covid-induced lockdown during peak plucking months, as well as the resulting loss in production, caused a price increase in 2020. That, however, was only for a limited time. Tea prices in 2021 have crept closer to those in 2019.
“With a CAGR of around 4% in the 2012-2020 period, the increase in tea price has been outpaced by the corresponding increase in input costs ranging between 9-12% and wages, which have more than doubled during this period,” Goenka said. What is truly shocking is that, in real terms, tea prices have actually decreased during this period. “The industry cannot be sustainable and produce quality teas at the current price levels,” he explained, explaining why a minimum floor price is necessary.