Tea is loved by millions: so why is the sector being forgotten?

The average tea producer company in India would be forgiven for being nervous about the vagaries of upcoming legislation: in 2024, it is likely that the long-awaited Indian Code of Wages Act will come into force and could have serious implications for tea producers. IDH has convened leading tea packers in London to take action to ensure that what’s envisioned by the Code (e.g. a higher proportion of cash wage), will benefit workers.

This article illustrates the scale of the challenge in India. The data is anecdotal - based on conversations with tea producers in November 2023 - but it paints a damning picture of a sector forgotten by international commitments, which produces a commodity loved by many millions.

To make meaningful change that will allow the tea sector to thrive - and support Indian small tea growers (STG) - our global director for agri commodities, Ruchira Joshi, proposes a five-point agenda:

1. Develop and implement a practical mechanism for the transfer of financial value through voluntary contributions from buyers to tea producers. This mechanism should be designed in close collaboration with the producer companies and meet their immediate needs. In the long term, it should be replaced by a tea price that represents the cost of production.
2. Drive policy interventions to deliver greater flexibility for the organised sector such as increasing the proposed 15% cap on in-kind benefits to 30% or have a 100% cash wage.
3. Implement an STG engagement plan e.g. diversification agenda to deliver higher income from other crops. On the estate side, a policy intervention allowing for diversification to include tea tourism and other higher value crops may help as well.
4. Engage tea buyers to create momentum for a procurement practices agenda inclusive of contract length, volume commitment, and pricing to cover cost of production and deliver margins. Ultimately, voluntary contributions must give way to a meaningful change in business practices.
5. Consider a consumer engagement plan to enhance tea pricing and grow the value of tea as a category.

Why is this necessary? 

In India, as globally, the share of the tea produced by the bought leaf or Small Tea Grower (STG) sector has been steadily increasing over the past decade and is as high as 56% of total production. The sector is not subject to the same degree of regulation in production practices or working conditions as estates and therefore has lower costs. On the other hand, producer companies - being highly regulated and operating estates that employ a significant task force - are paying a base wage in cash plus providing a number of other benefits such as housing, medical, schooling etc. Unfortunately, despite regulation, some are able to sidestep these requirements making their actual cost of production lower as well.

For compliant estates, wages are up by 200% but prices have increased by only 50% over the last 10 years. Worker absenteeism is as high as 35% by some accounts, and action is prevented by outdated legislation such as the Plantation Labour Act, forcing estates to maintain employee numbers at a fixed level. For those exporting, the cost of certification is a substantial additional cost, and not reflected in price they receive.

This could be a route out to create a viable business, but per capita consumption of tea in India is not increasing (younger consumers are not interested in tea), so estates want to grow their export markets. Unfortunately, the total procurement by international packers rarely represents more than a maximum 10% of the total output of individual Indian producers. Worse still, international buyers will switch the moment Indian prices don’t look favourable and buy Kenyan tea.

The new Code of Wages Act, though uncertain to a degree, may offer some hope. As per the Act, provision of social welfare could be taken over by government and in-kind benefits such as housing and medical facilities capped at 15%. One will have to see if this has the perverse effect of penalising compliant estates who cannot rescind existing benefits but wouldn’t be able to include them in the total wages cost since said benefits would legally have to be provided by the state.

It is perfectly possible for tea to be a sector which is financially viable, with producers who are remunerated for the value of their crop, and operating in an enabling environment which allows flexibility while driving best practice. IDH has commenced action on my first proposed intervention and we welcome tea packers to join us in designing a ‘collection and distribution’ mechanism for value transfer to workers. If not, we might find people and planet cannot bear the cost of our daily cuppa, no matter declarations of good intent, and regulation to support them.