THE CRISIS IN THE TEA PLANTATION

SECTOR IN KERALA – CAUSES,

CONSEQUENCES AND SOLUTIONS

(A Study in the Idduki District of Kerala)

Vivek John Varghese

A project report submitted in partial

fulfillment of the requirements for the Degree

of Master of Arts in Development Studies

Centre for Development Studies

School of Social Sciences

Tata Institute of Social Sciences

Mumbai

2008

DECLARATION

I, Vivek John Varghese, hereby declare that this dissertation titled ‘The

Crisis in the tea plantation sector of Kerala - Causes, consequences and

solutions’ is the outcome of my own study undertaken under the guidance of

Dr Sharit Bhomick , Dean , School of Management and labour studies, Tata

Institute of Social Sciences, Mumbai. It has not previously formed the basis

for the award of any degree, diploma or certificate of this institute or any

other institute or university. I have duly acknowledged all the sources used

by me in the preparation of this dissertation.

Vivek John Varghese

15TH March 2010

CERTIFICATE

This is to certify that the dissertation entitled ‘The crisis in the tea plantation

sector of Kerala – Causes, consequences and solutions’ is the record of the

original work done by Vivek John Varghese under my guidance. The results

of the research presented in this dissertation have not previously formed the

basis for the award of any degree, diploma or certificate of this or any other

university.

Dr Sharit Bhomick

Dean

School of Management and Labour studies

Tata Institute of Social Sciences

15th march 2010

Acknowledgement

This work would be incomplete if I do not say my thanks to a list of people.

Firstly, to my research guide Dr Bhowmik. Thank you sir for the guidance that was critical and the timely feedback that always played an important role at every stage of this work.

The biggest of thanks go to my parents, Dr P J Varghese and Dr Rossama Varghese, who not only inspired me to go ahead with doing this work but also provided me with all the assistance in terms of coordinating my fieldwork; putting me in touch with the people who have contributed to this work and most importantly financing me both when I was in the field and off the field. The

help they provided in terms of helping me collect my data; identify my sources and the coordination they engaged in to ensure that I received all the information that I need on time

played a most important role in me successfully completing this study.

I would like to express my sincere thanks to the faculty at the centre for development studies, TATA Institute of Social Sciences, who assisted me significantly knowingly or unknowingly in

successfully completing this work. Teachers, a lot of what you thought me during the two years I spent at TISS proved invaluable to me in the course of the study that I have done. For this I am much grateful to you. I also would like to thank the coordinators for the times they have been flexible when me and my friends have found ourselves in tight spots during the course of the

completion of our dissertations.

My friends have been an integral part of my research journey and I would like to express my gratitude and thanks to them. Most importantly my thanks extend to Aastha whose presence has

always been an encouragement when I have felt that I am losing track of my work. She has always calmed me down when I have started to panic during the course of this work. My thanks also goes out to Abhay who has tolerated all my emotional outbursts during this work while at

the same time providing valuable insights into the work and always posing the hardest questions to me. I am lucky to have you guys around.

I would like to express my thanks to all the people in the Tea industry in Kerala who have contributed material, insight and experiences into this work. Without these this work would

never be complete. Specifically I would like to thank the officials of the KDHP Co pvt ltd, the many smallholders from Munnar who would not like to be named and the officials of UPASI and the Tea board who helped me with information, access and permissions that I needed to carry out

this work.

To all of you people “Thank you for making my first research experience very memorable!”

Last but not the least I would like to thank the almighty for all that he has provided to me.

Table of contentspage

numbers

Chapter 1) methodology of the study1.0) Statement of Problem 11.1) objectives of the study 7

1.2) Research questions 81.3) Setting of the research 9

1.4) Method of data collection andAnalysis

11

Chapter 2) The plantation system and the Tea industry in India2.0) The rise of the plantation system of

Agriculture under colonialism14

2.1) Tea cultivation and the Tea industry in India 20

Chapter 3) Shifting realities in the plantation sector in India and the crisis in South India

3.0) Changing features of the tea plantation sector in India 373.1) The plantation system in South India and the emergence of the crisis 43

Chapter 4) Tea plantations of Kerala and their crisis in perspective4.0) An introduction to the tea plantation sector in Kerala 64

4.1) The crisis in the Tea plantation sector in Kerala 684.2) Factors responsible for the crisis in Kerala 74

4.3) Case study of the Kannan Devan Hills plantation company 98

Chapter 5) Smallholders and cooperatives5.0) An introduction to smallholders 112

5.1) Smallholder Tea cultivators – a story of resilience and the need for support

115

Chapter 6) solutions and strategies 1336.0) measures that need to be undertaken across the spectrum of the

industry135

6.1) measures needed with respect to smallholders 157

Chapter 7) Conclusion

Bibliography

Appendix

166

Table no

Description of tablePage

number

2.1.AArea Production and Yield Rate of Tea in India

(1960 to 2005)28

2.1.BProduction of Tea in India by Different Methods of Manufacture (1961,

1971, 1981, 1986, 1988 to 2002)29

2.1.CProduction of Tea in South India by Different Methods of Manufacture

(1961, 1971, 1981, 1986, 1988 to 2002)30

2.1.DNumber of tea growers of various kinds of holdings in India

33

2.1.E Area under Tea in India – Region wise 33

2.1.FDistrict wise/ state wise area under Tea in India – North India

34

2.1.G District wise/ state wise area under Tea in India – South India 35

4.0.ADistrict-wise Production of Tea in Kerala

(1975-76, 1980-81, 1985-86, 1990-91 to 1998-99)67

4.2.A Age of tea bushes as percentage of the total (1997) 80

4.3.AList of estates , Area under tea and total no of workers of KDHP

company Pvt Ltd100

4.3.B

List of estates and respective total crop output in Kgs of KDHP Co Pvt Ltd

(2005-2006, 2006-2007, 2007-2008)

105

4.3.C

List of estates and Yield per bearing hectare over past three years ( in Kgs) of KDHP Co Pvt Ltd

(2005-2006, 2006-2007, 2007-2008)

108

4.3.DTotal income and profits of KDHP Co Pvt Ltd

(2005-2006, 2006-2007, 2007-2008)109

4.3.E

Total expenditure, social welfare as % of expenditure and total social welfare costs of KDHP Co Pvt Ltd

(2005-2006, 2006-2007, 2007-2008)

110

6.0.AYield of green leaf per hectare per month (kg), base output per day (kg), Slab (kg), incentive rate (India rupee per kg) under incentive structure as

took effect on 1st January 1990 for tea pluckers in Tamilnadu155

6.0.B

Yield of green leaf per hectare per month (kg), base output per day (kg), Slab (kg), incentive rate (India rupee per kg) under incentive structure as took effect on 1st January 1993 following renegotiation for tea pluckers in

Tamilnadu

156

1

Chapter 1:- Methodology of the study

1.0: Statement of problem

The Epoch times in March 2007 published an article from the Reuters news agency on

the Tea industry in India. Following is an excerpt from that article.

“At least 150 people have died of malnutrition in eastern India in the past year after the

closure of scores of tea plantations in what investigators say is a unique case of social

breakdown in a heavily unionized sector....At least 16 plantations in West Bengal, in a

remote part of the state near the Himalayan kingdom of Bhutan, were shut down two

years ago after production fell and profits plummeted due to low yields from ageing tea

bushes.....Experts say the deaths have stood out in a unionized sector like tea, where

workers were given electricity, water, food as part of their emolument….While millions of

Indians live in poverty, jobs in unionised sectors like tea are normally prized for the

stability they offer workers. India, the world's largest producer of tea, has had state

regulations to protect formal workers for decades and unions are strong. But in this case,

union protection appears to have collapsed…."I will drink water, but I am not sure what

I will feed my three children," says Phulmani Kharia, a 25-year-old woman in Varnavari,

660 km (410 miles) north of Kolkata” 1

2

Sadly the above mentioned situation is not merely confined to the state of West Bengal

alone but has become characteristic of the tea plantations sector in almost all of India’s

tea producing states.

The following is an excerpt from an article in The Hindu on the conditions of life of

workers on a tea estate that had been forced to shut shop in Kerala’s Peerumade Taluk

“The majority of the workers' families stay on in the estates `lines' (labour quarters) as

they have nowhere to go. The `lines' are dilapidated and leaking. There is no electricity,

no water supply, and no health care…..Some women workers now collect dried dung of

stray cattle on the estate to make a few rupees to supplement the free rations”1

The crisis in the tea plantation sector in India has been prevalent for quiet some time

now. Attributable to a number of factors; internal and external; including decline in the

price of Indian Tea, unhealthy practices in auction centers, low productivity of

plantations, mismanagement, insufficiency in value added products, impact of small

growers and Bought leaf factories and the trade liberalization polices of the Government

of India ; it has over the many years it has been prevalent systematically destroyed a very

critical sector; critical in terms of (a) providing employment and hence sustaining the

livelihoods of lakhs of people who are dependant on it and (2) in terms of constituting an

important export commodity and thereby important in terms of foreign exchange

1 “Life on closed tea plantations on a downhill slide”. The Hindu. Trivandrum. April 3rd, 2006.

3

So what has been the impact of the crisis on the tea plantation sector in terms of real

visible impacts?

As on November, 2002; 1367 plantation units were defaulting on their payments out of

4819 registered units. The amount of default at the beginning of that financial year was

Rs.2212.34 lakhs and the amount collected during the year was Rs.397.98 lakhs. The

total default position as on November, 2002 in the plantation industry (except Assam)

was Rs.2800.59 lakhs. Of this Rs.1199.44 lakhs amounting to more than the half of the

default was accounted for by 84 defaulting units in Kerala. The other significantly default

state was West Bengal. In Assam the default was as high as Rs.2677 lakhs involving 169

defaulting gardens.

Though it is a fact that riding on price rises in the international market; tea industries in

most producer countries made gains in 2004-2005, the negative impacts of the fall in tea

prices before 2004 continued unabated in the Indian Tea industry2. In combination with

low productivity and the high cost of production; numerous tea gardens all over the

country either closed down or continued to face the threat of closing down. Economically

most of these plantations facing closure were just not sustainable.

Despite the improved prices over the past few years the industry continues to be plagued

by closures, failures in payment of wages, default in the payment of statutory obligations

such as the remittance of provident fund, default of payment to financial intuitions,

2 The price rises of 2004-2005 were not significant enough to offset the damage done already. The impact of the fall in prices up till 2004-2005 was too significant to be offset by the price rise that followed in 2004 - 2005.

4

owners abandoning estates, neglect of tea garden, refusal to harvest, demonstrations

demanding relief etc all of which are signs of unprecedented distress in the plantation

sector. In some states plantation labour unions have either consented to have a downward

revision of wages and social benefits that were offered to labourers (especially in

Tamilnadu) or workers have left/started leaving the plantations in large numbers and

moving to the plains in search of other employment. These trends have continued

unabated and have further worsened conditions in estates that could have otherwise

salvaged themselves but are now facing an acute shortage in the supply of labour. The

impact of the crisis has been such that plantation companies have been forced to overhaul

entire estate management systems as a result of the unhealthy business trends reflected by

their profit and loss account.

In response to the crisis numerous plantation managements took very stringent steps;

which further exacerbated the bad conditions of particularly the poor workers in the

plantation sector. Some of the cost saving measures that were adopted by plantation

managements included (a) neglect of plantation management activities ; b) closing down

of plantations/ initiation of lockouts; c) sudden and complete abandoning of plantations,

etc. For bigger tea planters, majority of whom own plantations of 250-400 ha, labour

displacement, cutting down in wage and non non-wage benefits were the immediate

workable options to tide over the crisis. According to many representatives of labour

unions I was able to meet during the course of my visit to affected estates; and scholars,

such actions by plantation managements were motivated more by the mystified notion

5

that labour was the triggering factor for the crisis than anything else3.

Notwithstanding what the reasons were for the crisis were; the consequences of harsh

measures on the part of plantation managements who either shut down their estates

leaving workers without alternatives or resorted to severe remedial measures to avoid

having to go under, after they started running into great losses, were even more severe

and the trends set in motion then; in terms of reaction and consequence; have even now

not subsided. Across South India numerous plantations have; in the years since the crisis

began; either shut down or have withdrawn (completely or partially) the social welfare

facilities they previously were offering to plantation labour. Such moves have left

thousands of people who labour on these plantations and their dependants without many

essential services and facilities that are integral to their survival and wellbeing. In the past

few years numerous starvation deaths and suicides have been reported from these areas

subsequently prompting government investigations. The results of the government

investigations can be summed up in this one line given by an investigator; Anuradha

Talwar ; an advisor to India's Supreme Court, to Reuters after conducting an investigation

into deaths in West Bengal state.

"So many deaths in one period from chronic malnutrition has not been seen in any other

organized sector before”

3 What we see from more recent studies is anything but the contrary of the view held by most plantation managements who tend to place the blame solely on labour. A classic example of this is the study conducted by the inter ministerial committee on the plantation sector which when coming out with its report stated that “while the age-old industry, in the changed environment of freer trade has not been able to withstand the pressure on its margin” the currently existing marketing arrangement, high agricultural income tax and the wage-setting process in the industry were the factors that were contributing primarily to the poor health of the tea industry in the country

6

An independent fact finding mission comprised of trade union leaders and social

scientists who studied conditions in affected regions around Gudalur and Valparai in

Tamilnadu in 2003 found that the conditions of the workers, especially women and casual

labourers in the crisis-ridden plantations, was miserable. Many are on the verge of

starvation; in many cases, children had to discontinue studies; medical care had to be

stopped and marriages had to be postponed. In many cases, power and water supply had

been stopped. The report also stated that Even as their daily wages came down, the

workload in all the tea plantations has increased in a major way, the report says. In

addition, the number of labourers and working days had been reduced. The report also

points to the incidence of sexual harassment of women workers by field officers,

supervisors and even by the management in many of the estates. It is in this prevailing

situation that I intend to conduct my study on the crisis in the tea plantation sector in

Kerala; identifying its causes, elaborating its impacts and suggesting the alternative idea

that has been put forward in many quarters that large plantations be replaced by small

holdings and cooperatives as the primary producers of Tea.

While I faced criticism from numerous quarters during my study who said that such an

argument was the mainstay of trade union activists and their supporters in the

intelligentsia it is a fact that it is not merely trade unions and their supporters who have

put forward such a demand. The following is an excerpt from the financial express dated

October 2001,

7

“It is high time the tea companies sold out their large estates to farmers for cultivation. If

the government disinvest its equities in public sector undertakings (PSUs) for ensuring

more competitiveness, why can’t the tea companies sell estates to farmers for making the

industry viable? This would help the companies reduce production costs. In return, the

companies should enter into contract with farmers by giving them technical knowhow

and marketing support and all that is needed for backward and forward linkages. This

way the farmer will be able to do his job better in a cost-effective manner. Indian farmers

have done wonders by ushering in the Green Revolution and ensuring food security. They

can do the same in the tea sector through proper production planning. But are the tea

companies prepared to part with their estates and stop behaving like feudal lords?”

Keeping the previously suggested argument in mind and superimposing over it the

question that was just asked I have set out for myself the following objectives to be

gained through this study

1.1 objectives of the study

1) To highlight the existence of a crisis situation in the tea plantation sector in kerala that

has forced many plantations to close down or forced them to adopt severe measures to

prevent themselves from having to close down; both of which have had a drastic impact

on the lives and livelihoods of labour and severely affected both the economies of the tea

growing regions in the state and also the state’s economy.

2) To highlight the fact that this crisis in the tea plantation sector in Kerala has not

descended suddenly but rather that numerous international, national and Kerala specific

8

factors have over the years been responsible for slowly giving birth to and nurturing the

crisis which has come to a head in the recent past.

3) To push forward the argument that a small holder and cooperative based tea growing

model could be a far more viable alternative to the large plantation model in kerala; that

has post the period of colonialism emerged to have some very fundamental defects and

shortcomings that makes it unsustainable over the long run

4) To highlight the need for the support of the government at the centre and the state

government of Kerala in facilitating the creation of such a model and to continue

guaranteeing support to it once created until it can sustain itself (protection of the infant

industry). Alongside this to state the importance of and need for temporary remedial

measures designed to keep the plantation based model running until the shift to

smallholders can be achieved

1.2: Research questions:

1) How has the crisis in the Tea plantation sector perpetuated itself; particularly how has

the kind of government responses to the crisis (at the centre and the state level) helped

reduce, had no impact or worsened the crisis?

2) What are the factors; International, specific to India and specific to Kerala; that have

been responsible for the crisis in the tea plantation sector in the state?

4) Why is the small holder and cooperative based model of Tea production a far better

alternative to the large plantation model that is predominant in terms of tea volume in

India and in Kerala today?

9

5) What are the difficulties faced by small holder tea cultivators today? What has been

done or not done by the state in helping them overcome these difficulties? How

successful have the efforts of the state been?

6) Are there any pilot endeavors or successfully running models of small

holder/cooperative cultivation of Tea in Kerala or outside that could be emulated and

applied relevantly to the state?

7) What are the temporary remedial measures that need to be undertaken to keep the

plantation system from collapsing until the shift to small holder and cooperative based

system can be achieved?

8) What kind of support does the state needs to provide to the small holder- cooperative

model to create a policy climate and economic environment suitable to their effective

functioning?

1.3: setting of the research

The study is set in the district of Idduki in kerala. Idduki, one of the mountainous districts

of the state came into existence on 26th January 1972 as per Government Notification

No. 54131/C2/71/RD dated 24th January 1972. Idduki is greatly known for the splendid

green mountains, streams and spices. It is also a main tourist destination in Kerala with

its hill stations, surrounded by lush hills and tea plantations and its valleys. Idduki is one

of the districts in the state where linguistic minority exists. The linguistic minority is

mainly the Tamilian population. They are mainly workers in the tea and cardamom

plantations, spread in Peermade, Udumbanchola and Devikulam taluks. The district is

10

highly heterogeneous in the matter of its people in their culture, climate, cropping pattern,

physiographic features etc. Both rainshadow and rain sodden area exists in the district.

The district was formed by carving out portions from erstwhile Ernakulam and Kottayam

district. It is bounded by Trichur, Kottayam, Ernakulam and Pathanamthitta districts of

Kerala and Coimbatore, Madurai and Ramanathpuram districts of Tamilnadu. It extends

by 115 KM from South to North and 67 KM from East to West. The district lies between

9 degree 15 minutes and 10 degree 21 minute of north Latitudes and 76 degree 37

minutes and 77 degree 25minutes of Longitudes. It has definite physical characteristics.

A Major portion of the district is covered by dense forest and extensive tea, coffee and

cardamom plantations. Nearly 96% of the total area of the district comes under the high

land area covered by rugged mountain ranges, hills and deep valleys. The district has no

low land and there is only a small trip of (184 Sq. KM) Midland area towards the western

part of Thodupuzha Taluk. Idukki is the 2nd largest district of the state.

Periyar, Thaliar and Thodupuzhayar are the three important rivers of this district. Periyar

which is 227 KM long is the second largest river of Kerala which originates from Sivagiri

in the south east part of the district touches all the taluks of the district. Among the

districts of Kerala, Idukki has the largest area under forest cover. The entire eastern side

of the district is covered with dense forests and they fall in five Forest divisions viz.

Chalakudy, Malayattoor, Munnar, Kottayam and Game Sanctuary. As per official records

more than 50% of the area is under forest. But the actual area under forest may be around

30 %, due to illegal deforestation and colonization. Agricultural sector is pre dominant by

perennial crops like Cardamom, Tea, Rubber, Coconut, pepper etc. it is the tea plantation

sector of Idduki district that my study has focused on.

11

1.4: Method of data collection and analysis

The study has drawn on both primary and secondary data and the method of data

collection basically included desk review and field study in order to collect secondary

and primary data/information respectively from different sources.

The desk review focused on collecting secondary data from a variety and diversity of

sources. These sources included (1) articles published in leading journals in India and

abroad by experts (2) archival material and publications from various national and

international mass media including newspapers, websites of news agencies, blogs etc. (3)

reports prepared by government ministries including the ministry of commerce and the

agricultural ministry, government departments at the centre and the state, boards,

committees and various taskforces set up to conduct studies on the industry as a whole or

on specific aspects of the industry (4) reports and research papers submitted to or

presented at various academic conferences, academic institutions, research

institutions/organizations and seminars and (5) reports and other publications of national

and international non-governmental organizations and transnational organizations like

FAO, WTO etc.

Given the goals of the study I have used two main modes of presenting data; statistical

and qualitative. While the former consists of data collated from earlier reports and

records and obtained from credible sources on the internet the latter is based on both

12

secondary material obtained from various sources and primary data collected through

interviews conducted in the field.

As part of the primary data collection process unstructured interviews were conducted

with stakeholders from all important stakeholder groups; from producers to managers and

officials. People interviewed included (1) management officials of large plantations

(KDHP and Harrisons Malayalam) (2) small holder cultivators (3) tea factory labourers

and plantation labourers (4) trade union activists (5) politicians (6) government officials

(7) experts from NGO’s and academic institutions who have worked on the tea industry

(8) local journalists who have been covering issues pertaining to the industry; about the

crisis and its aftermath and (9) officials from the Tea board of India offices in Cochin and

Coonoor and UPASI (10) officials from the Tea auctioning center in Cochin (11) and

local labour department officials..

To assess the working and living conditions of the workers in the fields and factories

individual and group interviews were conducted with them .Where it involved workers

and officials from plantation managements the interviews were mostly conducted off-site

and without the knowledge or consent of higher-ups, in order to ensure an unbiased

impression of the conditions prevailing and to gain the trust of the workers without

jeopardizing their position. The information that was collected during the course of the

fieldwork was analyzed against currently existing macro economic theory and compared

to other models that exist within and outside kerala; essentially case studies, to see how

the systems currently existing on large plantations are problematic l what are the

13

problems faced by smallholdings in the state and how small holdings in the state can be

improved or adapted to suit currently prevailing socio-economic and political conditions

domestically and internationally to make the industry in the state competitive.

We shall now begin our study about the crisis that today confronts the tea plantation

sector in Kerala

14

Chapter 2: The plantation system and the tea industry in

India

2.0: The rise of the plantation system of agriculture under

colonialism:

Before we can delve deeper into the subject matter of this study – which is the analysis of

the crisis in the tea plantation sector of Kerala; it is necessary for us to obtain an

introduction to the origins of the plantation system itself and the factors that motivated

the rise of the plantation system of agriculture; focusing on colonized countries in Asia,

Africa and Latin America. This bears specific relevance to us in our attempt at tracing the

crisis in the tea plantation sector in the country primarily because many of the factors that

initially were responsible for the rise of plantations are no longer present today. This has

contributed significantly to the crisis that tea plantations across India are in today by

making them; in more cases than few; unsustainable models of production under

currently prevailing conditions and expected conditions in future.

To begin with it is necessary for us to gain an understanding of what is a plantation?

One of the first modern definitions of the term plantation was made by the International

labour organization in 1960 to refer to

15

“A group of settlers or a political unit formed by them under British colonialism

especially in North America and the West Indies”

Subsequently with the colonization of numerous parts of Asia and Africa by Europeans

the term acquired a broader connotation. It came to refer to “large scale enterprises in

agricultural units and the development of certain agricultural resources of tropical

countries in accordance with the methods of western industry”.

Although the term plantation is subject to various definitions, one of the most accepted

understandings about what constitutes a plantation is as follows

“Plantation is an economic unit producing agricultural commodities (field crops or

horticultural products, but not livestock) for sale and employing a relatively large

number of unskilled workers whose activities are closely supervised. Plantations usually

employ a year round workforce of some size and they usually specialize in the production

of only one or two marketable products. They differ from other kinds of farms in the way

in which the factors of production, primarily management and labour, are combined” 4

According to the plantation labour act of 1951 of the government of India, a plantation is

“any land used or intended to be used for growing tea, coffee, rubber, and cinchona,

4 SIVANANTHIRAN, A. and C.S. VENKATA RATNAM (Eds), “Labour and Social Issues in Plantations in South Asia: Role of Social Dialogue”, New Delhi, India: South Asia Multidisciplinary Advisory Team, International Labour Organization, 2002, 240 p.

16

cardamom which admeasures five hectares or more and in which fifteen or more persons

are employed or were employed on any day of the preceding twelve months….”5

The establishment of plantations in the less-developed economies of Asia, Africa and

South America can trace its origins to the demand for tropical products in the

industrialized nations of the west, which rose sharply in the latter half of the 19th century

following the discovery of new lands by explorers from the west, establishment of trade

linkages and colonization. At that time it often was the case that the regions

geographically and climatically best suited for the production of these products had no

significant populations of indigenous smallholder producers who could produce and trade

these commodities. Thus opening new frontier/virgin lands for production of new crops

entailed high capital outlays for those seeking to engage in their production; which in

most cases happened to be colonizers from the colonizing nations of the west. Such

virgin land had to be cleared and developed, and physical infrastructure, such as roads,

irrigation networks, bridges, and docking facilities (because the principal means of

international transport was by sea), had to be constructed. The establishment of farms to

produce these products thus required huge initial capital investment. For the investors to

internalize gains from their investments in such infrastructure, it thereby became

absolutely necessary for the farm size to be large6.

5 Plantations Labour Act, 1951[Act No. 69 of 1951 as amended by Acts Nos. 42 of 1953, 34 of 1960, 53 of 1961, 58 of 1981 and 61 of 1986]

6 Thus the plantation system evolved not because it was generally a more efficient mode of organizing the production process than

smallholder production; but because it was the most effective form of production organization for extracting maximum economic

17

Though one might tend to assume that plantation systems tended to be adopted despite

their high cost of labour management the fact remains that in the colonies; where

plantations first came into existence; the planters were able to get both land and labour

extremely cheap; at rates that made plantations a very viable option indeed. Some

scholars like Alec Gordon consider this aspect of the plantation system to be so important

as to define and differentiate plantations from small holdings and ordinary enterprises

organized along capitalist lines.7 Though this aspect of plantation systems; which in post

independence analysis of plantation systems; is often sidelined in most countries; the fact

remains that in my analysis presented in this dissertation it bears a specific relevance.

For example the rise of the plantation system of Tea cultivation in India which happened

during colonial times and with the kind of labour management and organization that it did

; owes itself to the fact that there were several factors which determined the nature of the

emerging organization of production and its relationships. This is better understood if we

take the case of Assam where the British first established tea plantations.

First, was the free availability of cheap labour.

benefits from the exploitation of sparsely populated virgin areas, which typically required for a process of development that was

based on the exploitation of unused natural resources. [Hayami 1996; 2001; 2002].

7 Gordon, Alec(2001) “Towards a model of Asian plantation systems”, Journal of contemporary Asia, 31: 3, 306 — 330

18

Secondly, producing predominantly for export, made the tea industry subject to price

fluctuations on the international market. In a situation where expansion of the tea industry

was taking place at a time of steadily falling prices; between 1880 and 1900, the

industry’s profitability could be sustained only by keeping costs as low as possible and

labour costs proved to be the most controllable costs under the then prevailing

circumstances. Moreover labour could more easily be subdued under the regime that

existed under colonialism. Deserting labourers; who escaped due to the inhumane

conditions prevailing on plantations; were labeled as ‘‘absconding’’, and it was

considered a serious offence under the existing labour laws. Prior to 1865 a deserter from

the tea gardens, if caught, was punished under section 492 of the Indian Penal Code,

which provided for one month’s imprisonment

But cheap labour and land were not the only two factors that motivated the rise of

plantations. Alongside allowing planters to reap the advantage of cheap land and labour

plantations also served the following advantages namely: (a) close coordination between

farm-level production and large-scale processing/ marketing facilities that are required

for certain crops and (b) building of basic infrastructure by a large-scale production unit

which is able to subsequently internalize the resultant gain from the large investment that

has gone in to building the infrastructure.

The origins of the plantation system can thus be traced primarily to an economic

requirement; the need for economies of scale; facilitated further by cheap factor inputs in

terms of rent for land and wages for labour. while it is true that crops that are grown on

19

plantations can also be successfully grown on family farms also ; the requirement of

economies of scale gain particular importance in the cultivation of certain crops primarily

because it provides significant increasing returns at the levels of processing and

marketing activities. In case of such a crop as tea the vertical integration of a large estate

farm with a large-scale central processing and/or marketing system is called for, due to

the need to supply farm-produced raw materials on a timely schedule.

A classic example of this is regarding the production of tea.

The manufacturing of tea at standardized quality for export requires that there be a large-

scale fermentation plant into which freshly plucked tea leaves can be fed within few

hours of their being plucked (Wickizer 1951, 1960). This need for there to be close

coordination between the process of farm production and the large-scale processing into

tea underlies the traditional use of the plantation system for tea manufacture. Moreover

the advantage of large-scale production organization emerges also from scale economies

inherent in marketing to large markets, especially overseas markets as traders distributing

commodities in bulk quantities strongly prefer standardized products that are preferably

guaranteed by brand names. The cost of establishing brand names can be borne only by

large-scale producers.

Thus we can trace the rise of the plantation system to a number of economic and

geographical considerations. In this regard it is also important for us to know that the

impact of these plantations in developing countries; being set up by European capital; on

20

the traditional agrarian structure was negligible. Since land was freely available the

setting up of plantations did not necessarily uproot the existing peasantry. Moreover, the

category of landless labourer, which could serve as the labour force in the plantations, did

not exist. Hence, though traditional agriculture was backward with low capital inputs, it

co-existed with the plantations.

2.1: Tea cultivation and the industry in India:

Tea is one of the most ancient beverage mankind has known and continues to remain to

this day the most popular drink in the world. Tea is the second most popular drink in the

world, after water. It is an important beverage and is generally placed in the polymorphic

species camellia sinensis. There are three main varieties of tea plant – China, Assam and

Cambod. Having its origins in South East Asia; China was the first country to use tea as a

beverage. The word tea itself is derived from the Chinese Fukien dialect and its

Cantonese form of ch’a is the name in which it has reached India, Iran, Japan and the

Middle East. Tea grows in areas where the climate is moist and there is well distributed

rainfall. It can grow at an altitude ranging from sea level to 6000 feet above; but it grows

best in regions near the equator. Today more than 45 countries spread across all the

continents of the world except North America cultivate Tea and for a number of

developing countries it is also an important commodity in terms of jobs and export

earnings.8 Tea production is labour intensive and the industry in these countries provides

jobs in remote rural areas. Millions of livelihoods around the world depend on the

8 “Tea in Tamilnadu: A commodity study in Nilgiris and Coimbatore districts”. Study series no Chennai 17. By NABARD, Tamilnadu regional office. 2006

21

production of tea. For a number of tea exporting countries, including world champion

exporters Kenya and Sri Lanka, tea is one of the most critical sources of foreign income.

The tea industry in India is about 170 years old, occupies an important place and plays a

very important role in the national economy. Like most plantation crops in colonies of the

British Empire, tea has been an export-oriented industry rights from the start, as it was

developed primarily to meet the UK’s domestic demand and the demand for re-export by

that country. The origins of tea in India can be traced to 1823 when Robert Bruce

discovered tea plants growing wild in the upper Brahmaputra Valley. Subsequently in

1838 the first Indian tea from Assam was sent to the United Kingdom for public sale. By

cultivating tea in Assam the East India Company sought to create for itself an alternative

supply for the United Kingdom which until then was dependant on China. To this end the

first commercial effort in organized tea cultivation was started by the Assam Tea

Company in 1839. Thereafter, the cultivation of tea was extended to other parts of the

country between the 50's and 60's of the last century.

The history of the Indian tea industry up to the dawn of independence can be briefly

described as a case of expansion and consolidation. By 1950 tea had become an

important agricultural crop of the country. It accounted for over 18 per cent of the total

employment in the organized sector of the economy, 14 per cent of the country's export

earning and 1.16 per cent of the Gross National Product. The area under tea cultivation

was 3.15 lakh hectares and it was a major source of' development in the relatively

backward hilly regions of the country. However, owing to certain specific soil and

22

climatic requirements its cultivation was confined to only certain parts of the country;

regions where they continue to be important in many respects even today.

Tea plantations in India are mainly located in the rural hills and backward areas of the

North-eastern and Southern States. Major tea growing areas of the country are

concentrated in the states of Assam, West Bengal, Tamil Nadu and Kerala.

Each of the above mentioned four states; with the exception of Assam; have two main tea

growing administrative districts, they are Jalpaiguri and Darjeeling in West Bengal.

Nilgiris and Coimbatore in Tamilnadu; and Idduki and Wyanad in Kerala. In Assam tea

is grown in almost all the districts. In west Bengal the two contiguous districts Jalpaiguri

and Darjeeling are divided into three tea districts. They are Dooars, the tea growing area

in Jalpaiguri district; Terai, which constitutes the plains of Darjeeling district and

Darjeeling, comprising the hills of this district. Of these Dooars is the largest

The other areas where tea is grown to a small extent in the country are Karnataka,

Tripura, Himachal Pradesh, Uttaranchal, Arunachal Pradesh, Manipur, Sikkim, Nagaland,

Meghalaya, Mizoram, Bihar and Orissa.

Of the many tea producing states Assam produces around 52 % of the total Tea produced

in the country and employs around 56% of the total labour force. The second largest tea

producer is West Bengal which produces 22% of the country’s tea and employs 24% of

the labour force. Tamilnadu is the third largest producer accounting for 165 of the

23

production and employing 11% of the labour force. This is followed by Kerala which

contributes to 8% of the total production and engages 7% of the labour force. The other

tea producing states collectively contribute to 2% of the country’ total production of tea

and engage 2% of the labour force. Tea is the oldest industry in the organized

manufacturing sector in the country and is the largest single employer in this sector.

In India, Tea is grown in an area of 5.10 lakh hectare. Since the first auction of Assam

Tea made from indigenous plants held in London in 1839, tea plantations in India have

been contributing immensely towards the socio economic development of the people of

the tea growing regions of the country. Today the Tea industry contributes substantially

towards the national and state economies by way of enriching the foreign exchange

reservoir and State exchequer besides providing employment.9

The tea industry has an important and special place in the Indian economy; an importance

which can be gauged from the following statistics. Tea is the country’s primary beverage

with almost 85% of total households in the country buying it; thereby making India the

largest consumer of Tea in the world (around 22% of total world consumption). India is

also the largest manufacturer of Tea in the world; and producing approximately 950

million kilogram’s of Tea annually accounts for nearly 28% of the world’s production of

Tea. The country is also an important exporter accounting for nearly 13% of the world’s

exports of Tea (ICRA Research report 2006). Tea in combination with coffee and rubber

generate significant foreign exchange for the country (accounting for 15% of total

9 From the Planning commission document on small growers. Sourced from the following internet web address :- http://planning.up.nic.in/innovations/inno3/ph/tea.htm

24

agricultural export earnings) though they occupy only 1% of the total cropped area in the

country. From its humble beginnings in 1839 India is today the world’s largest producer

of Tea. The total area under tea production in the country has increased from the 0.3

million hectares it was in 1960-61 to 0.5 million hectares in 2003-04 and the production

which was 300 million kgs during 1960-61 has increased to 850.5 million kgs during

2003-04 (economic survey of India, 2004-05)

Having both an agricultural and manufacturing component tea production is land

intensive and labor intensive and tea plantations provide employment to more than a

million workers; more than 50% of whom are women. Most of the labour on plantations

is either immigrant labour or descendant from immigrant labour. Unlike other agricultural

crops, Tea provides the highest employment per unit of arable land and in the period

2003-04 contributed 4.96% to the total agricultural export earnings of the country.10

Of total production of tea in the country the organized sector (tea areas above 25 acres

per garden) account for 80% of production of tea while small growers (tea area less than

25 acres per garden) number about 1.27 lakhs and account for about 21% of the total tea

growing area in India. Thus though a major part of the tea production in the country

comes from big estate gardens the contribution of the small grower segment has shown

an increase in recent years with many small farmers in Assam, North Bengal and Bihar

switching over to its production.

10 Handbook of statistics on the Indian Economy, RBI; 2004-05.

25

Some important information regarding the basic features of tea as a commodity that is

important for one to know in connection with an analysis of its production decisions is

presented herewith. Firstly, it is necessary for us to know that the quality of tea varies

widely not only across regions where it is grown, but also across tea gardens within a

particular region. The quality of tea also varies with the type of leaves plucked and the

manufacturing process adopted.11 Tea manufactured in India generally belongs to two

categories; CTC or Orthodox teas depending upon the technique using which it has been

processed. To manufacture black tea the tea leaf is usually withered and rolled by rolling

it in conventional rollers or through rotorvane and CTC rollers which exert drastic action

on the withered leaves. When the optimum stage in the chemical reaction is reached the

action of the enzyme is stopped by drying the fermented leaf in a current of hot air in

suitable tea dryers. The various steps involved in CTC tea manufacture are withering,

green leaf sifting, reconditioning, rolling, fermentation, drying, grading and sorting and

packing. The CTC method of tea manufacture is very similar to Orthodox tea

manufacture except in the rolling process which is different. In orthodox manufacture the

withered leaves are rolled on specially designed orthodox rollers which twist and crush

the leaves rupturing their cells. The objective in doing so is to achieve intense

fermentation. The steps involved in orthodox tea manufacture are withering,

preconditioning, rolling, roll-breaking, Greenleaf sifting, fermentation, drying, grading

and sorting and packing.

11 Indian Tea Industry: Problems and Policies Author(s): Neelanjana Mitra Source: Economic and Political Weekly, Vol. 26, No. 48 (Nov. 30, 1991), pp. M153-M156)

26

The advantage of CTC manufacture over orthodox manufacture is that it brews quickly,

yields more cups of tea per kg and has greater domestic market as tea liquor is much in

demand. Also less caution is needed for plucking and hence it finds much favor amongst

plantation owners. On the other hand tea that is manufactured by the orthodox method

diffuses slowly, brews lesser cups of tea per kg and is costly to produce. The slow

process of manufacture allows for the retaining of majority of the delicate flavours in the

plucked green leaf and fetches premium price for the producer. Shown in Table 1.2 is the

total volume and percentage production of tea by the different methods of tea processing

in India from 1961 to 2002. In Table 1.3 we can see the proportion of tea made using the

different methods of tea processing from 1961 to 2002 in South India. What we can

observe is that while initially nearly all of the tea in south India was manufactured using

the orthodox method of tea processing in the years since 1961 there has been a process of

steady change happening and by 2002 , 82.9% of tea processed was processed using the

CTC method. At the national level too the same trend can be seen though initially a

greater volume of tea was made by the CTC method than can be seen in South India. The

results obtained from observing both tables are particularly crucial. What we see can

account for as to why tea production in South India has historically been lower than that

of North India (because orthodox manufacture requires more selective plucking and the

process too is slower) and also account for the decline in prices and quality as we

progress through the years; that has been an important characteristic of the tea industry in

India (because CTC manufacturing process requires less selective plucking). This

becomes vital to us as we continue through our analysis of the factors that have been

responsible for the crisis in the tea plantation sector in the country. Also it is interesting

27

to note that because of the relatively continuous process that CTC tea manufacture entails

the factory labour requirement is just about half that is necessary for Orthodox

production. Thus it can to a certain degree be assumed that the savings accruing from

lesser labour cost has played alongside other concerns in forcing the shift from Orthodox

tea production to CTC manufacture in the country (B Sivaram). Secondly, manufactured

tea is fairly perishable. After it is manufactured, it can be stored up to a period of one

year only, without much deterioration in quality. After a year, the quality of the

manufactured tea starts deteriorating fairly rapidly. Thus deliberate accumulation of

stocks of tea for a long period is not an economically attractive proposition. The gestation

lag of a tea plant, i.e. the time lag between the planting of the tea bush and. initiation of

plucking of its leaves, is approximately five years. It takes around 10 years for the plant

to attain full maturity. The average life of a tea bush is generally between 50 and 60

years. However, the longevity (of the Chinese variety found in the Darjeeling area of

India is about 100 years.

Tea plucking may be of two kinds, viz, fine and coarse plucking. Fine plucking involves

plucking of two to three leaves and a bud. Quality tea is manufactured out of leaves

gathered through fine plucking. There is a minimum amount of fine plucking essential for

maintaining the tea bushes. So, a minimum level of output of quality tea is generally

produced which is likely to be independent of the prevailing and expected market

conditions in the short run. On the other hand, coarse plucking, i e, plucking of coarse

leaves, requires less time and care in plucking and results in inferior quality tea.

28

Since 1999 numerous changes have taken place in the tea market in the country. While

earlier tea used to be mostly sold in bulk form; since 1999 tea is mostly sold in branded

form; as packet tea and tea bags. A segment that previously was insignificant in the tea

industry’s total value was as of 2006 estimated to account for 60% of the tea industry.

Table 2.1.A

Area Production and Yield Rate of Tea in India

(1960 to 2005)

Year Area (In Hectares) Production (In ' 000. Kg.) Avg. Yield (In Kg./Hect.)

1960 330738 321077 971

1963 334036 346413 1037

1966 345256 375983 1089

1969 353359 393588 1114

1972 358675 455996 1271

1975 363303 487137 1341

1978 369184 563846 1527

1981 383629 560427 1461

1983 369066 581484 1468

1986 407647 620803 1523

1990 416269 720338 1730

1991 420470 754192 1794

1992 420289 732322 1742

1995 427065 756016 1770

1996 431204 780140 1809

1997 434294 810031 1865

1998 474027 874108 1844

1999 490200 825935 1685

2000 504366 846922 1679

2001 509806 853923 1675

2002 515832 838474 1625

2003 519598 878129 1690

2004 521403 892965 1713

Source: Tea board of India

. $ : Figures in Million Kgs.

E : Estimated and subject to revision.

Source: Tea Board of India.

29

Table 2.1.B

Production of Tea in India by Different Methods of Manufacture

(1961, 1971, 1981, 1986, 1988 to 2002)

(Quantity in Million Kgs.)

YearC.T.C Orthodox Legg Cut Green Tea Total

Quantity % Quantity % Quantity % Quantity % Quantity %

1961 121.1 34.3 201.4 57.0 26.0 7.4 4.7 1.3 353.2 100.0

1971 239.1 54.9 174.9 40.2 13.4 3.1 8.0 1.8 435.4 100.0

1981 357.5 63.8 195.3 34.9 - - 7.6 1.4 560.4 100.0

1986 456.4 73.5 156.4 25.2 - - 8.0 1.3 620.8 100.0

1988 494.1 70.6 192.5 27.5 - - 13.4 1.9 700.0 100.0

1989 500.5 72.8 177.7 25.8 - - 9.9 1.4 688.1 100.0

1990 575.2 79.9 136.9 19 - - 8.2 1.1 720.3 100.0

1991 603.6 80.0 140.8 18.7 - - 9.8 1.3 754.2 100.0

1992 610.7 83.4 112.2 15.3 - - 9.4 1.3 732.3 100.0

1993 646.3 84.9 107.2 41.1 - - 7.3 1.0 760.8 100.0

1994 635.8 84.5 109.3 14.5 - - 7.8 1.0 752.9 100.0

1995 662.4 87.6 85.7 11.3 - - 7.9 1.0 756.0 100.0

1996 680.9 87.3 91 11.7 - - 8.3 1.1 780.2 100

1997 700.1 86.4 101.4 12.5 - - 8.5 1 810 100

1998 738.2 84.5 128.6 14.7 - - 7.3 0.8 874.1 100

1999 748.2 90.6 71.3 8.6 - - 6.4 0.8 825.9 100

2000 762.8 90.1 77.9 9.2 - - 6.2 0.7 846.9 100

2001 773.9 90.6 74.6 8.7 - - 5.4 0.6 853.9 100

2002 762.9 91.0 70.9 8.5 - - 4.7 0.6 838.5 100

Source: Tea board of India.

30

Table 2.1.C

Production of Tea in South India by Different

Methods of Manufacture

(1961, 1971, 1981, 1986, 1988 to 2002)

(Quantity in Million Kgs.)

YearC.T.C Orthodox Legg Cut Green Tea Total

Quantity % Quantity % Quantity % Quantity % Quantity %

1961 3.3 4.1 76.2 94.0 1.6 2.0 81.1 100.0

1971 28.9 28.0 71.4 69.3 2.1 2.0 0.7 0.7 103.1 100.0

1981 58.2 47.5 63.8 52.0 - - 0.6 0.5 122.6 100.0

1986 81.5 58.4 56.7 40.7 - - 1.3 0.9 139.5 100.0

1988 102.8 58.6 68.2 38.9 - - 4.3 2.5 17.53 100.0

1989 99.6 62.8 56.4 35.6 - - 2.5 1.6 15.85 100.0

1990 12.81 73.1 44.9 25.6 - - 2.2 1.3 17.52 100.0

1991 141.7 74.1 47.4 24.8 - - 2.2 1.2 191.3 100.0

1992 12.56 77.6 33.9 20.9 - - 2.4 1.5 161.9 100.0

1993 13.93 77.7 38.5 21.5 - - 1.5 0.8 17.93 100.0

1994 13.7 74.1 47.4 25.6 - - 0.5 0.3 18.49 100.0

1995 141.7 75.6 45.2 24.1 - - 0.5 0.3 187.4 100.0

1996 138.1 75.9 43.4 23.8 - - 0.5 0.3 182 100

1997 150.6 73.4 54.2 26.4 - - 0.5 0.2 205.3 100

1998 144.1 70.8 58.8 28.9 - - 0.5 0.2 203.4 100

1999 172.1 84.9 30.2 14.9 - - 0.4 0.2 202.7 100

2000 170.2 82.5 35.4 17.2 - - 0.6 0.3 206.2 100

2001 167.4 82.4 34.8 17.1 - - 0.9 0.4 203.1 100

2002 171.4 82.9 34.4 16.6 - - 0.9 0.4 206.7 100

Source: Tea board of India.

31

For the branded tea segment the ability to cater to local preferences coupled with the

availability of low cost packaging technology has enabled the players in this segment to

offer the right products at competitive prices. The branded tea sector in India has two

major players; Hindustan Unilever and TATA Tea; who as of 2006 commanded 31% and

21% of the market share respectively with Duncans tea (7%)and Goodricke (4%)

following in third and fourth positions. After 1999; following the reduced exports that

resulted in lower price realizations for tea in the domestic market there had also emerged

small regional brands like Lasa, Isaphani etc who collectively as of today command a

around 35% of the market share in the branded tea segment.

75% of the total tea produced in India goes to France, Germany, Japan, the United

Kingdom and the United States. The status of Tea exports has been that our tea exports to

countries (that were previously big markets for our tea) like the Russian Federation, the

United Arab Emirates and Iraq are today much lesser than they were in the past;

particularly as a result of the sharp decline over the years due to weaker demands for

Indian tea in these countries. Simultaneously Indian tea exports have over the past many

years continued to loose volume in the countries of the commonwealth of independent

states, in Europe, in the US, and some of the middle-eastern countries. So how exactly

has the international market for Indian tea changed in the last few years?

A tabulation done by Prof B H Nagoor of the department of economics at the Karnatak

University and presented in a paper at the IGIDR showed the following aspects. The

results of his tabulation showed that,

32

“The percentage share of India’s tea export in total agricultural exports has declined

drastically. During 1981-90 the share was 20.16 per cent, declined to 10.23 per cent

during 1991-95 and further declined to 8.11 per cent and 5.78 per cent during 1996-2000

and 2001-04 respectively. An analysis of the growth rate of India’s tea export in terms

quantity shows that during 1981-90, it is -0.79 per cent per annum and further negative

growth rate of 6.86 per cent during 1991-95.However, during 1995-04 revival was

witnessed, during this period growth rate in terms of quantity increased by 1.21 per cent

per annum, but in terms of value it is -0.88 per cent per annum during the same period”

But all is not bleak on the export front. The tea industry has succeeded in regaining a part

of its market share in Iraq when exports to that country went up from 13.36 million

kilogrammes to 24.73 million kilogrammes in 2004. From the year 2005 onwards, the

exporters of Indian tea have managed to retain earlier trade volumes in the Japanese

market. Also nominal growth has been registered in the UAE and Iran markets though it

has dropped in the Afghanistan and Pakistan market. According to estimates made by

scholars and international agencies there has in the past few years been significant growth

in the international tea trade. They project that growth opportunities are substantial for

the future. If India is successfully able to adapt and leverage itself it stands to gain

significantly. Not only has there been an increase in world tea production over the past

few years there has also been a significant degree of increase in world net tea imports;

particularly in the developed country markets like those of the EU, the US and Japan.

33

Table 2.1.D

Number of tea growers of various kinds of holdings in india

Table 2.1.E

Source: Tea Board of India

34

District wise/ state wise area under Tea in India

Table 2.1.F

Source: Tea Board Of India

35

Table 2.1.G

South India

Source: Tea board of India

36

Studies project for example that world black tea production is likely to go up by 1.7% per

annum to about 2.7 million tonnes in 2014 with out put expected (between 2004 and

2014) to significantly increase in India (1.6%) and Sri Lanka (1.9%). Much of this owes

itself to the fact that the tea market is almost intervention-free with only country-specific

trade barriers are currently in place; primarily import tariffs well below World Trade

Organization committed maximum rates. 12

But India’s ability to benefit from this growth and future growth potential will rest

primarily on our ability to understand the prevailing situation in our plantations and the

conditions; internal and external ; that have seriously hampered our plantation sector

from growing; rather putting it on a backburner. To begin with our analysis of the same,

it is imperative that we make ourselves aware of some of the changes that have been

happening in our plantation sector in general and the tea plantation sector in specific post

the economic upheavals of 1991

12 In this regard it would not do us much harm to look at the trade policy regimes that have governed the international tea trade over the years. Initially there were two voluntary supply restriction schemes in place. The first, 1920-21, grew out of the sharp price decline of 1920 and was led by India and Sri Lanka (then Ceylon) and a second restriction went into effect in 1930, led by the same countries and for the same reason. A five-year International Tea Agreement was launched in April 1933 to support tea prices through export quotas, backed by India, Indonesia, and Sri Lanka. The agreement was in response to the collapse of tea prices during the great depression—they declined by 70 percent between 1927 and 1932. The agreement succeeded in maintaining prices at about 80 percent of their pre-depression levels and was renewed for a second five-year period. After World War II tea prices increased considerably, so the effect of the agreement was nominal, and so the agreement was not renewed again. An informal tea arrangement was agreed among major tea producers in 1969 through voluntary export quotas, but it lasted only a year. The feasibility of a tea agreement was reexamined by the Food and Agriculture Organization in 1974 but was not pursued further.

37

Chapter 3: Shifting realities in the plantation sector in India

and the crisis in South India

Chapter 3.0: Changing features of the tea plantation sector in India

The plantation sector in India has been facing several challenges since the past few years.

Domestic producers of many plantation crops have been losing out on external markets

and in the domestic market too are facing stiff import competition from other producer

countries. The erosion of international competitiveness on account of low productivity;

inadequate processing and market infrastructure and low level of value addition on Indian

plantations is posing a grave threat to the sector today. On the other hand greater

integration with the world market has also led to sharp decline and volatility in prices of

many plantation crops that in turn has inhibited investment in the sector, as noted by the

Taskforce on Plantation Sector. As a result the plantation sector, which generates massive

employment especially for women labour and is located largely in ecologically fragile

regions, has become economically and socially vulnerable ; and to many people -

unviable. The situation has been particularly acute in the case of the tea plantation sector.

Resolving the problems faced by the plantation sector; including the tea plantation sector

in the country; requires us to have a better understanding of the problems faced by the

sector and the causes of these problems and this is possible only if we analyze what is

38

different today in terms of the conditions prevailing in the sector that differs from

conditions that prevailed when the sector was doing well. This requires us to have a better

understanding of the structural organization of the sector and the many ways in which the

sector has undergone change over the years. Our focus while remaining on the tea

plantation sector in general shall specifically be on the tea plantation sector in south

India.

In general a dualistic system of production characterizes plantation crops and particularly

tea plantations in south India. While one sector consists of large holdings (including

corporate plantations) employing hired wage labour, the second sector comprises of

farms growing plantation crops together with other crops in smallholdings typically

ranging from half a hectare to three hectares. These farms rely mainly on family labour

which gets supplemented by casual labour during harvesting seasons. (Hayami &

Damodaran. 2004)

Since 1991 important changes have been taking place in the global economies which

have had their impact even on the plantation sector across the world and specifically in

India also.

One of the important characteristics that has been observed with respect to plantation

economies historically has been that over a period of time the system of plantations

begins to change. This is precisely what has been happening over the years in the

plantation system in general in India and also in the plantations of South India;

39

What we are seeing happening today is part of a process of change that has been ongoing

over the years in the tea plantation sector in South India; a shift from large plantations to

smallholders. It is a process which has been progressing though gradually over the years

and has today reached an important juncture whereby 99 percent of tea producers in south

India are today smallholders, though their share of tea land is only 41 per cent13. This

bears particular relevance to us as the plantation sector in South India has over the past

many years been losing international competition to countries like China and Vietnam;

countries where tea production is mainly based on smallholder production.

Another important development in the plantation sector over the past many years has

been the growth of trade unions and their impact on labour management relations and on

the lives of the workers in the plantations. What the unions have succeeded in doing is

that they have played a significant role in increasing the awareness of the workers by

removing their fear of the management and making them more vocal in their demands.

They have helped to change the earlier master-servant relationship that existed on

plantations as a continuation of the colonial mindset14 and in its place have replaced it

with an employer-employee relationship. The influence of unions on plantations today

extend even to the social life of the workers because they have largely helped in eroding

13

UPASI report, 2004.

14 In the system of Tea plantation management in colonial time’s strategies and policies were enforced through a hierarchical power structure centered on the

managerial authority of European planters and their assistants. The key emphasis throughout was on immobilizing labour within the plantation complex after its

arrival there, and at the same time curbing its contact with the outside world. Both strategies aimed at preventing the formation of collective labour organizations.

The planters developed strategies to dominate, discipline, and control labour, both in work and living spaces, through legal and extra-legal methods

40

barriers among the labour force and in more cases than few have unified them as a

singular force.

The third change that has happened post 1991 in the plantation sector has been the

dismantling of large state controlled monopolistic marketing boards with the aim of

enabling producers to market their produce and thus bring about the much needed

“competitive element” that was absent under public sector control of the market. This has

closely been allied with the emergence of a greater vertical integration between

production and sales in the past few decades; the objective being to mitigate the impact of

continuous price instabilities. By facilitating such integration the objective has been to

shed the traditional image of plantations and to cultivate the image of the produce of

plantations as an industrial product where price fluctuations are less pronounced. It has

involved value addition, brand promotion, joint ventures and direct marketing by

producers emerging as more prominent means by which producers seek to enhance and

stabilize their returns.

Fourthly with respect to tea plantations in India ; since the 1990’s there has been a shift

that has taken place in the tea plantation industry from the dominant business model that

has prevailed for the past 150 years (in primarily the Darjeeling and Assam regions, and

in South India in the several planting districts in the Western Ghats) which focused on

management through large company-owned plantations with on-site factories to much

newer models like the workers participatory company model etc. what this change

signified was a change from a model that was very closely related to the colonial system

41

of plantation management to a model much more suited to contemporary socio- economic

and political realities. The previous model could best be described in the words of Tom

Heinemann, Danish journalist and co-director of the award winning documentary “Flip

the coin – The bitter taste of tea” to Media Global when he said that it reminds him of the

history of colonization and that “A system like that can’t be changed by fair trade…no

matter how much you overprice a bag of tea. It’s a 150-year old social problem that has

to be changed by governments, not from private consultants flying in to ‘save the world’”

Heinemann added. But he was wrong. The system could be changed and has changed in

many parts of India.

The first signs of change from the dominant model came in the 1970s, when small

growers started operating in the Nilgiris, and subsequently in Assam, through state

governmental support. The true nature of the shifting ideology best manifested itself

when subsequently Tata tea sold out and Hindustan Lever Limited (HLL) transferred its

tea estates to wholly-owned subsidiaries, as a prelude to the tide turning for corporate

investment in the plantation sector. These corporate entities; even as they divested their

plantation interests continued to maintain their large packet tea businesses, which

continue to thrive and now constitute the core of their business in tea.15

From what we can observe and conclude from our observations the reasons for the shift

in business focus of corporate entities like HLL and the Tata’s is not hard to fathom.

Years of low international prices for tea, high production costs and the strain of managing

15 Datta, Aparna. From the article “Fresh brew in tea country”. Published in 2nd quarter. Tea and Coffee Asia. 2005.

42

good social standards, had taken its toll on the bottom line of these companies as they

continued to play an active role in the plantation sector.

In the fiscal year 2004 for instance, on a turnover of Rs1.440 billion (US$33.89 million),

the SIPO division of Tata Tea had incurred a loss of Rs.126.6 million. Increasingly

disenchanted with the plantation end of the business,

Tata Tea finally decided to opt out, bringing to a close process that had started in 1964

with a collaborative venture between the Tata’s and the James Finlay Group that owned

the assets of the Kannan Devan Hills Produce Company. Today, the trend; as opposed to

the dominant strategy of the past; is towards disintegration, or unbundling; but however,

this trend is largely related to the corporate strategy chosen by certain companies, and the

rationale does not necessarily extend to the entire plantation sector. The trend is apparent

in tea, which achieves its finished form at the estate level, unlike coffee that is sold as

green bean. For proprietary planters, or those plantation companies that sell primarily in

bulk, and own freehold land, estate and factory ownership remains viable. The

dissonance appears to be largely in corporate tea companies with a retail presence, where

the packet tea business involves branding and marketing, demanding wholly different

skills and management processes. A schism develops in the seed to cup model, when

plantation activities compete with marketing in claiming corporate resources.

Thus we have seen some of the more important changes that have happened in the

plantation sector in the country. It is now time to discuss the crisis in the plantation sector

43

in South India and how the above mentioned changes have either been the cause of or

outcome of the crisis.

3.1: The plantation sector in south India and the emergence of the crisis

Plantations that grow tropical trees and horticultural crops have always played and

continue to play a vital role in the economies of the three southern states of Karnataka,

Kerala and Tamilnadu. South India produces nearly a quarter of the national tea output

and almost all of the coffee, rubber, pepper and small cardamom output. In this region,

plantations cover about a million hectares of land and are located mostly in the hilly

tracts of the Western Ghats. These Plantations account for nearly a million man days of

year round permanent employment and also play significant roles in poverty reduction in

these states.

The crisis in the tea plantation sector of South India has been prevalent for a long time

now and can be viewed alongside the crisis in the tea plantation sector in the country as a

whole. One of its most important manifestations has been a decline in production of Tea.

Though an analysis of production data from the Tea Board of India would show that

rather than being a steady decline in production the decline has been haphazard with

periods (examples being 1986 and 1987) in between where both the price of Tea and

productivity of the Indian tea industry have gone up the fact remains that the spurt in

productivity in these periods have been a result of short-term (and short-sighted)

measures adopted by the planters in this period to make the best of the price increase at

44

that time including extending the plucking and delaying the pruning of tea bushes.

The decade of the 90’s particularly stand out for turning out to be particularly depressing

for the Indian Tea industry .India’s international competitiveness in this period went on a

downward spiral; from being a pre eminent supplier of the world’s tea; to slowly losing

ground in virtually every single export market .From the early 1980’s when exports

accounted for 40% of domestic production to 1994 when exports accounted for only 20%

of total domestic production the situation was one that was progressively getting worse

with each passing year for the tea industry in India. To make matters worse though not in

absolute terms, the relative share of exports to total tea production in India had been on a

decline during the decades from 1980 till 1994 since when it improved only slightly

(from 40% in 1980 to nearly 30% by the end of the 1980’s, 20% in 1994 and a slight

improvement to 24% post 1994). In quantitative terms the Export of tea effectively

declined from 224 thousand tonnes in 1980 to around 179 thousand tonnes in 2004

(ICRA research report, 2006) relegating India (12%) from the 1st to 4th position, after

Kenya (2o %), Srilanka (19.83%) and China (19.2%) in that order.

There were a number of factors that were responsible for the collapse experienced in the

tea export market for Indian tea during this period. While some scholars believe that the

fall in exports was a direct outcome of the crisis that was already inherent within the tea

industry others believe that the fall in exports and the loss of foreign markets triggered

the crisis. No matter which of these views one subscribes to the fact remains that the

factors that were responsible for the collapse in exports had an important role to play and

45

continues to have an important role in the crisis that even today plagues the plantation

sector in the country. It is thus important to study these factors. The numerous factors can

be divided in external factors and internal factors. Firstly we shall deal with the external

factors.

First and foremost among the external factors was the collapse of the USSR. With the

collapse of the Socialist countries, the Indian tea industry lost a fairly sheltered market

for its tea exports. The fact that the USSR was an important market can be seen in the

following statistic; that even in the year 2001; following declining exports in the previous

decade; India’s share in tea imports to Russia and CIS countries was still at a sizeable

46%. To quote someone well versed with the industry’s history “When the Russian sun

shone brightly, the industry believed that there would never be another rainy day and

failed to make strategic moves”. In fact not all deals of this time were above board and

some operators in the Indian tea industry even sold tea that did not merit international

exposure as tea, taking advantage of the protection offered by the rupee-rouble

agreement. Since the USSR procured tea from the Indian market as part of bilateral

agreements, its demand was insensitive to changes in the domestic price of Indian tea

relative to its international price and hence Indian producers were assured of a steady

market for produced tea..

But the boom lasted only till the collapse of former Soviet Union.

46

Following the fall of the USSR; which was the biggest market for Indian Tea; and the

emergence of Russia and the CIS nations; there was a scramble in the south to meet the

Russian demand for tea at their prices. In the competition that ensued the Indian tea

industry completely destroyed its image by disregarding quality in its attempt to offer tea

at cheap prices. This in combination with lack of adequate knowhow amongst many

plantation managements; most of who were in this sector to make quick profits; labour

problems, difficulties associated with auctioning, transportation, sales and taxation etc all

compounded the emerging crisis. The tea board of India; even as it was slowly

withdrawing from control and regulation; under the new economic idea of liberalization;

sought to counter this downturn in the sector by undertaking a series of exercises to

develop mid- term strategies for increasing exports during the 10th plan period. As part of

the medium term export strategy for Indian Tea (2002-2007) the tea board focused

particularly on 22 markets. The objective was to increase exports of Indian tea to these

markets by around 72 million kgs. The outcome turned out to be deeply contradictory.

Exports declined and there were significant losses in many important markets like the

CIS, UK, Egypt etc. other small but well paying markets for Indian Tea like France,

Saudi Arabia, Sudan etc also saw a decline. [Dr V N Asopa. 2007]

What followed was a blame game – between the tea industry and the tea board with both

lamenting lack of adequate support from the other that prevented any concrete action

from being taken to improve the conditions of the tea industry from declining further.

47

Secondly with the switch over in trade from barter to currency, increasing pressure was

placed on the Indian Tea industry to bring about quality improvement and

competitiveness; something which Indian producers were unable to do as a result of high

labour and other production costs. The need to be competitive increased substantially

post 1991 because structural adjustment essentially implied subsidy withdrawals;

withdrawals that reduced out-put of Tea thereby raising domestic prices and hence

affecting the international competitiveness of the country’s Tea industry. In this context

the inability of the Indian tea industry to reduce input costs then had and continues to

have a severely negative effect; particularly when we compare cost of producing tea in

India with costs in other major tea producing nations.

For example India is the highest cost tea producer in the world. The cost of production is

US$ 1.62 in India compared to 0.32 in Bangladesh16

The third factor that has contributed to the collapse of Indian tea exports has been the stiff

competition from other producing and exporting countries like Kenya, Srilanka, China,

Vietnam and Indonesia. Over the past many years in direct competition with India’s CTC

production both Kenya and Srilanka have done particularly well; with Kenya using

means like offsetting rising labour costs by depreciating their currency and Srilanka

encouraging its producers to pack only good quality tea; thereby gaining for itself an

important niche in the orthodox tea market and in the tea bag segment internationally.

16 According to the report of the interministerial committee on the plantation sector

48

Adding to this has been the huge investments that have gone into the industry in the last

decade in these countries. In fact scholars have been of the opinion that one way in which

the Indian tea plantation sector can be rescued from its present condition is through

another major boom that would result from serious crop damage in any one of the major

tea producers as was experienced by Kenya in the mid- 1990s [Yujiro Hayami and

Damodaran]

The fourth factor has been the various tariff and non tariff barriers that have been

imposed by some tea-importing countries

But it is not merely external factors that have contributed to the collapse in exports of

Indian Tea. At the same time as the above mentioned external factors were beginning to

exert their impact on the Indian Tea industry, several internal factors too were beginning

to play their part (some of them factors that had been at play since many years previously

to the 1990’s). Primary amongst this set of internal factors was the falling production and

rising domestic demand for Tea which were contributing to instability in domestic prices

of tea (Mitra, 1991).

The Tea Board's draft seventh five year plan noted that the per capita consumption of tea

was 0.40 kg in 1971 and it increased to 0.55 kg in 1981. In the years previously per capita

consumption has been increasing at 20 gm per annum leading to an increase in internal

consumption of 15 million kg annually. Production on the other hand; the tea board

document noted; had not increased sufficiently to meet this growing demand. While the

49

tea board at this time acknowledged that the primary reason for the fall in productivity of

the Indian tea plantation sector was the relatively old ages of the tea bushes then; it also

observed that whatever increase was happening in productivity to meet growing demand;

domestically and internationally; was as a result of extension of total area under tea

cultivation rather than a result of replanting with high yielding varieties produced through

vegetative propagation. An inkling of what was to come was provided by a major USAID

study on the tea industry conducted in 1971 that suggested that; at that time; it was

uneconomic to re-plant many of the North Indian and the bulk of South Indian gardens

considering that re-planting costs had risen steadily in the 196Os, and these rising costs

and falling support prices had combined to reduce the returns of tea companies to very

low levels

Simultaneously this phase was also characterized by slowing down in the expansion of

area under tea cultivation in the country; resulting in serious impacts on total production

of tea in this period. Though this issue posed a significant challenge even then; its worst

impacts were to manifest themselves much later from 1987 onwards.

A look at the following statistic presents to us a clearer picture of what has just been

stated above. While in the period 1987 to 1997 the expansion in area under tea cultivation

happened at a rate of 4.6%; in the previous period of 1971-1987 the rate of expansion

was happening at about 14%. Subsequent to 1987 only Tamilnadu has been the state that

has shown a significant expansion of area under tea cultivation while all other major tea

producing states have shown a tendency towards stagnation of the same. Efforts aimed at

50

improving the existing area under tea through replanting; then and subsequently; have

had little success.

Bulk of these efforts have been undertaken by the Tea Board which; in its various five

year plans; have disbursed grants and subsidies to plantations to encourage replanting of

new bushes in the place of the old ones. But the final results that have come out of the

process have fallen way below the targets set out. For example the Sixth Plan (1981-85)

had envisioned the process of replanting in 4,000 hectares annually giving a total of

20,000 hectares replanted by the end of the plan period. However, it was able to achieve

only around 30 per cent of the figure it had set out to achieve [Sharit Bhomick, 1990]

The result of the failure of persistent attempts by the government to increase production

of tea through initiatives in the five year plans (in combination with increases in domestic

consumption which had increased at a much higher rate than production) was to bring

about a significant increase in the price of tea in the domestic market forcing the

government at around this time to curtail exports of Tea ; so as to ensure that enough tea

was available for domestic consumption to keep domestic price of Tea stable. Such a

move by the government was based on its understanding of the fact that India's

agricultural exports as well as agricultural imports, whether consumer goods or

intermediate goods, were commodities which exercised a strong influence on domestic

prices. This concern for domestic prices was particularly crucial for the government at

that time (just as it is for governments today) because the majority of the poor in India

did not have incomes that were “index-linked”. In the pursuit of this objective, therefore,

51

the volume of tea exports was restricted to prevent domestic prices of tea from rising as

much as they otherwise would.

Thus for one, the trade policy regime that existed then not only provided an avenue for

the government to maintain domestic prices at absolute levels that were commensurate

with average income levels. But it also sought to impart stability to domestic prices in the

interest of both producers and consumers. In the light of changes that have happened

since then; particularly the WTO and various other agreements including free trade

agreements; such moves are no longer easily possible.

While India is a very large producer and consumer of agricultural commodities by world

standards, her position is marginal as far as international trade in such commodities is

concerned. According to UNCTAD estimates for 1989, India produced around 10 per

cent of world agricultural output, but her share in world trade in agricultural commodities

was only around 0.6 per cent for that year. Moreover India's involvement in world

agricultural trade has been declining during the past 25 years, whether this is measured in

comparison with world agricultural trade, India's international trade or her GDP. It is

evident from such and more available statistics that both Indian imports and Indian

exports of agricultural commodities have declined as a share of world trade, of India's

own total trade, and of her national income. These shares have declined more than the

share of the agricultural sector or of foreign trade in India's GDP.

52

It is in such situations that the question arises in ones mind as to; is it only the above

mentioned factors that are responsible for the crisis that the tea plantation sector in India

has been plagued by or is there something more fundamentally wrong with the existing

production system. If there is something fundamentally wrong with the system, what is

that factor that has had so far reaching negative impacts on the plantation sector in the

country? The answer to this question is not so difficult to gauge if one only attempts to

analyze in greater details the nuances that have characterized the development of Indian

agriculture since independence. If one does so one realizes that the pattern of Indian

agricultural growth since the onset of the 'green revolution' in the mid- 1960s has been

dominated by considerations for food security and self-sufficiency-with priority given to

reduction; through increased domestic production; of the large domestic cereals supply

gap which had emerged in the 1960s. Though success in this import substitution endeavor

has been the main reason for the relative decline in India's imports of agricultural

commodities the fact remains that the green revolution' while reducing the supply deficit

of foodgrains did not lead to a generation of exportable surpluses, and the emphasis on

cereals in national agricultural policy distracted policy-makers from paying greater

attention to the long-run problem that output growth of India's staple export crops like

Tea has over the years been failing to keep up with the growth of domestic demand.

Combined with the structural deficiency in the process of agricultural growth in India

over the years; has been the problem of the decline in the quality of Indian tea which is

another factor that has played a prominent role in the collapse of India’s tea exports.

According to many experts and industry insiders, alongside the impact of the collapse of

53

the USSR and the attempts by the Indian tea industry to grab a niche in the Russia and

CIS market by offering cheap tea without emphasis on quality; another factor that has

been responsible for the collapse in quality of Indian tea; has been the substantial increase

seen; mostly in recent years; in the number of bought leaf factories which produce cheap

quality tea by buying and processing leaves primarily from small growers without

heeding to quality. These bought leaf factories and small holdings are primarily run by

businessmen interested only in quick profits; who don’t know the specifics of tea

growing and don’t concern themselves much with quality control. Most industry insiders

whom I interviewed during the course of my fieldwork were of the opinion that these

incumbents are not technical people and do not have the qualifications that would make

them conversant with the various intricacies involved in the process of tea manufacture.

They explained that a sound knowledge of the process of tea manufacturing was an

important and essential necessity in the people who run the plantations and factories

because the price of tea depends on its quality and good quality green tea leaves can be

turned into an inferior quality tea if they are nor processed properly and since the bought

leaf factories lacked such knowledge the tea they produce is of inferior quality. Since the

norms of the Indian Plantations Labor Act of 1951 do not apply to these bought leaf

factories; when such teas as are manufactured by these bought leaf factories; are available

at the auctions; they are available at far more competitive price and allow for greater

profit margins to packet tea manufacturers and marketers. As opposed to this the

integrated plantation company teas, which carry larger overheads, are produced at a

higher cost to the company’s and in a situation of low commodity prices, are clearly at a

disadvantage in auctions. Today the number of bought leaf factories are very much on the

54

increase and an example of the way in which they operate; and operate successfully at

that; can be seen in the case of South India. It will do us good primarily to attempt to

gain a better understanding of the manner in which bought leaf factories are linked to

small producers of Tea. Such an understanding will serve us crucially in our attempt to

present the small holder tea estate as a suitable and viable alternative to large plantations

in today’s scenario.

In South India smallholders and bought-leaf factories are today linked to highly

competitive tea markets. According to a report of the National Bank for Agriculture and

rural development; in the state of Tamilnadu about 150 bought leaf tea factories are said

to be operating, purchasing leaves from more than 50 thousand smallholders; about 90

per cent of them being private enterprises and 10 percent being government-sponsored

cooperatives. Typically, leaves harvested by smallholders are collected by middlemen

called “agents” who deliver them to these bought leaf factories on a commission basis.

These factories are engaged in competition with one another for securing sufficient

supplies of leaves; for it is imperative for them to do so to ensure that they are operating

their plants to full capacity. Though the system looks very competitive and transparent

the fact is that it is not so.

Studies conducted by the Tea Board of India in many regions including Kerala’s Idduki

District and information I collected through my field interactions with people involved in

the industry in estates around Munnar show that the main exploiters of small growers are

these bought-leaf factories who frequently cheat on the weight of the leaves supplied to

55

them by the small growers. The geographical areas in which the tea board conducted its

studies and came to the above conclusion also had “leaf agents” who were middlemen

who procured leaves from the growers and sold them at a commission to the bought-leaf

factories. These people were responsible for the low prices the growers got. These leaf

agents are also responsible in another way for the low quality of tea produced by Bought

Leaf factories.

56

Source: UPASI

57

In a country like India where there are currently no measures to maintain high-quality

leaf in small tea segments the fact remains that the recent mushrooming of Bought Leaf

Factories (BLF) in some parts of the country has led to the domestic market being

flooded with inferior quality tea. While the newly-opened BLFs have better processing

machinery and hence can produce better tea, their performance is mainly influenced by

the quality of the green leaves supplied to them by the small growers. The leaf agents

often mix different grades of green leaves before selling it to the BLF’s. The process of

mixing different grades of green leaves also reduces the price of the leaf. As a result,

BLFs receive low quality leaf to produce made tea.

At the same time it is not merely the “leaf agents” who are responsible for the tea

produced by BLF’s being of low quality. The fact is that competition between BLFs has

been high recently, that they fail to strictly monitor leaf standards. In addition I was also

told by numerous industry insiders during the course of my stay in the field that most

BLFs resort to the process of adulteration while producing tea. While my industry

sources were not willing to tell me how this process of adulteration happened I came

across works that detailed how this procedure is carried out. According to them some

BLFs use a wild root, or a variety of potato to adulterate made tea. The waste left after tea

production at the big estate factories is also reportedly taken to the BLFs. The use of such

inferior products to increase the volume of tea directly affects the quality and increases

the supply of made tea within a short period in a particular locality. Market analysts say

that the poor quality tea produced by these players not only affects domestic price levels,

but also damages the quality perception of the Indian tea in export markets. In most tea

58

producing states that have large numbers of small producers; and particularly in

Tamilnadu; the state governments have stepped in to set up Co-operative factories with

the aim of ensuring that small growers get fair prices for their produce and the

middlemen are removed. Despite this the BLF’s are still considered to be a viable and

profitable option as long as there are a large number of small producers in a particular

region. The reason for this was made clear to me when I spoke to people involved with

this segment of the Tea business. According to them it always happens that “agents”,

many of whom are small tea growers themselves, are also engaged in competition with

one another to increase collection from producers in order to maximize their earnings

from commissions from the BLF’s to whom they sell the accumulated leaves. Thus on

account of such competition the price of tea leaves changes flexibly in this market

permitting bought leaf factories to sustain their relative profit margins despite there being

sharp declines in the price of tea in the regular market; as has been the trend in the past

many years; that have reduced their absolute profit margins. As such, bought-leaf

factories are sometimes considered to be more viable resulting in more numbers of

bought leaf factories coming into being in recent years. The growing share of poor

quality tea produced by such producers has not only had an impact on domestic prices of

tea but has also damaged the perception of the quality of Indian Tea in the markets to

whom we export. Furthermore the process of blending Indian teas with cheaper varieties

and the exporting of the same as Indian Tea too has had a negative impact on quality

perceptions about our tea. Adding on to these are the spurious varieties of tea that are

often passed on by sellers as Darjeeling Tea. The importance of ensuring quality

standards in the plucking of green leaves as integral for better price realization has been

59

given no lesser importance by a recent study conducted by the National Bank for

Agricultural and Rural Development.

Coming back to the factors that have been responsible for the fall in productivity of the

Indian tea industry; another factor is the fall in domestic productivity induced by

unfavorable agro climatic conditions in tea growing regions in India which have been

almost repetitive year after year for the past couple of years. Infact it has been noted in

study after study that unlike other commodities, tea price cycles in particular have no

linkage with general economic cycles but are dependant more upon agro climatic

conditions. The industry has been saying time and again that at the present level of

technology and wage structure the current cost of production cannot be brought down by

any significant extent unless favorable weather conditions permit a substantial increase in

productivity or the industry is permitted to enhance revenues through value added /

branded operations or allowed to carry out non tea operations.

Another factor that has been responsible to a large extent for our Tea industry losing its

important place as the largest exporter of tea has been the lack of adequate marketing

initiatives; which has been responsible for the Industry’s inability to penetrate and

capture new markets and its inability to negotiate preferential treatment from countries.

This owes itself to the lack of competition faced by our Tea industry in earlier days, the

large returns from domestic markets and buoyant exports to the CIS which provided little

incentive to our Tea industry to develop alternative markets. 17

17 ICRA RESEARCH REPORT, 2006

60

So how exactly has the crisis manifested itself?

Most industry insiders that I spoke to had just one phrase to say: Falling prices. All

through the first half of the nineties, between 1990 and 96, the price of Tea (Cochin

auction price as the standard) hovered around Rs. 40 per kg fluctuating within a range of

Rupees.35 and Rupees. 45 per kg. The price rose to Rs.62 in 1997, peaked at Rs.73 in

1998 and then started to decline to Rs. 62 in 1999 and Rs. 52 during 2000 and 2001. It

declined further to Rs. 42 in Jan-Jun 2002. The rise and decline in price of tea during the

second half of the nineties has been a national and international phenomenon. The price

of North Indian tea declined from 119 to 94 points (Base year 1995=100).South Indian

tea prices also fell from105 to 77. Even though the latter prices are always lower than the

former, the South Indian tea fell by 12 points while that of North Indian tea only by 6

points. The international price of tea (auction price) of all the nations increased from the

base year (1995) and peaked in 1998 and then declined. But only the price of Indian and

Indonesian tea declined below the 1995 level. The price of tea of two major producers Sri

Lanka and Kenya stabilized at 10 and 14 points respectively above the 1995 level, while

that of India and Indonesia by 12 and 8 points respectively below. The magnitude of price

decline from the peak reported during 1991 has been highest for tea in India (33%).

While the prices were declining from Rs. 73 per kg in 1998 to Rs. 53 in 2001, wages

increased from Rs. 59 to Rs. 76 so also the cost of other production inputs. Subsequently

though however in 2004 and 2005; prices of tea improved. The FAO composite price; as

a world price indicator for tea; increased by 2% in 2004 reflecting significant gains in the

61

Calcutta and Mombasa auctions. This was to be followed by massive fluctuations in the

tea prices over the subsequent months as a result of fluctuations in tea output in major

producer countries while at the same time there was an improvement in demand. In light

of the fact that most local currencies had depreciated in comparison to the $ US at this

time the gains made by the tea industry’s in most producing countries was significant.

Throughout 2005 the FAO composite tea prices continued to appreciate at around 0.3%; a

much slower rate than in 2004. But this rise in prices was not to last long. Prices again

started to decline in January-March 2006. These fluctuations in tea prices and their

tendency to fall more than they rise is what has been responsible; for many insiders;

attributing the drastic fall in prices to be not a consequence; but one of the major factors

that have contributed to the crisis in the tea industry in the country.

According to numerous plantation management officials with whom I corresponded

during the course of my data collection the primary reason for the drastic fall in income

(which has forced them to shut down their plantations or to engage other measures) has

been both the drastic decline in the price (from a peak in 1998 to the level of 1990) and

particularly the increase in wages of plantation labour from the 1998 level by 30% more

in 2001.

From my studying the system of wages and wage fixation on plantations I have achieved

the following understanding. As on today plantations must pay compensation to even

casual labourers at the minimum wage rate of Rs 56 per day set by the central

government. Wages received by permanent employees who are completely unionized are

62

much higher than this minimum wage. The rates of compensation to permanent labourers

working in plantations are determined by group bargains under the mediation of states

'labour offices between the United Planters' Association of South India (UPASI) and the

representatives of major unions. The rates determined through this group bargaining

follow complicated formula combining base wages fixed per day with incentives

payments corresponding to work outcomes (as measured by the volume of harvested

leaves in the case of tea) and they differ slightly across the south Indian states and across

crops. On the average, it was about Rs 70 per day, a quarter higher than the minimum

wage rate, in 2003-04. Moreover, permanent labourers are entitled to receive housing,

water, electricity and social security benefits such as medical care free of charge as per

the provisions of the plantation labour act of 1951. If these benefits are added to cash

compensations, the real wage rates applicable to permanent workers could well be higher

than Rs 100 or nearly twice higher than the official minimum wage rate applicable to a

casual labourer. Thus it is much more cost reducing for plantations to employ casual

labourers than permanent labourers; and this is precisely what is happening increasingly

in most plantations that have been affected by the crisis in the tea plantation sector in

India

Nevertheless in the melee by plantation managements to cut their losses, real issues and

challenges causing the crisis have been ignored; particularly issues pertaining to structure

and organization of production, marketing and institutional impediments, etc. in the tea

plantation sector. What was to a large extent ignored was the fact that internal factors had

as important an impact on triggering and sustaining the crisis as external factors. This

63

reality ; particularly true for tea plantations of South India was highlighted by Yujiro

Hayami and A Damodaran in their 2004 paper where they said with respect to the crisis

in the tea plantation sector in South India that “International market fluctuations …are

short-run phenomena, and the crisis stemming from them could recede sooner or later.

More serious is the basic structural deficiency in the organization of large corporate

plantations, which will render the competitive position of plantations in south India

progressively weaker in comparison to not only overseas producers but also domestic

producers in other regions in India”

According to the above two scholars the structural deficiencies trace their origins to

agrarian reforms in the post independence era in India. They believe that over the years

these structural deficiencies rather than getting weeded out have only further

strengthened over cycles of low price runs in the global commodity markets. They have

strengthened to such an extent that non sustainability in the present plantation system in

the south Indian tea plantation sector is glaringly apparent.18 Alongside this was the fact

that “hardly any attempt” has been made “to understand the crisis from a holistic

perspective (other than the conventional supply/ demand/ trade frameworks) of the

plantation system, per se, which has lost its relevance as a production system, in the

context of global economic integration and new trade reform measures” (centad)

To understand this better we shall now delve; in the next chapter; into the context of the

tea plantation sector in Kerala; a state that has severely been affected by the crisis.

18 Damodaran and Hayami. “Towards an Alternative Agrarian Reform: Tea Plantations in South India” Economic and Political Weekly. 2004

64

Chapter 4: Tea plantations of Kerala and their crisis in

perspective

4.0: An introduction to the tea plantation sector in Kerala

Within India, the state of Kerala stands apart in respect of its high degree of responsivity

to changes in the national and international trade environment. Its agriculture is marked

by the existence of a series of agricultural micro-environments suited to different kinds of

mixed farming, and by a large proportion of perennial crops in total agricultural output.

More than 80% of Kerala’s agricultural commodities / products are dependant on home

and international markets. The State accounts for 45% of the plantation crops in the

country which provide daily employment to nearly 4 lakh workers. Nearly 20% of its

population depends on plantation crops for their livelihood. Kerala’s plantation and field

crop mix includes paddy, tapioca, banana, rubber, coffee, cardamom, arecanut, cashew,

pepper and coconut.

Kerala is also the only State in the country having a substantial stake in all four major

plantation crops, viz, tea, coffee, rubber and cardamom. Further, Kerala is a major State

in the production of marine products for the international market. Following the onset of

the era of trade liberalization in farm products, as a result of the implementation of the

Agreement on Agriculture (AOA) of the World Trade Agreement from 1995 onwards,

Kerala’s agricultural products have experienced a price crash of unprecedented

65

proportions. The brunt of this crisis has been borne by cultivators belonging to the small

and marginal farmer category who constitute a major segment of the rural workforce.

Their subsistence depends upon market avenues.

The first half of the nineties witnessed buoyancy in the farm economy of Kerala .During

this period Kerala’s agricultural economy registered a higher growth rate than that of the

national average. The buoyancy of the agricultural economy could be attributed, on the

one hand, to the resurgence in production and productivity, although at a lower pace after

a long period of stagnation during the 70s and on the other to a gradual increase in the

price of almost all agricultural commodities; though the same cannot be said for the case

of Tea whose prices were already on a decline from the early 1990’s onwards. But this

buoyancy did not last long and since the second half of the 1990’s the prices of nearly all

agricultural produce produced in Kerala including tea has plummeted.

What has taken analysts by surprise about this spate of price falls is that the

heterogeneous product-mix that had until recently been providing an economic buffer

when market prices of agricultural commodities fluctuated across years no longer seems

to be working and the price crashes that have happened recently and continue unabatedly

even today has affected almost all commodities, whether domestically consumed or used

as industrial raw material or exported.

The tea industry in Kerala is particularly of great importance to the states economy.

Though Kerala accounts for only about 7.2% of the total tea produced in the country the

66

importance of the tea industry can be gauged from the fact that in the state almost 37000

hectares of land are used for the cultivation of tea. The Tea plantation sector alone (large,

mid size and small holdings) employ almost 90,358 workers of whom almost 89,032 are

permanent and 83,102 are resident. Indirectly almost 67,398 individuals are bonafide

dependants of workers employed in Kerala’s tea plantation sector. Most of the workers

on tea plantations in Kerala are women and the state holds the top most slot in having the

maximum number of women workers as a constituent of the Tea plantation workforce of

all the Tea producing states in India (61.5% as calculated in 2008 by the labour bureau of

the government of India in its study) with most of them being married.

67

Table 4.0.ADistrict-wise Production of Tea in Kerala

(1975-76, 1980-81, 1985-86, 1990-91 to 1998-99)(Tonne)

Districts1975-

761980-

811985-

861990-

911991-

921992-

931993-

941994-

951995-

961996-

971997-

981998-

99Thiruvananthapuram 826 894 915 744 712 532 706 433 561 641 608 595Kollam 1128 875 200 423 470 254 - 425 343 417 366 367Pathanamthitta - - 259 - - - 254 - - - - -Alappuzha - - - - - - - - - - - -Kottayam 527 367 386 324 215 214 210 141 148 139 224 279Idukki 31017 37460 39514 46697 51125 40023 47568 47530 49473 51071 47646 41358Eranakulam - - - - - - - - - - - -Thrissur 871 1002 1387 1503 1614 1284 1444 1553 1557 1922 1648 1648Palakkad 1175 1219 1402 1697 1746 1607 1959 2000 1986 2466 2293 2368Malappuram 148 92 - - - - - - - - - -Kozhikode 6346 6953 - - - - - - - - - -Wayanad - - 8565 9250 10198 10521 9347 8633 10742 12663 12440 12111Kannur 1226 1854 - - - - - - - - - -Kasargod - - - - - - - - - - - -Kerala 43264 50716 52628 60638 66080 54435 61488 60715 64802 69319 65225 58726

Source: Directorate of Economics and Statistics, Govt. of Kerala.

Year: Period of fiscal year in India is April to March, e.g. year shown as 1990-91 relates to April 1990 to March 1991.

Units: (a) 1 Lakh (or Lac) = 100000.

(b) 1 Crore (or Cr.) = 10000000.

68

4.1: The crisis in the tea plantation sector in Kerala:

The year 2007 witnessed the third successive year of low tea crop production from south

India. Though there was an increase in south Indian tea prices in 2007 by 7.10% on dollar

terms; in domestic currency at the Indian auctions there was a fall in the realization for

south Indian teas by 2.10%. This shows a particularly worrying trend; one whose

implications for the tea industry in Kerala are far more potent than its impact on other

south India tea producing states. The reasons for this are depicted below.

The crisis in the plantation sector of Kerala’s tea industry has not descended suddenly;

rather it has been brewing for quite some time now. Today in productivity levels Kerala

finds itself 20 years behind Tamil Nadu. The productivity of tea gardens in Kerala is

around 1900 kg per hectare, while that of Tamil Nadu is around 3000 kg per hectare.

Yield per hectare has increased only by 26% during two decades in Kerala, from 1481 kg

in 1980-81 to 1865 kg in 2000-01 while during the corresponding period productivity in

Tamil Nadu increased by 50% from 2000 kg to 3000 kg. In absolute terms the increase in

Tamil Nadu is around 1000 kg against Kerala’s 500 kg.

So what is that factor that has had such an impact on the tea plantation sector in Kerala as

to be responsible for this crisis? The answer to this question can best be described in the

words of K V Mohandas; former additional labour commissioner and currently a leading

industrial relations consultant who said

69

“It is not possible to pin point any single factor that is responsible for the crisis now

being faced by the Tea Plantations in South India particularly in Kerala. Declining land

productivity, low standard output and sky-rocketing cost of input had pushed up the cost

of production to a level of Rs.65/- to Rs.70/- per kilogram of tea. The yield level in the

State was the lowest in South India hovering around 1500 kgs of made Tea, per hectare.

Heavy rainfall has depleted the soil and reduced water holding capacity. Long periods of

drought, severe pest and disease problem, lack of capital to plough back had their impact

on most of the estates in the area. While the cost of production of tea witnessed spiraling

effect upwards, the price of tea had shown a plummeting trend from Rs.79.77 per Kg to

Rs.41/- per Kg during the period from 1999 to 2002. The effects of economic reforms and

SARC treaty gave way for advent of cheap variety of tea into this country. The reduction

in import duty and other measures resulted in cut throat competition and phenomenal

drop in the price of the produce. The imbalance thus crept in the tea plantation sector

resulted in acute crisis and the planters found it difficult to harness the situation and

strive. The collective effects of these factors are responsible for the crisis.”

What we understand thus is that there is no one single cause responsible for the crisis that

today confronts the tea plantation sector in Kerala. Infact there are a multiplicity of

causes; each of which we shall deal with in the subsequent pages. It is not right to merely

blame the WTO; as most scholars tend to do; for the crisis that today plagues the tea

plantation sector in the state. It is a fact that the problems intensified with the

governments allowing duty free import of tea from Srilanka years before the WTO

agreement on Agriculture. It is also true that even as the crisis in the industry intensified

70

and it was brought to the central governments attention that the plantation sector in kerala

was going into a very bad state the government refused to acknowledge the seriousness of

the matter choosing instead to say; as honorable minister Chidambaram then (in 1991)

said in Parliament in response to a question from a member of parliament from Kerala

about the worsening state of Kerala’s tea plantations that

“The hon. Member is presenting a rather alarming picture in Kerala. According to our

figures, there are only 11 tea estates which are registered as weak or sick. The total

number of tea estates in Kerala is 4,087. They are very small estates. I attended the

meeting of United Planters' Association of South India three days ago. I met a large

number of growers from Kerala and their mood is upbeat….. If any particular estate is

requiring rehabilitation, I am willing to look into that. But the mood in the south Indian

tea industry is very upbeat and their production is very high”

While the numbers quoted by the Member of Parliament was definitely high and

inaccurate, the fact cannot be denied that the plantation sector in Kerala was definitely

going through a very bad patch at that time; a bad patch from which it has not recovered

even until now. By emphasizing on units that were already sick and focusing on

rehabilitative packages for merely those units the minister (and thereby the government at

the centre) were overlooking another fact. He was overlooking the fact that there should

be some reason why tea plantations in Kerala were going into loss and becoming sick;

particularly the role of policies in negatively impacting tea plantations across the country

(for estates in Assam too were closing down at this time; even state run ones) and should

71

rather have focused on undertaking preventive measures to protect the tea plantation

sector from any further damage resultant from these policies. Sadly this was not done.

So what has been the outcome of the crisis that has plagued the tea plantation sector in

the state? In its worst form the crisis has resulted in tea plantations becoming “sick” and

closing down while in its less seminal form it has brought numerous estates to the brink

and near to collapse; a collapse that is sure to happen if things are not done right and

effective curative measures are not undertaken; the time for prevention being long past.

So what exactly are sick units with reference to tea plantations?

According to the criteria laid down by the Tea board in 1965 a sick estate is one which

(1) has had little or no profit for the last five years (2) has a major portion of the

plantation over-aged and requiring replanting and (3) factory building and machinery

mostly old and out of date. To this other experts have added other symptoms of sickness;

some of which are most relevant today; like (1) over-capitalization (2) weak decision

making apparatus at the management level (3) poor yield due to unscientific agricultural

practices (4) input imbalances (5) poor manufacturing processes (6) misapplication of

funds (7) bad marketing arrangements (8) poor labour-management relations and most

relevant as a symptom today (9) default in discharging statutory obligations like non

deposit of provident fund money, irregular withdrawal of funds from banks, inflating

crop returns etc. it was felt among experts that while some of the above conditions

indicated proneness to sickness the others merely showed weaknesses of the tea estates. It

72

was recommended that tea estates should be labeled as sick if (1) they obtained a yield 25

to 30% lower than the district average published yield in at least three out of five years

(2) a garden has made a loss in three out of the past five preceding years and (3) where a

garden was habitually defaulting in meeting its statutory obligations.

While the number of sick and closed down tea estates in Kerala is not as large as in some

of the other tea producing states; which too have been undergoing a crisis for the past

many years; like Assam and West Bengal; it does not take away from the seriousness of

the matter that even in the 17-20 odd estates that have been closed down the lives and

livelihoods of thousands of workers and their families are at stake. it also does not take

away from the fact that unless something is done and measures are undertaken quickly,

more and more estates are going to become sick and close down and thousands more are

going to lose their livelihoods and ultimately their lives. Since plantation workers are

highly dependant on plantation managements for water, electricity, firewood, health,

education etc the most affected group of people or direct victims of the crisis in the tea

industry are the workers .Tea estates being enclave economies, workers lose employment,

wages and statutory benefits like health, education, safe drinking water, sanitation etc

when plantations become sick and shut down. Incidences of starvation induced deaths

and worker suicides (many families whom I interacted with in Peerumade Taluk) are

already coming in from many of the closed estates where the crisis has had a severe

impact on the standards of living of plantation labourers; their health and their access to

the most basic necessities of life. Workers in many of the estates that have closed down

are illegally plucking and selling tea leaves from the closed down estates with the support

73

of the unions to sustain their livelihood. The structure of the plantations in kerala is such

that much of the labour force on the plantation is migrant, female, illiterate and unskilled

and thus options for alternative employment are almost nil at least in the tea growing

areas themselves. Alongside this not only has the closing down of many of the estates and

the tea factories associated with them adversely affected the overall performance of the

economy of the tea producing regions in Kerala; crores of rupees of tax revenue to the

government from the tea industry under different heads like agricultural income tax,

plantation tax, land tax, factory's license fee, Building Tax etc has been pending for years

and the financial position of local bodies in the tea areas of the state have been seriously

affected too. The crisis has had a severe impact on the functioning and activities of trade

unions and impacted even the socio economic and political landscape and demography of

the tea growing regions.

So what are the factors that have contributed to the crisis that plagues the tea plantation

sector in Kerala?

74

4.2: Factors responsible for the crisis in the tea plantation sector in

Kerala:

1) The impact of the WTO : One of the important characteristics of the multilateral

trading system, as embodied by the General Agreement on Tariffs and Trade; which was

the precursor to the WTO; was that in principle, while it was applicable to international

trade in all goods in actual practice, it differentiated between manufactured goods and

agricultural commodities . For the many decades that the GATT was in place, trade in

agriculture was excluded from the GATT system; save for a few situations and clauses.

In the GATT firstly, there was no discipline regarding domestic support, with the

exception of a non-operative clause speaking about consultations in the eventuality of

countries showing serious prejudice. Second, in the sphere of export subsidies, there was

under the GATT a "virtual" waiver or exception for agriculture as specified in the article

in the agreement pertaining to subsidies. Thirdly, in the realm of imports, in the GATT

for agriculture there was a departure from the commitment to eliminate quantitative

restrictions set out in Article XI, for foodstuffs, critical raw materials and, in general, for

stabilization measures in the agricultural sector. Taken together, this meant that trade in

agriculture was simply not subject to the regime of international discipline embodied in

the General Agreement on trade and Tariffs. But all this came to an end with the Uruguay

Round of multilateral trade negotiations that sought to bring trade in agriculture under

GATT discipline and subsequently the coming into being of the WTO. Subsequently tea

along with coffee was brought under the purview of the WTO with India’s signing of the

WTO agreement. From April 2001, quantitative restrictions on the import of tea were

75

removed. Provisions of PFA (Prevention of Food Adulteration) Act were imposed on

imports of Tea and Imports of tea were designated to two ports; Kolkata and Cochin;

under FTA (Free Trade Agreement) with Sri Lanka.

The professor Swaminathan commission on WTO concerns on agriculture created by the

government of Kerala had made the following recommendation to the state government.

“Given the scope and magnitude of the challenges and opportunities offered by the WTO

regime, the Government of Kerala would have to formulate structured responses and

crafting proactive measures the primary step is the creation of a knowledge base relevant

to WTO concerns. The 'knowledge base' to be created which is the primary though not

the only function of the Government, in order to productively service the WTO regimes is

far more complex in spread (horizontal) and depth (vertical) than what is generally

understood and much less appreciated”.

But the fact remains that the speed with which provisions of the WTO were implemented

and trade was opened up to cheap Tea from abroad happened before such a knowledge

base could be established. The impact of such haste has been devastating and its impacts

can be seen in what has been happening in the Tea plantation sector in Kerala

subsequently; whose already bad condition has subsequently been rendered worse

In this regard it would be important for us to deal with the negative impacts of the WTO

76

agreement on agriculture on the tea plantation sector in Kerala one by one

Firstly has been its negative impact in terms of its drastic impacts on prices in terms of

both inducing downward spirals in prices and high degree of price volatility: Though not

the only factor; a large part of this drastic price fall can be attributed to fallout from the

WTO agreement, particularly those provisions of the WTO agreement that envisages free

flow of all farm commodities, into the country. Such market access was predicted to pose

and has definitely posed unprecedented challenges for Indian agricultural commodities

including Tea produced in Kerala.

Infact warnings against rapid enforcement of WTO provisions had been given even by

international organizations like the Food and Agricultural organization (FAO). But these

warnings fell on deaf ears as the government was more interested in listening to

predictions made by other economists, before the finalization of the WTO Agreement on

Agriculture, which stated that prices of agricultural products on the world market would

increase slightly after the implementation of the agreement. These predictions were

subsequently proven wrong. Instead, many world prices for agricultural commodities fell

precipitously after implementation, following a brief but severe price spike for wheat and

some other staples in 1996. Overall, the post-Agreement on Agriculture price

environment for commodities has been more volatile that the decades that preceded it.

According to the FAO, the underlying downward trend for agricultural prices, a trend that

persisted for decades, has stabilized since the mid-1980s, to be replaced with more

volatility but no clear trend line (FAO 2004). The domestic prices, under competitive

77

forces, were predicted by Indian economists; mostly from the left; as likely to come down

considerably and so they have. Similarly, the traditional export commodities of the

country; it was predicted; would be in a position to sustain their share in the international

trade only if they could effectively compete with other competing countries in terms of

price and quality; something Kerala’s Tea plantation sector has found itself unable to do

due to a number of factors as we will see from the following pages. The result has been

that just as in other developing countries India too has come under a spate of import

spikes in primary produce and particularly in Tea.

Secondly there has been the issue pertaining to subsidies and state assistance which are

expressly restricted under the agreement on agriculture of the WTO which has made it

difficult for the governments in India (central and state) to provide much needed

assistance to the devastated plantation sector in the tea producing states and in our case in

Kerala.

So what are the other principal internal factors responsible for the crisis that today affects

the tea plantation sector in kerala?

2) Problem of Inherently low productive land resource: The agro-climatic factors in the

state, especially high rainfall and its uneven distribution with long periods of drought and

steep terrain are inherently unfavorable to high productivity in tea. The undue stress on

tea bushes arising from uneven rainfall and long drought lead to higher incidence of pest

attack and its control adds to the cost of production. Many of the managers of plantations

78

I interviewed described the bad climate over the past few years as important in terms of

being responsible for fall in production and reduced productivity of previously well

performing areas and estates. This was uniform amongst large and small plantations.

3) Problem of high vacancy ratio in plantations: The vacancy percent in Kerala tea

plantations is found between 20-30%, which is the highest in the country. The net effect,

apart from soil erosion, long drought and of low density of bush population, is lower

yield per hectare.

4) Problem posed by over-aged tea bushes: The Tea bush is the greatest asset in any tea

plantation and has a long productive life span that extends to more than five decades.

Kerala’s relative share of tea bushes which have surpassed the productive age (50 years

and above) is 73%, against 42% in Tamil Nadu, 48% in West Bengal and 32 % in Assam.

The Kerala tea plantations are fairly old with majority of them being over 70 years of

age. In Kerala out of the total area of 36775 hectares of tea; tea bushes in about 25720

hectares are above 50 years old. The Central Travancore District in Kerala is the oldest

Tea planting district in South India with an area of 12000 hectares. Out of this 75% are

more than 100 years old. This district contributes 13% of the South Indian tea production

and 31% to the Kerala production. Since 1990 the production and productivity has been

stagnating at the same level at 2000 kg per hectare in the state. The production of tea has

been adversely affected due to low potential of the bushes. The lack of interest of planters

to look after the fields also has contributed to this problem.

79

This particular problem of over-aged tea bush was particularly a matter of concern

amongst plantation managements in the Idduki district where I did my data collection.

This is of much importance as the district accounts for 68% of the tea area in the state and

is home to some of the largest plantations that exist in the state. It has been scientifically

proven that the age of the tea plant is a crucial factor in obtaining due response to yield

increasing inputs and scientific management. Bushes beyond 50 years of age respond

poorly to quick yielding measures such improvements in pruning, plucking, balanced

manuring and application of growth promoters, and even to medium term measures such

as rejuvenation pruning. Many of the experts that I spoke to felt that it was unfortunate

that long-term measures such as replanting, modernization of factories, augmentation of

fuel-wood or other sources (solar energy) for processing, did not attract sufficient

investment even during the days when the going was good. A NABARD study covering a

sample of 24 estates found that replanting accounted for only 2% of the of total capital

expenditure during the 10 year period between 1973-83. The cumulative effect of by

passing/postponing the replanting/ replacement requirements are now manifesting and

certainly exacerbating the present crisis. A look at the table on the next page shows that

not much has changed in terms of replanting etc since 1997.

80

Table 4.2.A: Age of tea bushes as percentage of the total (1997)

STATEBELOW 10

YEARS

11 TO 30

YEARS

31 TO 40

YEARS

OVER 50

YEARS

ASSAM 18 29 22 31

WEST

BENGAL15 19 20 46

TAMIL

NADU29 18 16 37

KERALA 12 4 13 71

INDIA 19 23 20 38

Computed from Tea Board 2000: 26-27

81

Infact the threat posed by old and aged bushes in terms of affecting productivity in the

future was identified by prof Sharit Bhowmik in a paper published in the economic and

political weekly in April 1990 (when tea prices in the international market were quiet

high but the productivity of the Indian tea industry was low) titled “tea: will prices fall?”

where he had ;following an analysis of the impact of aged bushes ; destroyed the

argument that was being put forward by many scholars that low productivity of the Indian

tea industry was as a result only of stagnation of area under cultivation. While

acknowledging that stagnation of area under cultivation; as a result of agro-climatic

conditions and other factors was important in terms of fall in productivity; professor

Bhowmik also said that

“Large proportion of old bushes has affected productivity. As a result the average yield

per hectare has remained more or less static over the past decade. In fact this stagnation

was noticed even a decade before. The average yield per hectare was 1,221 kg in 1971

and it in-creased to only 1,461 kg in 1981. During this period new methods of cultivation

were introduced such as double hedging (increase in the number of bushes per hectare),

faster yielding clones, etc. Whatever gains these new processes achieved seemed to have

been offset by the declining yields from the old bushes”

5) Problem posed by higher cost of production: it has been a fact that has been observed

in numerous studies that the unit cost of production of tea in Kerala is higher than other

states. Partly because wages are higher in Kerala in comparison with other competing tea

growing states in the country and partly due to the low productivity per unit of land put

82

under tea cultivation.

Studies have shown that nearly 60% of the cost of production of tea in south India and

particularly in Kerala goes for labour as wages and welfare amenities. The tea industry in

Kerala has confronted a severe problem in which more than three lakh poor workers

being devoid of proper wages and other attending benefits as an outcome of the crisis. It

is a fact that the labour wage originally fixed in 1952 has a productivity linkage of about

35%, whereas the productivity component in today’s wage stands at only 3%. Planters

opine that with such a high component of cost of labour it is extremely difficult for them

to compete with competitors from other major producers and even emerging producers

like Vietnam, Indonesia or Malawi where the labour cost is 25 to 30% of what it is in

Kerala. Under the plantation labour act; employers are bound to provide for labour cradle

to grave welfare schemes like free housing, free medical facilities, educational facilities,

sanitation facilities etc; which under normal circumstances are functions to be fulfilled by

the state. Plantation managements in other countries; managements in Kerala argue; are

not burdened with these responsibilities. Moreover corporate and other taxes too are

higher in India when compared to other tea producing countries.

This was something that has been noted by the interministerial committee on the

plantation sector who said in their report that the high rate of AIT has imposed a burden

on the plantation industry and affected the re-investible surplus and the incentive

structure. While stating that the existing tax rate was very high compared to the tax rate

in the competitor nations; the committee also identified that too many other taxes, besides

83

income tax, have made the process of tax collection cumbersome and made it difficult to

assess the incidence of tax. This was particularly in the light of the existence of numerous

other taxes imposed by the Governments of the tea producing states like Tamil Nadu,

Kerala, Karnataka, West Bengal and Assam

It has been observed that the kind of increases in the wage rates during the boom period

and the subsequent downward rigidity of wages during price-downturn phases that one

can see in the tea plantation sector; particularly the large organized tea plantations; are

common phenomena in urban formal sectors guarded by labour unions but are rarely

observable in the urban informal as well as agricultural sectors. Thus it can be concluded

that in some respects the plantation sector in south India has a structure similar to some

urban industries characterized by strong labour unionism. This has forced numerous

commentators to comment that the present crisis, though in itself a short-run phenomenon

may infact be a step toward total collapse of the plantation system in general. Even if a

boom does emerge in the future, the fact will remain according to them that; the increased

corporate profits will create pressures for wage hikes. Under the downward rigidity of

wage rates, the labour cost disadvantage in plantations in south India will likely become

larger in the end of the next market cycle than today and. The question “How can such a

system be sustainable in the long run for the production of primary commodities like tea,

which are characterized by much larger price fluctuations in comparison to industrial

commodities” was a question that I was constantly asked by frustrated representatives

from plantation managements and proponents of the small holder model with whom I

interacted during the course of my data collection process.

84

6) Problems associated with value addition and packaging: The primary processing and

marketing of tea have a very crucial role in achieving higher realization of the price to the

producer. Traditionally (and legally according to the provisions of Tea Act) tea produced

in the estates are sold at periodical auctions held at designated centers. Cochin,

Coimbatore and the Coonoor are the auction centers through which the tea produced in

South India is traded of. It is supposed to be a transparent system with the participation of

both growers and traders and Tea being sold to consumers in two forms, ‘loose tea’ and

‘packaged tea’: the former consumed by the low-income mass consumers and the latter

by middle and higher income groups. Even though the ‘loose tea’ market is larger (about

60%) than the ‘packaged tea’ market (about 40%) it is the latter set the price. Because in

the former a large number of traders are involved while only a few established big

players are operating in the latter. In a sense monopsonic situation exists in the ‘packaged

tea’ market. More than half (55%) of the market for packed value added tea is controlled

by just two giant companies. Quite often the marketing companies have substantial

interest in production also as they own large plantations as was the case in kerala until

very recently. The price differential between consumer price and what the producer gets

is very substantial between the two markets. In case of loose tea the consumer pays about

70%, while in case of packaged value-added tea between 120-300 percent, more than of

what the tea producer gets.

In a paper published in 1983 titled “Indian tea industry: problems and policies” the author

Neelanjana Mitra spoke about the threat posed by middlemen; the degree of control they

exert over the tea market and the difficulty that the industry is likely to face in removing

85

their monopoly. The paper was published infact at a time that the tea industry in the

country was already reeling under the crisis. Some of what she said then holds true even

in today’s scenario in the tea plantation sector in kerala. According to the author if the

tea industry; reeling under the crisis then; was to find its own resources for tea garden

development, one of the methods it had to seriously consider was direct sale of tea to

wholesalers, “by-passing the brokers”.

She goes on to say “At present, where consumers get the tea at around Rs 26.28 a kg the

producers' own realization on it is only around 50 per cent -the balance being taken away

by a handful of brokers who control the tea auctions in the country”.

she goes on to admit that it will be no easy task to break the hold of the brokers as over

the years, these middle-men have systematically developed their command over the

industry and its life-lines by such means as providing, “for instance, temporary finance to

producers, market intelligence, and expertise in testing, etc”. Dispensing with their

services would immediately create problems, particularly for the small growers. She went

on to suggest that the Tea Board, vested with the responsibility of ensuring the growth of

the industry should take some share in initiating such a break-through and said that

organizations such as UPASI too, instead of merely “lamenting the problems of tea

growers”, would do well to take the initiative in organizing particularly small growers for

marketing their produce in the country and abroad. Another solution that she proposes is

direct marketing of tea. In this regard a recent experience is revealing. Making use of the

interim period from court injunction in 2001, some producers got engaged in direct

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marketing (a system practiced by many big estates until the sixties with their own brand

images such as the Kannan Devan Hill Produce Co. Ltd.) and were able to secure a much

higher share of the consumers’ price than before. This indicates that direct marketing can

help increase income (the loose tea market is a great potential opportunity) and secondly

puts before us the need for abrogating the Tea Control Order of 1984 that restricts the

sale of tea only through auction centers only. The existing system helps only a few of

those participating in the tea auctions while a vast number of traders are not participants.

7) Problems associated with quality improvement and factory modernization: At the

auctions, Kerala tea on a whole fetches the lowest price in the country on account of poor

quality compared to tea from other states. Many of the industry insiders I spoke to

associated low quality of tea produced in kerala with outdated technology and equipment

that is used in most of the factories in Kerala’s tea producing regions. They spoke about

some of the teas from some of the modern factories in Kerala which command the

highest price in the auctions due to their high quality indicative of the potential

advantages associated with quality improvement and high returns to investment in factory

modernization. Factory modernization according to them is expected to serve three

purposes: increasing net out-turns of ‘made tea’; reduction in cost of manufacturing by

adapting latest technology, and increasing installed capacity. The need for quality

enhancement has significantly increased with the implementation of maximum residue

level (MRL) permissibility level standards by many of the Tea importing countries.

Spearheading this initiative has been the Intergovernmental Group (IGG) on Tea, who in

recognizing that there was a lack of global harmonization in fixing the MRL’s for tea ;

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and identifying it as a barrier to trade imposing significant costs of compliance on

exporters, decided on a series of actions, including the collection of more data on MRL’s

for all commonly used plant protection products based on Good Agricultural Practices

(GAP) and Hazard Analysis and Critical Control Point (HACCP) principles by tea

producing countries, and the creation of a Working Group on MRL’ s. In this regard at its

16th Session, India and the United Kingdom were asked to co-lead the Working Group to

coordinate, prioritize and accelerate the submission on behalf of the industry for pesticide

MRL’s for tea. This has significantly increased pressure on India and Kerala in particular

to bring about significant improvements in quality of manufactured tea; manifested in

reduced pesticide residue levels in the final produce; at the risk of losing significant

markets. This entails numerous manufacturers to undertake large scale modernization of

manufacturing process and revamping of growing standards and methods to conform to

the new standards. In many cases plantations have been unable to do so due to financial

constraints due to the ongoing crisis; pushing them into a vicious circle from which they

find it hard to escape.

8) Primary processing and value addition: the lack of a comprehensive strategy for

primary processing and value addition for Kerala tea was according to a number of

individuals that I spoke to one of the reasons for low price realization of tea produced in

kerala. These experts were of the opinion that such a strategy had to be designed in the

context of a growing domestic market with stiff competition and niche market for the

value added forms such as the packet tea, tea bags and instant tea. Though a few leading

companies in the state have already started producing value added forms of tea both for

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the domestic and export markets the high entry cost for brand development continues to

remain too prohibitively high for individual estates to bear. The experts were of the

opinion that the evolution of a consortium approach was imperative to even out the cost

of marketing of tea. The need for pursuing a value adding approach can be seen from the

following.

In an interview given to the Hindu newspaper Mr. M C Appaiah, COO of Duncans Tea

was referring to the importance of value addition when he said the following about his

company’s strategy to expand in to the sachet tea market

“The ‘sachet’ tea industry in India started with 5p/10p sachets and gradually went up

stage-wise to 25p, 50p and Re 1. With the consumers now up-grading themselves to Rs 5

and Rs 10 sachets, we have introduced these variants in all our brands to help

penetration into the rural markets. Branded sachet market is estimated at 10-12 per cent

of the annual packet tea market. Our aim is to increase the penetration and our market

share in the rural and semi-urban markets through sachets”

Other areas for possible value addition include Canned tea (soft drinks) from different

sources and flavour prepared for commercial use including soft drinks from apple, lemon

and orange flavour that have already been developed for commercialization; Flavored

instant tea that has been developed using different binders along with tea concentrates;

Herbal tea prepared using different types of herbs; Decaffeinated tea developed using

Super Critical Fluid Extractor ; Confectionary items like tea toffee and candy, tea

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biscuits, tea cakes; Tea flavour prepared using steam distillation and super Critical Fluid

Extraction method etc

Despite efforts studies show that bulk of Indian producers of Tea have so far been

relatively unsuccessful in capturing greater value added markets abroad and such tea

continues to be processed in or near target markets. Experts are of the opinion that the

important factors affecting this trend include transportation costs and varying national

consumer preferences. Transportation costs seem to be the most important factor. An

assistant manager in Tata Tea’s instant tea division in Munnar had the following to say

“Shipping tea in consumer tea bags is much less cost effective than in bulk. Processing

and packaging of tea is therefore more economical in places and regions that are closer

to key importing markets. Another aspect that is important is marketing. Selling value

added tea products in overseas markets requires high investments and skills in local

promotion and distribution, among other things. To date, only a few producers in

developing countries, such as us (TATA-Tetley) have been able to independently capture

market share in developed country markets and it continues to remain outside the

capability of most other producers in India”

9) Institutional constraints: Apart from the agronomic and economic problems that

confront tea plantations in Kerala, there are also quite a number of institutional

constraints that pose a serious problem. These institutional constraints include those

related to (1) taxation ,both in incidence and collection (2) land policy, that inhibits

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diversification in the context of restructuring and imposes limitations on processing (3)

labour management and productivity (4) supply of electricity (5) access to credit and

the (6) absence of an effective mechanism to carry out liaisoning with and between the

various agencies of the State governments whose policy decisions are very critical to the

long term sustainability of the tea plantation industry in the state amongst many others.

First and foremost are the issues pertaining to taxation. It is a known fact that of all the

Indian states, Kerala has the highest rate of Agriculture Income Tax. Plantation companies

in the state pay an income tax amounting to 65% while the Central Income tax is only

35%. Every agriculturist in the state has to pay some tax or other, apart from the land tax,

which itself is high. In addition, all the plantation crops including tea are subjected to

heavy incidence of purchase and sales taxes, very often at multiple points. Another issue has

been with respect to Fringe Benefit Tax. The impact of all these taxes and extractions fall

on the plantations seriously impacting their competitiveness and driving up their cost of

production while at the same time draining their profits.

Second to the issues pertaining to taxation are the problems associated with the system of

auctions currently in place in the country. According to many scholars as far as tea

auctions are concerned, it has been established beyond doubt that they are the most

suitable method of marketing teas. According to its proponents ever since the first auction

was held in London in 1834, following which the first auction was held in India in

Calcutta in 1861 the system of auctions has shown its capacity to cope with the

increasing quantity of tea produced all over the world. While the fact remains that a very

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large component of world’s production of tea is sold in tea auctions at various centers,

nationally and internationally; which many consider to be adequate proof that the

producers prefer this system to any other for the marketing of their produce; the truth also

cannot be denied that the system of auctions suffers from a number of serious flaws that

have in many ways contributed to the present crisis in the tea plantation sector in the

state. Firstly has been the view that has been expressed by numerous industry insiders

who are of the opinion that the system of auctions is unfair as it “curtails the price hike in

tea and shifts the major portion of the profit into the hands of the bidders who purchase

tea cheaply at auctions, packet the tea and sell in the market at a considerable high price”

even as the plantations are unable to realize their cost of production.

The problems inherent in the current system of auctions employed to trade tea in south

India was made apparent by a study conducted by M/S A F Ferguson and company19

whose study identified in no unconvincing terms a serious lacunae in the fundamental

principles and processes inherent in the system of auctions. The study found that the

principle followed in the auction system; of divisibility of lots; contradicted the basic

principle on which auction systems are based; as it allowed buyers to buy tea even

without bidding.

The fact that greater transparency in the system of auctioning of tea is important was also

highlighted by the expert committee comprising of representatives of trade unions and

social scientists who in their report submitted in 2003 called for computerization, in the

tea auction system to make it transparent, competitive and accountable. The advantage of 19 A consultancy firm

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the electronic auction lies; according to its proponents in the fact that; it reduces

transaction time and cost in auction sales besides making the auction system more

competitive and transparent. The primary advantages of electronic auctions compared to

the manual auction system lies with respect to the fact that: a) it provides a longer time

for price discovery b) it provides the possibility of ensuring anonymity in the bidding; c)

it provides an option of parallel bidding, and d) it is possible to maintain bid history

which can provide valuable record of auction process for the analysis and taking

corrective action

Though steps have been taken to make the tea auctioning system electronic in Kerala the

process has not been smooth. It has faced oppositions from industry insiders who have

argued that with the tea auctioning system in Kerala being such a highly complex

auction; being the largest auction in the South of India in terms not only of volume and

sales value, but also in the sheer number of varieties offered for sale – more than 600

every week; such complexity entails that introduction of the e-auction needs to be phased

in gradually. They are of the opinion that initially 25% of lots should be sold

electronically, and the proportion gradually increased. Another matter of contention has

been that the e-auctions take the previous week’s price as the starting price. Traders say

this is not realistic or scientific as prices can fluctuate greatly in the space of a week. Also

though it was earlier communicated that divisibility of lots would be done away with in

the electronic auction system; it was subsequently gathered that the division of lots would

continue in the electronic auctions also; a fact that has lend itself to much criticism.

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The average yield per hectare in South India is estimated around 2500 kilogram, which

much higher than the world average. But the yield per hectare in Kerala is still below

2000 kilograms. Under such circumstances one would assume that the state would take

an active role in encouraging planting in greater acreage with the aim of increasing

productivity. Sadly this has not been the case. Rather the state has pursued a policy of

identification of ecologically fragile land inside the plantations and curtailing of any

plantation activities in such areas; actions that have adversely affected the plantations.

The forest department has acquired such cultivated land and prohibiting planters from

continuing with the maintenance of the plantations. Since the lease conditions, especially

in Kerala, do not allow the planters to divert from tea plantations, no other value adding

activities are possible. The Government of Kerala does not permit eco tourism or

plantation tourism initiatives as practices in the North Indian States. This has also

curtailed the raising of additional funds utilizing the same in the uplift of the plantations.

Studies conducted across many tea producing regions of the globe and in India show that

greater attention needs to be paid to the institutional setting within which tea production

takes place. For the tea plantation sector in Kerala to effectively compete with other

producing regions in the country and abroad institutional innovation is vital; particularly

at the grower-factory interface level. Experience has shown that while the private sector

implementing “strong vertical coordination” can be a strong instigator for institutional

change; particularly to allow a greater degree of conformance to the requirements of the

export markets; such an event can occur only within a supportive regulatory and policy

framework. Such a degree of institutional; regulatory and policy support; in today’s

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scenario where they entail massive costs; can only come from one actor; and that is the

state. What studies have shown in kerala is that state support is seriously lacking on many

fronts; particularly in terms of institutional support that is provided to small holders. In

contrast what the state and the tea board has been doing since 2003 is to implement

measure; specifically in the realm of the tea plantation sector that have worsened things

for the sector

Officials of plantation managements that I spoke to believe that two of these orders have

been particularly responsible for causing most of the adverse effects. The first one;

according to them; is the restriction imposed on the appointment of proxy buyers on

behalf of inter-State purchasers generally known as CST buyers. It was brought to my

notice that over 1,600 CST buyers operated in the auction centers of south India

including Coonoor, Coimbatore, and Kochi etc. As per former practice, one proxy could

handle the needs of many inter-State buyers. But with the imposition of the new control

orders which insist that one proxy cannot operate on behalf of more than one inter-State

buyer the result has been absolute chaos. Moreover according to many insiders the new

system is not practical also.

Another factor which according to them went against South Indian auction centers,

especially Kochi, was the disparity in sales tax rates between North Indian centers

(Kolkata, Siliguri and Guwahati) and the southern centers. In Kerala, the CST applicable

is 4 per cent and KGST 8 per cent plus a surcharge of 15 per cent. In Guwahati, there is

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only a flat 2 per cent tax, which works out cheaper for the buyer forcing him to go there

rather than trade in the auction center in kerala.

10) Import for re-export and loss of market for tea produced in Kerala: Even though India

produced over 846 million kg of tea and exported nearly 205 million kg, the country

imported 13.4 million kg in 2000 at an average unit value of nearly Rs. 56 per kg against

the domestic price of Rs 62 and export price of Rs. 92. In 2001 the import increased to

16.6 million kg at a unit price of Rs. 63 kg against a domestic price of Rs. 62 and export

price of a little over Rs. 89 when the country produced nearly 854 million kg and

exported nearly 180 million kg. Indonesia, Vietnam, Kenya and Sri Lanka are the

principal countries from which tea was imported. Among the countries Indonesia’s share

of import increased from one third to one half while Sri Lanka’s share declined from one

third to one quarter. The imports constituted only 1.5% of the production 7% of the

exports in 2000, and 2% of the production and 8% of the export of tea in 2001. Hence

imports apparently may not have had an adverse impact on the domestic prices of tea in

India.

But the real problem associated with allowing the import of cheap tea into India is not as

much about it having an impact on the domestic prices of tea (something many experts I

spoke to say can happen in the future if the trend continues) as much as it is about the

Imported tea being used for the specific purpose of re - exports and earning of foreign

exchange through value addition (euphemism for simple repackaging). In the absence of

any minimum limits for value this provision is being misused by trading interests through

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importing cheap and low grade tea from other countries and after ‘value addition’ is re-

exported to India’s traditional markets where Indian tea holds a premium. The adverse

implications are two fold. First, the Indian tea Industry is finding it difficult to dispose of

the surplus. Second, the dumping of low quality imported tea, as Indian tea would lose

permanently India’s market, which has been built painstakingly over the years. It is in

this context it is significant to note that in the international market Indonesian tea is

quoted one quarter to one third of the Indian tea and hence must be of lower quality. And

India’s import of tea (lower quality tea) is on the increase. This trend just as it has had an

adverse impact on the Indian tea industry as a whole has also had serious implications for

Kerala’s tea plantation sector.

Since the time the full impact of the crisis has been felt the industry in Kerala has adopted

a few unpleasant structural adjustments to face the new economic situation and to ensure

the long term survival of the industry. Considering that of all the costs that go into the

production of Tea the labour cost is the one that forms the largest chunk of the cost of

production; the companies; as soon as tea prices in auction centers started to fall; stopped

recruiting new labourers in place of the ones who retire. They now not only seek extra

labour from existing permanent labourers but also have increasingly started to recruit

casual labourers so that they do not have to pay them PF, Gratuity, medical allowance,

housing etc that law dictates they should pay their permanent labour force. Sometimes on

holidays and even on weekdays laborers are transported by the plantations from one

estate to another to work for an additional payment that is meager.

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In this prevailing scenario one might ask; “why does the temporary labour/ casual labour

not agitate for permanent work/permanency or the benefits that are given to permanent

labour; that they are being deprived of?” The answer to this question was given to me by

an assistant estate manager from the Kannan Devan Hill Plantation Company who told

me that "The permanent workers themselves serve as a force that prevents such a kind of

a situation". According to him what most plantations do is to follow a system whereby

incentive wages are given to the permanent labour force for additional picking beyond

the prescribed base quota. Thus any extra hands would only significantly reduce one's

own earning capacity and earnings. To prevent this, the permanent labour force itself

ensures that any attempt by the casual labour to attempt making themselves permanent is

struck down.

As stated earlier the objective of this study is not to outline the conditions prevailing on

tea plantations in Kerala that have already closed down. Rather the objective is to show

that many more tea plantations are even now tottering on the brink; and something needs

to be done that transcends the token measures that have until now been adopted. In this

regard an understanding of the prevailing realities of and the impact of the crisis on a

specific tea plantation can be garnered from the following case study of the Kannan

Devan Hill Plantation Company

\

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4.3 Kannan Devan hills Plantation Company: A case study

The kannan devan hill Plantations Company is wholly situated in Kerala’s Idduki district

around the hill station of Munnar. The history of plantations in Munnar can be traced to

1870s when J.D. Munro, a European, identified the agriculture potential of the land on a

hunting expedition. In 1877 he leased 580 Sq Kilometers of land from the Poonjar Raja

who was in control of the land and subsequently formed a co-operative called

‘North Travancore Land Planting and Agricultural Society’ whose members started

farming in different parts of the region. The crops included coffee, sisal and cardamom.

The first Tea plantation was started by A.H. Sharp, another European, at the A.H. Sharp

Parvathy estate (which is now known as the Silent Valley Estate). In 1895 Finlay, a

European company entered the scene and acquired about 33 tea estates in Munnar

subsequently in 1897 forming the Kannan Devan Hills Produce Company to manage the

estates.

In 1964 the Tata Group, an Indian corporate giant entered into a collaborative venture

with the Finlay company leading to the formation of the Tata-Finlay group.

Subsequently in 1983 the James Finlay Group sold their share holdings in the partnership

and the company became known as Tata Tea Ltd, the largest integrated tea company in

the world. However Years of low international prices for tea, high production costs and

the strain of managing good social standards were slowly taking their toll on the bottom

line of the TATA Tea company. In comparison to tea produced in the north and the

northeast South Indian tea especially was of far inferior quality and fetched much lower.

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At the same time more than 90% of the staff in TATA’s Kannan Devan operations were

permanent and accounted for more than one fifth of total operating cost in the financial

year 2004. This became particularly important considering that with tea plantation

becoming a non-viable activity the plantations (which earlier contributing close to 80% of

the company’s business 20 years ago) were contributing only to the extent of 15% in the

year 2004. ultimately in April 2005 Tata Tea finally decided to opt out, transferring most

of its estates to a new company called Kannan Devan Hills Produce Co, Pvt Ltd (a

workers co-operative) under a unique Employee Buy Out (EBO) model. As per this

model about 12,441 employees of the TATA Tea Kannan Devan operations now became

shareholders in the new company holding approximately 68% of the equity stake. Of the

rest 19% was held by Tata Tea, 7% by a trust formed for the purpose and the remaining

small percentage by other parties.

The company was to have an authorized capital of INR 15 Crores of which INR 10 crores

was paid up capital. ICICI Bank extended the loan facilities to the workers to participate

in the subscription process. Each worker of the Tata Tea was entitled for 300 shares of

the newly formed company. The issue raised INR 9.04 crores against a target of INR 8

crores. The new company was unique in its model with the characteristic features of both

a co-operative and a corporate entity. The formation of Board of Directors was highly

representative in nature with due representation of workers and staff in the board along

with two independent directors. This was a radical shift from the past where the

management of tea plantations witnessed hierarchical top down structures. What gives

KDHPCL a truly participatory nature are facts like 68 per cent of its shares being held by

nearly 12,441 employees of the new company; presence of a workers' representative and

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a staff representative on the board of directors; the existence of several advisory and

consultative participatory management committees – comprising a cross section of

employees – at every level of the estate, factory management, and company level etc.

Today the Kannan Devan Hills Plantation Company Pvt Ltd comprises of 7 estates

encompassing 82 divisions employing about 10300 field workers and supervisors and

having a field area of about approximately 9000 hectares.

A detailed description is given in the table below.

Table 4.3.A

Estate name Area under tea (hectares) No of workers

Chundavurrai 1328 1600

Guderale 1450 1570

Gundumallay 1492 1491

Letchmi 1107 1410

Madupatty 1163 1414

Nullatani 1372 1588

Nyamakad1092 1187

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A summary of welfare measures offered by the Kannan Devan hills plantation company

Pvt Ltd to its plantation workers:

(a) Statutory benefits

1) Housing: all permanent workers are provided with free housing accommodation

with electrification. Free water supply is also provided.

2) Medical aid: all workers and their families are given medical aid, free of cost.

3) Sickness allowance: workers are paid sickness allowance in lieu of wages in

respect of sick days, at 14 days per annum.

4) Maternity benefit: women workers are granted maternity leave for a maximum of

84 days and they are also paid appropriate maternity benefits in respect of such

days

5) Crèches: crèches with trained crèche ayahs are provided in the estates and

children of workers are provided with free food, milk, uniforms etc.

undernourished children of workers are provided with special vitamins and tonics

6) Canteens: canteens are provided on estates where tea and snacks are sold to

employees on no-profit basis

7) Provident fund, pension fund, deposit linked insurance etc: contributions to PF,

pension and DLI are paid in respect to employees at rates stipulated in the

relevant act. Similar contributions are also made by the management towards

labour welfare fund.

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8) Annual leave: workers are granted annual leave with wages at the rate of one day

for every 20 days worked. In addition they are also eligible for 10 days casual

leave and 3 days religious leave per annum with wages.

9) Travelling allowance: workers are also granted travelling allowance in respect of

their journey to their home towns and back once a year in connection with annual

leave.

10) Bonuses: eligible workers are paid bonuses every year in terms of the payment of

bonus act

11) Gratuity: on cessation of service eligible workers are paid gratuity in terms of the

payment of gratuity act.

12) Workmen compensation: workers who sustain injury while at work are provided

with necessary medical aid and are also granted leave of absence until they are

able to resume work. They are also paid compensation for the entire period of

disability as also lump sum compensation where due.

13) Schools: schools up to pre-primary level are maintained on all estates. Slates and

books are also provided free by management.

Non statutory benefits:

14) Electricity: certain classes of workers are provided with free electricity upto

certain limits prescribed

15) Fuel: the company offers fuel subsidies for the procurement of LPG cylinders

monthly at varying rates for married and unmarried employees.

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16) Community development and social welfare scheme: the main targets of this

scheme are maternal and child welfare, immunization, family planning,

environmental sanitation, potable water supply, health education, occupational

health, vocational guidance to adolescents, tribal welfare, adult literacy,

encouragement of savings etc.

17) Link workers: link workers ensure the correct disposal of garbage etc.

18) Welfare audit and Welfare committees

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An analysis of data as pertaining to the Kannan Devan Hill

Plantation Company Pvt Ltd

The Kannan Devan Hill Plantation Company has been no exception to the trends that

other plantations in specific and the plantation sector in south India in general have been

subject to for the past few years.

What we saw from the table depicting the district wise production of tea in the tea

growing states of south India was that the production of tea productivity in Kerala’s

Idduki district; within which falls the Kannan Devan Hills plantation company;

underwent a steep decline in the years 2000-2002 and though productivity has since

gradually increased, by 2006 it had still not caught up to its 2000 levels.

Specifically with respect to the Kannan Devan hill Plantation Company there has not

been any particularly significant increase in productivity over the past few years since the

company’s inception. Production of tea which registered 20 million kgs in 2005-2006

increased only marginally to 20.31 million Kgs in 2006-2007 and to 21.34 million Kgs in

2007-2008. In all three years production was substantially affected by inclement weather

conditions with damage caused by unusually strong monsoons and frost damage. The

following table shows total crop of the seven estates of the KDHP Co Ltd over the past

three years since the company’s inception

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Table 4.3.B

Name of the

estate

Crop in 2005-2006 in

kgs

Crop in 2006-2007 in

kgs

Crop in 2007-2008 in

kgs

Chundavurrai 2664470 2972375 3221642

Guderale 3125222 2941341 2771499

Gundumallay 3487554 3542458 3660225

Letchmi 2605661 2707553 2578833

Madupatty 2546669 2526581 2343071

Nullatani 3006241 2896313 2739574

Nyamakad 2239188 2194340 2277060

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With respect to the KDHP what we see is that while there has not been a substantial

increase in total productivity of the company, even yield per hectare in total for the

company and in a majority of the estates specifically has not shown major increases as

can be seen from the following table that depicts yield per hectare in each of the seven

estates of the KDHP over a 3 year period from 2005 to 2008. Even the increase in total

productivity of the company that has happened has not been as a result of uniform

increase in productivity or yield per hectare across all the KDHP’s estates over time. This

is evident from the fact that some estates (like Guderale, Madupatty and Nullatani) have

shown decreased yield per hectare consistently over the last three years while other

estates (like Chundavurrai and Gundumallay) have shown consistently increased yields

per hectare each year. It has been the drastic increases in yield in some of the company’s

estates that have fuelled the increase in total yield of the company every year for the past

three years. Increasing yields over all and at the level of each estate is integral to the long

term sustainability and survivability of the company considering today’s climate and the

drastic manner in which poor agro climatic conditions have impacted the tea plantation

sector in the country and in the state.

Under such circumstances any attempt to increase the company’s total crop output makes

it imperative that the company follows one or both of two paths (a) increase total

productivity by increasing the total area under tea cultivation; by either buying up new

estates or by bringing more land currently under its ownership which is lying

uncultivated or being used for other purposes under tea cultivation or (2) increase

productivity in its current cultivated area through greater investments in research and

development, the use of new yield enhancing cultivation techniques and fertilizers or

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large scale replacement of low yield aged tea bushes with new ones that are more

resistant to adverse weather conditions etc and which will increase yield substantially.

The problem with adopting either path lies with respect to the fact that going down both

tracks requires the company to make substantial investments; something the company

will definitely find itself hard-pressed to do on the scale as is deemed necessary

considering the crisis that today confronts the tea industry in general and the Kerala tea

plantation sector in specific that places it in a financially unfavorable position as far as

making such large investments are concerned.

Moreover going down the path of bringing area that is currently not under tea cultivation

into the cultivations of Tea is currently an unviable option for the company in the current

political and legal climate where it is engaged in a battle with the government of Kerala

who has accused the company of systematically encroaching upon land belonging to the

department of revenue and forests. An attempt by the KDHP to bring newer land under

cultivation has resulted in numerous new cases of forest and revenue land encroachment

being filed against it. Moreover land that is already under tea cultivation of the KDHP

has been reclaimed by the government and tea crop in such land destroyed. Thus total

area under tea cultivation by the KDHP has not merely remained stagnant; it has actually

decreased.

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Table 4.3.C

Estate name Yield per bearing hectare over the past three years ( in Kgs)

2005-2006 2006-2007 2007 – 2008

Chundavurrai 2040 2289 2497

Guderale 2180 2069 1966

Gundumallay 2350 2376 2471

Letchmi 2383 2488 2401

Madupatty 2279 2277 2132

Nullatani 2245 2162 2066

Nyamakad 2096 2065 2158

A look at the following table outlining approximately the company’s income and profits

in the past three years gives us a better picture of the kind of constraints under which the

management of the KDHP is forced to operate and why I have arrived at the conclusions

that I have made above.

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Table 4.3.D

Year Total income in rupees

Profit in rupees

2005-2006 105 crores 2 crores

2006-2007 122 crores 2.6 crores

2007-2008 123 crores 4 crores

What we see from the above table is that the percentage of profits earned by the company

every year that can be exclusively used for the yield enhancing activities that I have

mentioned before are limited thereby exerting an influence on the scale on which they

can be undertaken and limiting the scale on which yield enhancement can be achieved. In

the same vein it is also interesting to observe that in the years from 1999 to 2004 when

today’s KDHP company was part of the TATA TEA Company’s South Indian plantation

operations the profits were much more significantly higher and hence large volumes of

funds could be mobilized to undertake on a very large scale the kind of yield enhancing

activities that I have discussed previously. But such an undertaking is not possible on

such large a scale considering today’s financial and ground realities of the KDHP. The

result has been that the KDHP has been forced to buy leaves from small holder producers

of Tea in order to supplement the production of its own estates.

Officials in the company’s management whom I spoke to were of the opinion that the

only way in which the KDHP’s operations could be made sustainable in the long run was

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through cutting down on the social welfare component given to labour. They pointed out

to me the fact those Social welfare expenditures; which according to them have over

years constituted an important drain on the company’s resources; have only increased

their hold over precious resources in the past few years. They pointed out to me the

following trends as have been shown in the table depicted below which show that the

social welfare component has every year been constantly increasing since the company’s

inception.

Table 4.3.E

YEAR

TOTAL

EXPENDITURE

SOCIAL

WELFARE AS %

OF EXP

SOCIAL

WELFARE

COSTS

2005-2006102 crores 28% 28.4 crores

2006-2007118 crores 28.5% 33.2 crores

2007-2008117 crores 30% 35 crores

They were of the opinion as can be observed from a cursory look at data that is available

that social welfare expenditures as mandated by the PLA and the various state

legislations pertaining to plantation labour welfare constituted the single largest segment

of expenditure of the Kannan Devan hill plantation company. Therefore any attempt to

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reduce social welfare expenditure burden on the management of the Kannan Devan hill

plantation company will not only enhance the profits of the company; it will also free up

more capital every year that the company can use to bring itself out of its current crisis

cycle and make its operation more sustainable over the long term under the assumption

that other factors remain unchanged and unimproving (which was a general assumption

amongst the management).

They point out to me that though predictions of improvement in conditions in terms of

economic (domestic and international), policy related and weather related have constantly

been made; the fact remains that nothing much has changed and the improvements that

have been spoken about have remained only on paper while the situation on the ground

has only worsened.

The example of the Kannan Devan Hills plantation company; one of the largest of the big

plantations points out to us the unviability of large plantations in today’s contexts in tea

growing areas and specifically in the case of Kerala. So what is a suitable solution to this

dilemma? What is a suitable alternative that would be more sustainable and efficient

under currently prevailing circumstances? The answer according to many scholars lies in

encouraging the small holder/cooperative model of tea production. So what does this

model entail? What are the advantages of this model and how successful has it been

where it has been implemented. This we shall discuss in the next chapter.

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Chapter 5: Smallholders and cooperatives

5.0 An introduction to small holders

In literature on plantations small holdings and small holders are considered a separate

category. They have been considered as such, ever since plantation agriculture became an

important form of exploitation of resources in the colonies, initiated by European capital

and enterprise. In different areas where plantations developed, there were significant

presence of smaller planters, among the pioneers, in the sense of some Europeans

themselves holding relatively smaller areas as opposed to their compatriots who owned

large plantations. These early smallholders opened up difficult regions all by themselves,

without the backing of companies or other collectives and came to be widely known in

plantation literature as “proprietary planters”. Subsequently they got phased out

systematically with the vertical integration of production, distribution and marketing of

plantation crops; all of which favored the large company owned plantation model. Those

proprietary planters, who survived such a shift, had to play secondary role in the

plantation sector thereafter but there was no dearth in literature on them. Though the

generally held view is that large plantations offer the advantage of economies of scale

that are necessary for the cultivation of crops like tea, coffee etc with changing times the

argument no longer holds true as it did before and the kind of economies of scale that it

envisages are today necessary only at the level of marketing and even then can be

replaced with alternative arrangements.

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Coming to the efficiency argument on the other hand today there is plenty of evidence

that shows that “poor” smallholders are quite efficient in what they do. The origins of this

view of ‘poor but efficient’ can be traced to T.W. Schultz, who famously stated that

“there are comparatively few inefficiencies in the allocation of factors of production in

traditional agriculture” (Schultz, 1964). Though this in itself is not a justification for

focusing on smallholders as the agents for growth in agriculture (particularly considering

that other modes of production may be better at shifting the technology frontier) the

empirical argument in favour of smallholders over large scale production tends to rely on

the ‘inverse productivity’ relationship, going back to soviet economist Chayanov (1926),

but found to be present across a wide variety of contexts: that yields per hectare are

higher on smaller farms. To explain this, standard explanations focus on labour

supervision costs making hired labour expensive relative to family labour and reducing

land productivity on larger farms (Eswaran and Kotwal, 1986).

Coming back to the transitions undergone by small holder cultivators though they have

been forcibly marginalized since the beginning in the market economy dominated by

large plantations, small holder cultivators have over the years actively sought to enlarge

their role in the tea producing sector. In fact, given the difficulties in participating

actively in producing for the market, what is surprising is the extent of progress already

achieved in this regard by the small producers. In the few situations where governments

have actively sought to encourage smallholder production (like in the case of the state of

Tamilnadu) either for political or socio economic reasons through a combination of

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incentives and support services, there has been an amazing degree of responsiveness from

smallholders

Small-holder farmers today play vital for India’s agriculture and rural economy. Small-

holder farmers - defined as those marginal and sub-marginal farm households that own

or/and cultivate less than 2.0 hectare of land - constitute about 78 per cent of the

country’s farmers (at Agricultural Census 1990-91). Though these small-holders own

only about 33 per cent of the total cultivated land; their contribution to national grain

production was nonetheless 41 per cent but even more importantly their contribution to

household food security and poverty alleviation was disproportionately high - and has

since been on the increase. As the national population increases, so has the number of

small-holdings (Singh and Woodhead, 2002).

With respect to tea cultivation today smallholdings in South Asia can be classified to be

of three types. The first centers on highly productive, mostly clonal tea smallholdings

whose yields are around 2000 kgs per hectare. For these small holdings tea is invariably

the sole or predominant crop and the use of hired labour is high. The only comparative

advantage that they enjoy is in terms of wages whereby they need to pay only the

minimum wage which is lesser than the fair wage applicable in the large plantations. The

second category comprises small holdings with productivity that is very low; about 500

kgs per hectare. The third category comprises of units with productivity somewhere in

between the first two categories. Though there is an element of mixed farming in these

holdings, a good deal of attention is paid to husbandry and tea remains the primary source

of family income. Most of the small holdings in Tea growing areas of India come under

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the third category though in Kerala’s Idduki district where I did my data collection I

could observe shades of all three types of holdings. So why study small holders of tea and

why give them so much importance when it is common understanding that Tea, Coffee

etc are plantation crops to be grown on large tracts of plantations like we see them in

many parts of the country. The answer lies in the context that prevails today. The context

of the crisis and how tea producing countries like Kenya and Srilanka where production

is mostly organized along the lines of small holdings have better been able to weather the

impact of the crisis that has ravaged India’s tea plantation sector

5.1: small holder tea cultivators - A story of resilience and the need

for support

During the course of my fieldwork in Kerala’s Idduki district I observed that

smallholders in tea cultivation by and large were to an extent better able to overcome the

impacts of the crisis in the tea growing sector than were large plantations. This despite; in

their words; receiving hardly or no assistance whatsoever from the state. They did so; in

the words of George Sebastian (joint managing director, Peria Peak Estates pvt Ltd; a

smallholding employing 90 employees and situated on 250 acres) “through effectively

tightening their belts and cutting down on their unnecessary expenditures”. Infact except

for those smallholders who had over-borrowed to spend on consumer durables and

housing, the smallholders by and large seemed to have a better grip over the crisis he

said. This and the sufficient conclusions that have been drawn have been corroborated by

studies which have shown the same too and have categorically stated that smallholders

will be better able to sustain their operation over future market cycles if they learn their

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lessons from the present crisis and become cautious by saving money in good days and

deploying them to their farms for improved production facilities and irrigation

Another major advantage of smallholders is that they enjoy the flexibility of effecting

shifts in crop patterns. Corresponding to price declines in tea and coffee, there have been

efforts by smallholders to introduce other crops, such as vanilla. However, such crop

diversification is difficult for large plantations to adopt, not only because of difficulty to

supervise hired wage labour in complicated cropping systems but also because the

agrarian reform laws do not allow them to hold lands larger than the retention limit of 25

hectares in case they move out of the five officially designated plantation crops. Of

course, smallholders operating only a few hectares of land need not worry about this

regulation. This flexibility in crop choice adds to the conditions of making their operation

viable in the long run particularly with respect to sustaining livelihoods when tea prices

are on the downturn over a long period of time.

This fact has been proven by N Mitra who from her analysis of the degree of

concentration in the tea industry, found that it was high both with respect to acreage and

production and also that holdings of all sizes responded in terms of acreage and

production to changes in profitability20. She found that in the period under consideration,

the three size groups of plantations considered, namely, large, medium and small

responded to profitability, but not in a similar manner: the large firms reduced yield but

20 To find out the nature of responsiveness of production of the different firms with respect to profitability, she considered the responsiveness of both the components of production, namely, yield and acreage assuming that the same profitability is applicable to all firms in the industry (since differential cost figures were not available).

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increased acreage, while the medium firms increased yield but reduced acreage and the

small firms responded by increasing both yield and acreage.

But at the same time all is not well on the small holder front too. Not only do small

holders require assurance of fair prices they also require other forms of assurances to

survive. With low bush population being an important characteristic feature of small

holder tea cultivation small holders suffer from the problem of low yield; inability to

obtain optimum lead. Moreover the existing tea bushes in these small holdings need to be

replaced or rejuvenated; entailing lots of expenses and time. A new tea bush takes at the

least five years to reach its optimum yield and during the first three years it does not bear

any leaves at all while a rejuvenated tea bush takes at the least 2 years to start bearing its

average yield. Thus while large estates are able to phase out their replacement and

rejuvenation schemes and still earn; for small holders it would mean no income for a few

years. Thus it is imperative for small holder tea producers to have access to sufficient

amounts of loans and subsidies to overcome their lean periods. While the fact remains

that the Tea Board has a scheme to provide subsidies for replantation, rejuvenation and

pruning to small producers (as well as for large estates) available data shows that this

scheme has been able to service only a very small section of growers. It is also interesting

to note that the state of Tamilnadu has been particularly successful in overcoming this

problem of providing subsidies to their small holder tea producers. The means that they

have adopted to provide the much needed subsidies to their small holder producers has

been to set up various cooperatives.

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In a situation where farmers faced problems such as quality deterioration of green leaves

due to delay in processing and locational disadvantage of tea processing units the setting

up of cooperatives proved highly successful in solving logistical problems. In this model

the capital infrastructure facilities such as processing units were located at a site around

the cluster of smaller plantations and the production was managed by a cooperative of the

user groups. Cluster of villages were in this case encouraged to grow particular type of

plantation crops, viz, tea, coffee or rubber so that processing can be done in the central

processing units. The location of the central unit was accompanied by infrastructure

facilities like electricity, water, road and marketing network. The ancillary infrastructure

such as regular supply of raw materials, inputs, agro-chemicals and other requirements

were made available by the state through state subsidies to these cooperatives. Thus in

Tamilnadu while the cooperatives have been able to successfully help the small grower

the impact of other agencies like the Tea board of India and Krishi Vikas Kendra have

been negligible to say the least.

As opposed to this is the school of thought that believes that small holdings in tea are

unviable units. According to this school of thought since the yield of larger plantations is

much higher than that of the smaller tea farms an alternative method of improving the

productivity of the Indian tea industry would be to amalgamate the smaller holdings

(operationally if not in terms of who owns them) into more economically viable units.

This school believes that in the presence of economies of scale as is seen in the case of

larger units; such an amalgamation will result in these smaller holdings gaining a higher

degree of efficiency as the favorable cost conditions that are enjoyed by larger plantations

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can now be availed of by these smaller holdings. The proponents of this school of thought

thus believe that thus the overall growth of output in the industry will be increased.

Another serious disadvantage of the small holder model of tea plantations is that they are;

to become successful; dependant to a very large extent on cooperatives; particularly in

the absence of effective programs for granting subsidies and marketing etc. it often

happens; and has been seen in the case of Tamilnadu that though co-operatives are

economic institutions which are supposed to be run on democratic lines in reality in most

cases the autonomy of co-operatives as member-based organizations is undermined in

most states through bureaucratic control whereby with the help of suitable legislation

governments practically run the co-operatives through their bureaucrats21

But the fact that small holder producers of tea and cooperatives are important and can be

used as suitable alternatives to plantations has not been discounted even by organizations

like NABARD who in their report prepared with the aim of tiding over the crisis in the

plantation sector that has had serious implications for the industry and the economy as a

whole recommended that

1) There is a chronic need to improve the conditions of small tea growers. There is a

need for restructuring of the cooperative sector to increase efficiency and

competitiveness and there is a need to restore good governance, professional

management and internal democracy

21 “Participation and control: study of a cooperative tea factory in the Nilgiris”. Sharit Bhomick

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2) There is a need to encourage the formation of self help groups and joint liability

groups among small producers. This will better help them to avail of bank

finance.

Infact the demand to organize viable small holder units and cooperatives is not new. It

was first articulated in “the report of the official team on the Tea industry: as early as

1952. In this regard it is important for us to pay heed to a recommendation that has

constantly been put forward by a section of people who have over the years been tracing

the development and changes characterizing the plantation sector in the country. An

important member of this camp has been Dr Damodaran; a plantation expert from the

Indian institute of plantation management who has advocated a reform plan whereby

plantations are reorganized to approximate that of the small holder system. The

individuals or corporate’s who currently own these plantations would continue to have

the processing and marketing activities while the estate would be divided into small units

and leased out to farm workers. This would mean that the erstwhile plantation owners

would now be bought leaf factories and the farm workers small holders. This follows the

move undertaken by the Tata Tea Company in Kerala to ease the squeeze in margin

between the labour costs and product prices. He recommends that the Government could

set up a long-term credit program for new tenants while also ensuring that the ownership

rights in the lease contract are well-protected. The other option he suggests would be on

the lines of the Philippines where a land bank was set up that purchased plantation lands

with cash or bonds and sold them to workers in installments over a sufficiently long

period. While opponents of this scheme have tended to criticize it on the basis of the

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argument that workers who are “illiterate: cannot manage the plantations and run the

cooperatives experience proves to the contrary. It has been shown by the research of

individuals like Sharit Kumar Bhowmik; who has analyzed the ideology, gains, practical

problems etc of two such experiences in tea namely, Saongaon workers Co-operative in

West Bengal and Workers Cooperative in Tripura; where he has found out that

“These co-operatives have tried to evolve new methods, formal and informal, for

involving the general workers in the decision making process……… Infact the

experiences of the workers in these co-operatives show that even illiterate and backward

workers are capable of managing their own affairs when given the opportunity and the

ideological motivation.”

But implementing schemes like the ones mentioned above is definitely not going to be

easy as can be understood from the following quote taken from a report of the NCAER

submitted in 1961 to the Government of India where while saying that “the only

pragmatic approach to the problem” of sick Tea estates “would be to work out for every

such estate a plan of action that is not only technically sound but also economically

feasible” it is also necessary to realize that “the causes of economic weakness vary a

great deal from garden to garden” thereby entailing that “the problems of each unit have

to be specifically studied”. It went on to recommend serious techno-economic

investigation of the sick estates.

Before we can go ahead with implementing such strategies it is necessary for us to

understand that under existing conditions even small holder cultivators of Tea in India

suffer from numerous problems. It is therefore absolutely essential that we know exactly

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what are the problems that confront the small producers in India; under prevailing

conditions in the country. This was one issue that I dealt with during my fieldwork in

Kerala’s Idduki district where I conducted my data collection amongst small holders.

During the course of my study I was able to garner data from them regarding (a) their

problems which can broadly be classified into three and (b) the solutions to these

problems that they proposed; both of which I have discussed below in much detail

1) Business Environment and Export Services: With liberalization post 1991 most

Government controls over the tea industry in general and the plantation sector in

specific have been removed. While there have been many who have expressed their

satisfaction with this development; amongst smallholders in particular there have

been those who believe that this development has not been beneficial as with it,

government intervention and contributions in many areas, which according to them

are essential in giving directions to the industry, have also stopped, to the detriment of

themselves and according to them the industry. A principal grievance has been

against the Tea Board, which still remains under Government control and is

responsible for giving direction and guidance; which most small holders I spoke to

believe is lacking in performing its duties. It was a complaint primarily amongst small

producers that while on paper the functions of the Tea board and its various program

looked well thought out, looking into all aspects and able to solve any shortcomings

that could arise, the reality was not so. They were of the belief that; in today’s

circumstances; the tea board should work in tandem with the private sector whose

task it is to drive the industry forward and by private industry they refer not merely to

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large plantations but also to small holder cultivators of Tea. They thus believe that

even as main positions on the tea board should rest with the private sector they should

also be given a stake and voice in the Board. Their principal complaint is thus that the

composition of the present Board is not fully and really representative of all

stakeholders in the tea industry in India which is responsible for the fact that there has

been a lack of purpose and direction in all the programs of the board (which though

outlined on paper for the betterment of the industry, still remain largely unattended).

2) Their second complaint was against the state whom they held responsible for the

financial constraints which seem to affect even the extension and Training programs

for small holder cultivators of Tea which they say have been severely hampered

leaving them to seek advise from large plantations for almost all their inputs

(advisory, technologically and guidance on application of agri-inputs) resulting in

them becoming increasingly dependant on them and subject to the conditionalities

imposed by the large plantations. Their demand was for the immediate revamping of

the direction in which the Tea Board should focus and that methods to obtain

financial assistance from the Government must be treated as priority. They were of

the opinion that larger plantations must be willing to contribute their share to the

common cause, as where they are today has been the outcome of the many benefits

that have been handed over to them by the state to develop in the years before

liberalization in the form of numerous subsidies and benefits. Therefore it is essential

that their attitude towards the Government authorities and statutory bodies change

and they work in a combined manner in a cohesive way so that all stakeholders

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become willing partners to move forward. They were in favor of the currently

existing cess system and called for stringent implementation of it alongside the need

to enforce membership payment, contribution towards advertising and promotion etc

from the large plantations and players to swell the coffers of the Tea Board for use in

extension, expansion, research, training, information and marketing which can be

developed to benefit all.

3) Their third complaint was regarding the current environment which they also believed

was not conducive to conduct business in a smooth way due to political interference

and disruptions to normal work at field, factory and city levels; frequent interruptions

to supply of essentials, high costs, tax levies, import duty on necessary inputs etc

which they feel need to be addressed by the Government and some changes

introduced if the industry is to move forward. But one fact that I found constant

across small holdings was that they were less affected by the interference of trade

unions in their functioning than the larger plantations. This owes itself to their small

size which facilitates a high degree of personal contact between the management and

the workers which ensures that disputes and quarrels are redressed at the level of the

workers and the management itself without involving trade unions. As such trade

union activity on the small holdings was very low. Many of those I spoke to believed

that this was particularly advantageous to the smallholder and was responsible for

why smallholders were on a whole much more capable of adapting to the crisis than

the large plantations as not many of the trade union leaders who were active on large

plantations were well aware of general issues of importance nor were they willing to

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be made aware of micro level realities and this had a serious negative impact on the

way they operated. As part of their political activity they obtain some knowledge

regarding the problems of plantation as a whole. But they do not try to study the

implications in detail. So they cannot effectively participate in conferences with

management and Government; most of the time leading to talks being fruitless or

ending in deadlocks; to the detriment of the workers on the large plantations

While it is not true that the government has not done anything for the small producers of

Tea in Kerala it is a fact that what has been done has been dismal in terms of impact. This

can easily be understood if we pay heed to the question of what has been the status of

various programs that the state has implemented until now to help small producers? The

answer to this question is that most of these programs have been failures. A classic

example of this can be seen with respect to the Price Stabilization Fund Scheme (PSFS)

which was initiated in April 2003 by the central government to provide relief to the very

small growers of coffee, tea, rubber and tobacco, in circumstances when the domestic

prices fell below the international prices. How successful this scheme has been can be

gauged from the words of Mr. A K Bhandari, president of UPASI, in this interview that

he gave to “Agriculture and industry survey” where he said the following about the

response the scheme got and the governments setting up an expert committee to revamp

the scheme.

“I am afraid that this scheme was a total failure, which is evident from the lukewarm

response to the scheme and moreover the scheme had not helped the cause of the

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growers. Out of 3.42 lakh growers targeted under PSFS, only 28,809 growers have

joined the scheme. The constitution of an expert committee to review the PSF scheme to

make it more useful and attractive to the growers is also a tacit admission that the

scheme has not been a success”

In the same way other schemes that have been implemented by the state too have not

helped a majority of small growers of tea; particularly in South India and specifically in

Kerala; in any way principally because eligibility conditions prescribed by the state

prevent them from becoming beneficiaries of these schemes. A classical example of such

a scheme is the special purpose tea fund (SPTF) which was envisaged and put into

operation to provide loans and subsidies to encourage replanting; replacement planting

and rejuvenation by tea growers. Though the scheme states that (1) all tea gardens in

India irrespective of size and ownership are eligible for the loans and subsidies under it

and in the scheme and the rate for South Indian estates have been increased in

consideration of the higher labour costs prevalent there alongside increases in the area to

be covered under the scheme every year and the pruning height of plants; both of which

was raised to benefit estates in South India; the scheme had fewer number of applicants

from South India on account of the large number of small estates ; particularly in Kerala;

though also in other South Indian States; who were not eligible for the scheme because of

their adverse financial conditions that have put the odious tag of “defaulters on loans and

PF remittances” on them. Many of the small holders in particular whom I interacted with

found themselves unable to make use of the benefits accruing from the scheme as they

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had defaulted on loans either to the tea board or to banks thereby disqualifying them from

eligibility under the rules that govern the scheme.

But throughout my conversations with representatives from the small holder tea

cultivating sector one point that was highlighted to me again and again was the fact that

in the short run no organizations or entity could replace the state in terms of what it could

do to mitigate the harsher impacts of the crisis on them and ensure their sustainability in

the future. They believed that an interesting lesson could be learnt from the manner in

which the state supported their counterparts in Nepal where the government grants a

number of incentives and assistance to the tea industry. The list is long and includes:

exemption of land ceiling; exemption of 75% of land registration fee and land revenue;

leasing of public land for tea cultivation; low interest rates for land consolidation; no

capitalization of interest cost during grace period; grants to small farmers to transport tea

cuttings; free technical service to small and cooperative tea farming; capital grants for

irrigation; lower customs duty on agro-inputs; priority to develop infrastructure and

services in commercial tea areas; access to fuel wood for tea industry from forest

committees and tea garden's own-plantations. In addition in Nepal, trade policies

encourage packing industry to establish domestic tea brand and to value-addition by tea

packets, help small and co-operative tea entrepreneurs to participate in trade promotion

and to develop auction system with private participation, and removes the requirement

for letter of credit to export tea up to one container. Furthermore, customs duty on import

of packaging materials and machinery (for export-processing) are to be levied at the same

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rate as for agricultural instruments. Also granted are duty drawback facilities for

packaging materials for export use, and income tax holiday for five years etc.22

This brings us to another important aspect in our discussion of small holders namely their

high degree of vulnerability to; most importantly; changes in the prices of agricultural

inputs; and monetary policy measures undertaken by the state; something large

plantations are affected to a lesser degree by considering the economies of scale that they

are able to achieve. This fact has manifested itself adequately in numerous studies that

have traced the impacts that input subsidy removal and currency devaluation have had on

small holder producers of Tea particularly in Africa. These studies have shown that high

input prices have affected small holdings adversely. As a result of high input prices, a

large proportion of smallholder farmers in the areas that were studied could not afford to

purchase those inputs. To cope with the situation, the farmers responded by applying

fewer amounts of those inputs or by abandoning the cultivation of Tea, reducing crop

area under Tea cultivation and/or switching from growing Tea to the cultivation of

certain other crops. It can thus be concluded that, high price of inputs are associated with

the use of small amounts of inputs in smallholder farms. This implies that SAP policies

implemented in countries (that always envisage cutting down on subsidies to agriculture)

can essentially create policy environments that are not properly prepared to suit

smallholder farming environments. This is particularly true as has been seen in the case

of small holder cultivation of Tea. From the results it can be deduced that sequencing

and/or preparation of conducive policy environment which can suit smallholder farming

22 commodity case study – Tea; for FAO, Y B Thapa

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systems is very important to. What this implies is that suitable policy evaluation needs to

be done before launching a complete implementation of the SAP and other

macroeconomic policies in agriculture by the state so as to be able to do some policy

adjustments that will suit the smallholder farming environments.

The following interesting observation would help us understand this better. In the

conversations that I had with small growers of Tea it emerged that of the factors they

considered most important in terms of motivating them to expand area under Tea

cultivation; which was currently being used for the cultivation of other crops like Rubber

and Cardamom; was better price realization for green tea leaves. Credit availability was

next in importance. In terms of increasing yields the farmers believed that it was

application of fertilizers that was most important. This is a fact that has been proven

through numerous studies conducted by agronomists which have shown that in many

regions the huge gap between potential and actual yields of tea is explained considerably

by low levels of fertilizer use. The farmers I spoke to said that the revenue-cost squeeze

was the main reason for their low application of fertilizers. Indeed, back of the envelope

calculations for recent years show that fertilizer use is fairly responsive to the farm price

of tea. Better cultivation practices, irrigation also ranked high, next to fertilizers,

indicating scope for targeted extension Programmes and subsidies. Another important

area where smallholders felt particularly vulnerable was in the arena of power tariffs

which they felt were too burdensome and severely limiting their running capital.

Subsidies in power; they felt; would go a long way in relieving them from their distress.

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Another important issue that confront smallholder tea growers in Kerala; according to

Rev Fr George O C D; managing director of Karimani Agro Youth movement; which

was a tea cooperative; was shortage of labour to work in small holder tea estates

primarily because of low wages in comparison to alternative employment available

around these areas. Small estates were according to him also finding it difficult to recruit

the required labour force due to other reasons including reluctance to take on hard

physical work, the spread of education, and migration to cities in pursuit of higher wages

and better living standards..

This was a disadvantage; which according to him; the large estates like KDHP or the

multinational plantation companies did not have to face. Looking ahead, he believed a

shortage of plucking labour was clearly foreseeable. He substantiated his argument by

saying that “at present, such a shortage already exists during the heavy cropping period

throughout the sub-continent both in the estate sector and in smallholdings”.

The resultant un-plucked green leaf implied; according to him; not only a loss of revenue

to the producer but also to the nation, bearing in mind that every unsold kilogram of

black tea (the equivalent of 4.5 kg of unplucked leaf) means a loss of potential foreign

exchange of the order of US$1.80. In this regard many of the small producers of Tea

whom I spoke to were of the opinion that to prevent such a loss, it was advisable to make

selective use of shear harvesters during the rush season as is already being done on an

experimental scale in Sri Lanka. For my question as to what was preventing the

employment of mechanical harvesters they had primarily two reasons one being the

industry's fear and second being the costs involved in employing mechanical methods.

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The views in support of mechanical harvesting were that (1) though widespread

application of shear harvesting would be detrimental to quality, a trade-off has to be

established between quality and allowing the harvest to go unplucked and (2) limited use

of shear harvesters will improve worker output and reduce costs to the management.

Moreover in the South Asian context where male workers have hitherto viewed plucking

as lacking in job enrichment (unlike their counterparts in East Africa); the industry in

Kerala believes that they will now be more inclined to venture into plucking so long as it

involves a combination of quasi-mechanical activity and higher earnings, which the use

of shear entails. There is a widespread belief that the state needs to take positive steps in

encouraging mechanization amongst small holders either through the providing of loans

and subsidies for them to purchase machines or by removing import tariffs and

restrictions on machines that make them costly.

The changes that have happened over recent years have resulted in the emergence of

small-scale cultivation of tea as a force that is going to last. The implications of this

development on the farm income in the Tea growing regions of kerala have been

significant. There are, of course, several inherent problems of small-scale cultivation of

Tea like capital lock up due to long gestation period, capital intensive nature of

production system, processing and marketing problems etc. The solution to these multi-

dimensional problems requires effective state intervention. So where exactly should state

intervention be focused? Most importantly is in the realm of agrarian reforms.23

23 previous and ongoing agrarian reforms have lessened the inequality in access to land, water, credit, knowledge, and markets, and in income distribution; simultaneously increasing agricultural productivity. Such reforms must be adapted to the widest possible extent. Secure access to natural resources encourages sustainable production; it also helps insulate small-holders against displacement from their holdings as a result of encroachment by agricultural or nonagricultural entities. It is relevant for India that the strong

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Intervention could also be focused on providing extension services and subsidies on

irrigation, fertilizers and farm implements and machinery. The importance of this stems

from the facts that we can derive from the results of the study conducted by Kumar and

Mittal (2000) who quantified the proportional contribution of crop area to production.

They observed that while during 1967-1981, the partial contributions to production

growth were: yield 48 per cent, area 21 percent, cropping pattern 20 percent, and

interactions 11 percent; in 1982-96 the corresponding proportions were 57, 8, 22, and 13

percent. The contribution of yield has thus increased as that of area has decreased. Thus

when it comes to our discussion on small holder producers of Tea and how to make them

viable and sustainable and the interventions of the state that would make that possible the

fact is that the focus should remain primarily on productivity and specifically bringing

about growth in total factor productivity on the small holdings; which in turn is

dependant on public investment in infrastructure and in agricultural research and

extension. The impact that public investment by the state can have can be seen from the

example of countries with large number of smallholders like n Kenya and Sri Lanka

where they are supported through dedicated government institutions. In these countries

there are numerous programs and projects, which are sometimes also funded by

multilateral financial institutions such as the World Bank or Asian Development Bank,

that provide all kinds of extension services, training, loans and material. In Kenya, for

example this has resulted in a tremendous growth of smallholder tea production from

barely 2 percent of national production in 1963 to 60 percent in 2005.

economic growth and poverty eradication in the Republic of Korea and in Taiwan were each triggered by effective redistributive agrarian-reform programmes. In India, as elsewhere, agrarian reform shall be most effective when complemented by interventions to strengthen infrastructures and access to health care and other social services, and to agricultural inputs

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Chapter 6: Solutions and strategies

So what solutions have been evolved, suggested and implemented and what strategies

have been developed to overcome the crisis that today confronts the plantation sector in

Kerala. The answer to this question lies in the basic reality; one espoused by everyone I

spoke to during the time I spent in the field; that there is no one singular cause for the

current crisis; rather it is the outcome of an accumulation of factors that have been

collectively responsible for the sad state of affairs; and hence there is no singular solution

but a multiplicity of interventions and reforms that need to be brought about if the sector

has to be brought out of its current glut.

In this regard it is important for us to have a basic feel about how plantation

managements feel about the measures that have been taken until now by the central and

state governments to address the crisis confronting the plantation sector. In this regard the

view held by the management of the KDHP Co Ltd was very similar to the views held by

the managements of other plantations with whom I had correspondence as part of my data

collection; all of whom were of the opinion that the various measures undertaken by the

central and state governments24; though successful in providing temporary relief; did not

constitute long term solutions or brought about any significant change in terms of

24 Measures undertaken by the state and central governments include measures to alleviate the miserable conditions of plantation workers by providing free food grains, medical care, educational assistance and other reliefs through Plantation Relief Committee. Tea estates in the State were exempted from Plantation Tax and Agricultural Income Tax for 2003-04 and 2004-05. The result was that the productivity of workmen in plucking tea leaves increased by 2 Kgs without any escalation of wage rates. Other measures include the freezing of periodic increase in Dearness Allowance from 01/04/2002, offering of waiver of minimum demand charges on electricity for closed estates attempting to reopen and extension of installment facility for payment of arrears of used electricity charges. The Government of India has initiated reforms in the Tea Auction Rules by implementing Tea Marketing Control Order 2003, as a result of which there has been some increase in the price of tea.

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resolving or alleviating the crises. So what according to the managements and others

concerned with the tea plantation sector in South India would constitute an effective long

term strategy to overcome or mitigate to a significant extent the crisis and its harmful

impacts.

Though different people; depending on the positions they held; differed with respect to

what they perceived would be the most effective strategy that could be adopted and what

issue was most important in terms of needing immediate attention, they did agree

universally that the state (both at the centre and at the state level) needed to urgently to

review its competition strategies in relation to tea to ensure that both producer and

consumer interests are addressed and that more than just efficiency outcomes are

considered (this view was more vehemently put to me by representatives of labour unions

and trade union activists and intellectuals than from managements). It was pointed out to

me across the spectrum of individuals that I spoke to that recent decisions related to

competition have; though focused on consumer interests, which is a vital dimension of

the issue, tended to focus the debate on final price and efficiency rather than on other

important concerns, including the impact of market power on equity (how are costs and

benefits shared) and on price stability in the tea industry25. The opinion was also put

across to me that governments need also to consider the impact of market structures on

employment. Individuals I interacted with; particularly amongst tea plantation labour;

were of the opinion that if maximizing efficiency in the sector meant widespread

unemployment due to the replacing of manual labour with technology etc, then

governments have to consider whether alternative employment is available in other

25 especially for producers, price stability is an important factor in determining capacity to invest and innovate rather than pursue low-return, risk-averse behavior

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economic sectors, or whether they can afford the dislocation and poverty that the loss of

an agricultural jobs entails. Such views are inherent not only in the tea plantation sector

but also across the spectrum of Indian agriculture (Sophia Murphy, 2006).

6.0: measures that need to be undertaken across the industry

(1) Need for addressing the issue of large social welfare costs:

First and most important as far as the managements were concerned was the issue of

large social welfare costs being imposed on them as per the provisions of the plantation

labour act of 1951 that was responsible for their large cost of production. According to

numerous scholars and industry insiders an apt solution to the issue posed by large social

welfare provisions; which had imposed a huge burden on the KDHP; and also been a

repetition of what has been happening in tea plantations across Kerala and the country; is

not temporary relief measures as has been undertaken until now but that renewed efforts

be launched at the level of the state and the union governments by the plantation

managements; to gain their help to reduce the burden of social welfare costs that

plantation managements are today confronted with. In this attempt a useful start for the

plantation sector in South India would be the effort that has already been incited by the

industry in north India who have submitted a list of recommendations to the union

government which contain the following demands and provisions namely

(a) The industry has called for the initiation of a pilot project after mapping of the tea

gardens in North Bengal for identifying the facilities already provided by the

garden management and also the facilities under the Central Government’s Rural

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Development Schemes which could be extended to the workers in each of these

gardens. Subsequently, the feasibility of extending this to other plantation areas in

the country would be considered. The implementation of this scheme would

require co-ordination with various Ministries/Departments like Ministry of Rural

Development, Ministry of Human Resource Development (Department of

Elementary Education), Department of Health, Department of Drinking Water

Supply etc. and the concerned State Governments. Also the

(b) Industry has recommended to the government that for construction of dwelling

units, the applicability of the Indira Awas Yojana could be explored. The

objective of the scheme is to help construction/up gradation of dwelling units of

SC/ST and others below the poverty line by providing them with a lump-sum

financial assistance. This is again a centrally sponsored scheme funded on cost

sharing basis between Government of India and State Governments in the ratio of

75:25. The industry has suggested that this scheme could be suitably modified and

applied as additionally to housing efforts by plantation managements.

(c) The Central Government introduced the Accelerated Rural Water Supply

Programme (ARWSP) in 1972-73 to assist the states with 100% grants-in-aid to

implement the scheme in problem villages. After preliminary consultations with

the Ministry of Rural Development, the industry has come with a suggestion that

the scheme for supply of drinking water could be modified into a format where

the industry and state component would be 40:10. The Indian Tea Association has

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made a reference to the recommendations that were given by the Inter Ministerial

Committee on sharing of social cost. According to the Indian tea Association the

tea Industry has made several representations to the Govt. of India for

implementation of the recommendations of Inter Ministerial Committee. The

possibility of mitigating the social sector cost through application of the Welfare

Scheme of the Govt. of India on rural development covering rural housing, water

supply etc has been actively suggested. These schemes are implemented through

the local panchayats and in reality the eligibility criteria do not readily make them

applicable to tea estates where the land is under an agreement of lease by the

concerned State Government; but the industry believes that with suitable

modifications to ITA such schemes can be made wholly applicable to the tea

estates.

While these suggestions have primarily focused on tea plantations in India’s north and the

recommendations too have been made by the plantation sector in North India; they bear

much relevance to even plantations in the rest of the country and primarily in Kerala. One

important need ;that numerous scholars and industry insiders I spoke to were of the

opinion as being of much importance; was the pressing need for the conducting of pilot

studies to see how the recommendations made above can be feasibly applied or enforced

even on south Indian plantations. These experts were of the opinion that it is in the

interests of plantation managements and them only to show to the state and union

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governments how these recommendations are feasible and lobby them to bring them into

force as the government by itself finds itself in no hurry to do so26.

(2) The need for continuous research and streamlining of research services to the sector:

Traditionally issues relating to commodities like Tea have been considered

quintessentially as trade issues and that is precisely how it has been considered for along

time in the thinking of the plantation sector in Kerala. However, it is increasingly being

recognized that any discussion on the preset state of the Tea plantation sector cannot be

de-linked from the state of research. This has gained particular relevance under the

present circumstances where quality requirements in the international tea market

particularly on the export front, have changed significantly and are continuously

changing even today; particularly with the adoption of new sanitary and phyto-sanitary

(SPS) measures like those adopted in the EU, US, Japan and other countries. Though it is

true that substantial investment has been made over the years at the instance of commodity

boards, agricultural universities, ICAR and the private sector to evolve a vibrant innovation

system in case of most of the crops in the plantation sector in India; the nature of innovation

system as well as their outcomes was found varying from one crop to another. The system

has been found to be severely lacking and outmoded in the case of Tea. In this regard the

need for continuous research into the conditions in the tea plantation sector and the issues

confronting it through comprehensive research programs was another serious need that

26 At the same time they were also of the opinion that there is a need to amend the plantation labour act to make it more sensitive and reactive to current realities. In this regard they opined that much use could be made of two earlier studies that have been conducted on the PLA and that amendments can be brought to the PLA legislation on the basis of the recommendations that were made at the conclusion of those studies.

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was expressed by people intimately related to the functioning of the tea plantation

industry in Kerala.

Historically, research activities in tea have been privately managed particularly in two tea

research institutes i.e. Tea Research Association located in Assam for North India and

United Planters' Association of Southern India- Tea Research Foundation in Tamil Nadu

for South India. The Tea Board, with the approval of the Government, provides 49% of

funding for their identified ongoing activities. Research activities in the Tea Research

institutes include basic and applied research in the fields of agronomy, soil, irrigation,

plant protection, biochemistry, engineering and transfer of technology. The lack of much

research happening into what industry insiders in Kerala consider essential issues

confronting the tea plantation sector in kerala was considered to be a serious liability. It

has only been much recently that research has been initiated into Quality up gradation

programs for tea alongside research into raising productivity levels. Many industry

insiders I spoke to were of the opinion that though the Tea Board gives regular feedback

to the tea industry on all technical developments, which come up as technical barriers to

trade and various new research schemes have been launched27; the pace of dissemination

of information gleaned through research that would benefit the plantation sector in terms

of productivity, management etc was too slow and measures need to be implemented to

enhance quality and speed of dissemination of such information. Also industry insiders I

corresponded with were of the opinion that information about quality measures adopted

in countries abroad and data collected from India needed to be scrutinized for scientific

validation through the research institutes and standards need to be circulated on time to 27 Under the 10th Plan, 12 research schemes had been launched in various fields.

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the industry. Simultaneously, feedback information also needs to be provided to various

regulatory authorities about the Indian standards and efforts needed to be made to

harmonize such information to over come the technical barriers in tea trade. All this can

be done only through adequate research and the encouragement and financing of such.

Important arenas in which greater research needed to be done; according to an expert on

plantation crops at the centre for development studies in Trivandrum with whom I

corresponded included (1) Analyzing trends in area under cultivation, production, and

yield of Tea across different parts of the state and size groups of producers (ii) Examining

the role played by price and non-price factors in inducing crop shifts and productivity

changes including land tenure, labour use, labour market conditions and other relevant

factors affecting the cultivation of Tea (iii) Locating the constraints on production

experienced by agricultural holdings (including the small and the marginal holdings) and

the organized estate sector (iv) Exploring the constraints to and the potential for carrying

out inter-cropping/ mixed cropping and engaging in animal husbandry as means for

diversification of income for tea plantations (v) In the context of various measures being

undertaken by the state to rejuvenate the plantation sector like the replanting scheme,

undertaking concurrent evaluations of these initiatives and suggest new avenues of state

intervention (vi) conducting research on the various constraints associated with organic

production of tea including the institutional arrangements for providing needed

technology for production and certification for the produce (vii) conducting research into

post harvest operations to help the sector to move up the value chain and generate

employment (viii) identifying means and ways of effective intervention in grading,

packaging, standardizing and finally (ix) To the extent that initiatives involving

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diversification depends to a great extent on the exiting laws on land utilization examining

the amendments that can be brought to laws to make the plantation sector more vibrant

without damaging environment.

(3) Addressing issue of high level of taxes and PF remittances:

Secondly is the issue pertaining to high levels of taxation and PF remittances that the tea

plantation sector in the state is confronted with. In this regard it is important for us to use

as our benchmark the recommendations that were made by the interministerial committee

on the plantation sector. In its report, though the committee agreed with the issue raised

by UPASI that expenditure on welfare provisions mandated under the PLA was

burdensome for the industry and affecting its competitiveness; it absolutely disagreed

with any proposal to do away with the welfare obligations for labour as stipulated under

the PLA. Rather the committee felt and gave greater importance to the issues of

Agricultural income tax and PF remittances. To this effect the committee recommended

that the rate of Agricultural Income Tax (AIT) was high and should be reduced to 35%

and penal provisions under EPF & MP Act for non-remittance of PF dues, be waived.

The committee also agreed with the suggestions of the ITA that the incidence of AIT

should not exceed the level of corporate tax; that tea be levied sales tax at the rate of 4%

and penalty on arrear provident fund dues waived. While calculating that the welfare cost

per kg of tea produced was Rs.3.96 and Rs.7.17 in South and North India, respectively

the committee recommended that the expenditure of the plantation industry on account of

Plantations Labour Act should be reimbursed to the plantation estates through

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Government funding; the committee calculated that the annual monetary requirement for

doing this would be around Rs.291 crores.

Another issue has been with respect to the Fringe benefit tax. The Fringe Benefit Tax

[FBT] was introduced in the Union Budget 2005-06. It is a tax on the expenditure of the

companies on sales promotion, publicity, medical and other aids provided to employees

as part of work benefits. The rate of tax was set at 30 per cent.

In the budget the definition of fringe benefits in Section 115WB is open-ended. Barring

canteen and transport, it covers any privilege, service, facility or amenity, reimbursement,

contribution to superannuation fund and so on, and extends to a host of expense heads by

slapping a ‘deeming’ provision on them. Thus, any expense towards entertainment,

festival celebrations, gifts, hospitality, use of club facilities, conference, sales promotion,

use of telephone and so forth are all going to form the tax base for applying the

percentages prescribed by the FBT regime. For instance, 50 per cent of expenses towards

employee welfare, and 20 per cent of conveyance, tour and travel, will get taxed as fringe

benefit. Moreover, the provision under FBT constitute an Act within an Act as the

Finance Act proposes a whole set of provisions on FBT, governing the filing of a separate

return, advance tax, notice, best judgment assessment, tax payment, interest for delay,

refund and so on. The imposition of the FBT regime has thus created discontent among

tea plantation managements as the nature of this levy appears to be that of an

‘expenditure tax’ and takes us back to the pre-1998 scenario when such expenditure were

disallowed. Moreover, according to the provisions of the tax any company that was not

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liable to tax hitherto — such as foreign or loss-making corporates — will also have to

fork out FBT.

The industry has constantly been of the opinion; and it has the backing of numerous

experts on this that some of the provisions under the FBT regime seriously need a re-

look. The industry has questioned the rationale of making contribution made by the

employer to an approved superannuation fund as taxable under FBT. They have argued

that superannuation fund is a pension fund framed by companies to provide retirement

benefits to their employees. The rationale of such a tax in a country where there is no

governmental old age security mechanism is questionable. Moreover, medical

reimbursement, which was exempt earlier, to the extent of Rs 15,000, is now taxable

under FBT. The industry feels that this is neither fair nor warranted. Further, the

employer-employee relationship between a tea company and a broker/buyer to whom it

distributes free samples is not at all convincing. The industry feels that these are genuine

business expenditure and should not attract FBT.

Another issue has been with respect to VAT (value added tax).With the introduction of

the VAT system in the country, it was expected that there would be uniformity in the tax

rate for all commodities. However, the expectations were belied as it was noted that there

are different rates of VAT followed in different State, not to speak of the States that have

not implemented the VAT system. The case in point is 1% VAT rate for teas sold through

auction centers in Assam (Guwahati auctions) and Kolkata (Kolkata, Jalpaiguri &

Siliguri) whereas in Kerala (Cochin) and Tamil Nadu (Coonoor & Coimbatore) the VAT

rate for auction sale is 4%. In Tamil Nadu, State Government sponsored TEASERVE

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auction, the rates have been fixed at 1%. Thus, it is clear that States that have joined the

VAT system are not following a uniform tax structure, thereby scuttling the fundamental

principles of VAT. One effort towards solving some of the problems facing the industry

would be to set this anomaly right through abolition of CST with immediate effect and

making VAT throughout the country uniform. A recommendation towards the same has

been the demand for a 1% VAT rate for teas sold through all auction centers in the

country.

(4) Enhance efforts aimed at improving the quality of Indian tea:

one of the factors responsible for the drop in demand for Indian tea in some of its

formerly biggest markets abroad has been the fall in the quality of Indian tea; a problem

that gained particularly in importance in the period following the collapse of the soviet

union and has since continued with the rising number of BLF’s; most of whom do not

have any form of quality controls in place to govern the quality of their produce. Experts

and industry insiders have always been of the opinion that measures need to be

undertaken aimed at improving both the quality of Indian tea that is produced and quality

perceptions amongst consumers in major markets about the tea that is produced and

exported from India; if we in any way wanted to recapture lost ground in those markets

and dominate them as we in many cases did before the decline set in. Though much

thought was not given to this issue for many years the situation has slowly started

changing in recent years; particularly due to the efforts of the Tea Board. In this regard

some of the schemes that I was made aware of by representatives of the Tea board with

whom I corresponded were (1) the scheme by the tea board of India to network all the

TRF centers in South India by installing V-SATS (a process that has been completed)

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that will facilitate generation of data on the field aspects of tea cultivation at the level of

the garden. Subsequently the Tea board aims to facilitate the setting up a data bank at

each of the advisory centers (a process that is currently under progress). The data bank

will be utilized for developing future schemes at the micro level on need basis for the

benefit of the tea industry in South India. The outlay for this scheme has been pegged at

Rs.113.81 lakhs.

(5) Need for the state to bring about reforms in existing programs for the Tea plantation

sector: an example being the SPTF

According to many representatives of the plantation managements with whom I

corresponded one of the important measures that they believed the government needed to

do on a fast basis was to correct the shortcomings of the SPTF. As per the estimate of

UPASI Tea Research Foundation, the cost of replanting and its maintenance in the first

couple of years under South Indian conditions could range from Rs 2.80 lakh to Rs 3.06

lakh, depending upon labour wages in the respective States, while the cost of

rejuvenation pruning of the fields with 25% vacancy in South India ranges from Rs 0.75

lakh to Rs 0.82 lakh per hectare. Not only is the cost involved massive but also the pay

back period of the former will extend up to the twelfth year while that of the latter, it may

take three years. Given the magnitude of the cost involved and also the resultant crop loss

to the tea plantations in the initial phases of the program, managements believe that it

may not be worthwhile if there is no adequate incentive to the growers by way of

financial support.

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Managements contend that one of the significant content of the SPTF scheme initially,

had been a Government subsidy of 40% for those who opted for the scheme. However,

the subsidy of 40% was pruned down to 25%. They are of the view that at present a

similar subsidy is already available under the Tea Plantation Development Scheme of the

Tea Board; a scheme for which there are not many takers as it is not an economically

viable proposition. Thus an enhancement of subsidy under the SPTF should be

contemplated they say. They say the scheme should be revised such that the subsidy

becomes 40% under the SPTF as originally envisaged especially for South India so that

the tea plantations could benefit from the program. This they felt was absolutely

important in a context where the South Indian Tea sector has been incurring losses for the

past years continuously and was in no position to generate the funds for investments that

are essential to make it competitive with the other global producers who are able to

produce better quality tea at lower cost. The other global players have younger

plantations of high yielding clones and modern factories coupled with the added

advantage of pest and disease free fields due to their geographical location. Therefore, it

is essential to support the Tea Producers with a substantial amount of the capital until the

plants reached back to the point of economic viability.

(6) Addressing issues pertaining to exports and the need for cooperation:

In a prevailing situation where primary producing countries in the South have not

benefited from the process of globalization 28 the situation has been further complicated

28 As UNCTAD rightly pointed out, the secular decline and instability in world commodity prices and resulting terms of trade losses have reduced the import capacity of many developing countries and contributed to increased poverty and indebtedness.

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by the emergence of increasingly concentrated market structures at the international level

and stringent standards and requirements in developed country markets. In a situation

where value retention by Tea plantations in India have been decreasing there is therefore

a need for giving a renewed impetus to the “commodity problematique” while at the same

time exploiting avenues for greater south-south cooperation. In this context some of the

issues that need greater exploration include

(1) Trends and Patterns in Exports, Export Competitiveness and Prices: with

the determinants and patterns of exports changing substantially over the

recent past and the emergence of widening differences between value and

volume29 there is greater need to study the behavior of international tea

price movements and the influence of international integration on the

price stability of Tea.

(2) Influence of WTO and Regional Trading Arrangements (RTAs): The

implications of the WTO Agreement on Agriculture have been fairly well

analyzed in case of food crops, particularly from the viewpoint of

tariffication and the removal of Quantitaive Restrictions. However, such

analysis needs to be extended to tea. In the case of tea, apart from issues

relating to aggregate measures of support and tariffication, issues relating

to market access and the implications of sanitary and phyto-sanitary

measures on market access also need detailed inquiries. Studies on such

29 in many cases both the value and volumes of exports being maintained, but exports are being destined for stagnant markets and in other cases, though there is a strong supply side, exports are diverted away from highly sought after destinations such as the OECD to regional trading countries, which is the result of reduced tariffs and other barriers.

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issues assume significance both in the context of the on going

negotiations on the Agreement on Agriculture under WTO and regional

trading arrangements.

(3) Trade facilitation issues: There are considerable overlapping issues

between trade facilitation in tea and those which come under the sanitary

and phyto-sanitary measures (SPS). Added to this is the fact that in the

Indian context, there are more complex and prohibitive trade facilitation

issues at the domestic level, than what the exports face abroad. This

includes clumsy and complex documentation systems etc that impede

interstate transport of produce and so on. On the other hand, there are

issues to be cleared under the sanitary certification also. Unless there is

perfect coordination among these, coupled with the overall port

efficiency, this is bound to impose costs which could have been avoided

on the industry. Another factor relates to the sharing of information. It is

considered that most of the issues related to SPS and trade facilitation are

due to ‘information asymmetry’. To the extent that tea plantation sector is

an important source of output, employment and export earning in more

than one developing country, issues related to this sector assume

importance in most of the bilateral and multilateral cooperation

agreements like ASEAN, IBSA and others. The very fact that these

countries vary significantly in terms of their capability set with respect to

commodity production and value addition offers immense scope for

sharing technology and best practices in the spirit of south-south

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cooperation and collective actions to avoid wasteful competition that is

detrimental to all concerned.

(7) Addressing Issues pertaining to labour and rethinking labour as critical in overcoming the

crisis

Some of the means by which the tea plantation sector in Kerala has responded to the

crisis has been through lock outs; letting go of labourers; not paying wages; cutting down

on wages and the providing of labour welfare etc all of which have significantly

worsened the state of labour in the tea plantation sector. The managements tend to blame

the high cost of labour and the costs incurred in providing of labour welfare to be the

reasons for aggravating the crisis particularly in a situation where the productivity of

plantations continues to be low and so do the profits. They say that other than the

methods that they have adopted there are no alternatives. But this is not true says Mr.

Prashant IAS; District sub-collector and managing director of the Priyadarshini plantation

in Kerala’s Wyanad district which has set a precedent and earned accolades for pursuing

a revolutionary and different approach to running a tea plantation; and in the process

bringing it from a state where it was continuously making losses to a state where it has

over the past three years been continuously raking in profits. The revolutionary scheme

according to him is not revolutionary at all. Rather it is clearly depictive of what a labour

friendly approach in combination with state support can do. What was done was this. Set

up as the Mananthvady tribal plantation corporation Ltd the estate is a joint venture

between the central and state governments for the rehabilitation of freed bonded tribal

families. The estate has 5 major units; 190 permanent employees and around 400 workers

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from different tribal communities. For years the estate had been in deep financial trouble.

A few years ago the state in collaboration with the National Rural Health mission

implemented on the estate an awareness campaign on labour health issues primarily

aimed at addressing nutritional deficiencies and alcohol abuse through nutritional food

programmes that provided them with rice, pulses etc. in the years since there has been

steady decline in worker absenteeism, improvement in worker health; greater

productivity and profits. This program goes far in showing us how emphasis on worker

health can help bring about dramatic increases in productivity. This goes contrary to the

common practice in the tea industry where tea industry managements while readily

perceiving a direct linkage between the nutrition and productivity of tea bushes, exhibit a

relative lack of appreciation of the input-output relationship in respect of the industry's

major asset -- labour. It goes on to show and substantiate the fact that there is a

convergence between the health and welfare of workers and the interests of management.

Better health leads to higher labour productivity, which in turn justifies viewing health

and welfare outlays as investment rather than consumption expenditure. It has been

observed that two categories of illnesses -- respiratory and water borne -- account for 60-

70 per cent of the diseases prevalent among tea workers in the sub-continent. These

diseases are also the major contributors to absenteeism, sickness benefit costs and

expenditure on drugs on estates. By and large, these illnesses are controllable through

ensuring a protected water supply, proper disposal of human and animal waste, better

personal hygiene and improved living conditions. By placing the emphasis on a

preventive rather than a curative approach, not only will there be a reduction in costs to

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management but, more importantly, there will be a lower incidence of illness, with its

attendant positive impact on worker productivity.

Enhancing the health and welfare of workers thus calls for a good deal of coordination

between the operational and welfare departments, besides close interaction with the trade

unions. It also follows that, in order to maintain the major plantation asset at an optimum

productivity level, the factors influencing it, such as the workers' life at home, their life in

the community and their relationships at the workplace must be kept in good order.

Plantation managements are today; in most cases; already incurring welfare expenditure

for labour, although in varying degrees. If, through operational research and other means,

such amounts are better spent and made more cost-effective, there will be both a

quantitative and qualitative improvement in the returns on these investments and hence

an augmentation in worker productivity. For this to happen, it is necessary to integrate

welfare into the normal functioning of the estate. Most important of all is the need for the

state to play a positive and active role. Another is the need for improved labour incentive

schemes

In the present situation throughout South Asia, the wage structure and incentive schemes

have to a large extent become an inflexible element. Many of the women workers on the

tea estates to whom I spoke to during my data collection said that their calculations at the

end of the day show that the incentives they get from extra plucking that they engaged in

just did not justify their extra effort. This was uniform on estates throughout Kerala. In

this regard I feel that plantations in Kerala need to bring about a complete revamp of their

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incentives systems to augment productivity particularly among women pluckers. A useful

reference for them in this regard can be the incentives system employed in plantations in

Tamilnadu where decisions are made through collective bargaining between workers

(through their unions) and the plantation managements.

A brief description of the experience of a productivity incentive scheme for tea pluckers

in the State of Tamil may be useful at this juncture to serve as a guide for similar schemes

that can be applied in tea plantations in Kerala. But before we go into a case study of the

scheme that came about in Tamilnadu it is important for us to analyze two key issues that

are important with respect to labour and its impact on productivity namely

First, how is the gain in productivity measured?

A simple approach is as follows and is the common methodology applied

Calculate the workdays (and hence, the wages, suitably adjusted for the associated

welfare costs, both capital and revenue) assuming labour productivity at the previous

level. Deduct from them the actual workdays (and the actual wages, again adjusted for

the associated welfare costs). The difference is taken to be the gain in productivity.

As is well known, not all the leaf available on the bush is harvested. Under the incentive

scheme, there is a better chance that the plucker will harvest the leaf more fully. In other

words, the yield will include leaf which would ordinarily not have been plucked. For a

true valuation of productivity gain, it would be necessary to add the value of the extra

leaf harvested. As estimation of the extra leaf is largely a matter of conjecture, this is not

taken into account.

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Second, what is a fair share of productivity gain for labour? This again is a matter of

opinion and the share accorded to workers in practice depends on the relative bargaining

strengths of management and labour. Several productivity agreements have lately been

concluded in the region (in manufacturing industries) on the basis of labour getting a

sizeable share of the gains from productivity improvement, sometimes as much as 60 per

cent. That figure seems to be a fair limit.

Case study of labour incentive scheme prevalent in Tamilnadu:

It has been the established practice in the plantation sector in Tamil Nadu for triennial

industry-wide wage agreements to be negotiated between the authorized representatives

of management and workers, and for the understanding arrived at to be recognized as a

formal settlement by the Labour Department of the state government.

Until the 1980s, tea pluckers in the state were paid a fixed daily wage plus a cost-of-

living allowance (revised every quarter, based on published index numbers). In return,

they had to harvest a minimum quantity of green leaf per day. For any excess quantity

harvested above the norm, they were paid a plucking incentive. This was a constant

amount per kilogram of leaf but, in due course, the system was refined by having two

incentive slabs (categories).

Despite this the general feeling among management was that the incentive scheme was

defective in that the minimum quantity was the same in both the high and lean cropping

months, and that the rate of incentive was not attractive to the worker; a feeling that was

confirmed from surveys and studies that were conducted on labour. Accordingly, after

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collecting monthly data, going back ten years, from over 100 estates, in regard to yields

and plucking averages, a scheme was formulated in 1985 by the association of planters

and taken up for internal consideration among its members. The initial response from the

practicing planters was that they were not ready for such a scheme and that it was

premature to place it before the trade unions as part of the negotiating package. Over the

next three years, the scheme was discussed by management with a view to reaching

agreement. Several of them had reservations on the grounds that management who

adopted long plucking intervals and were thus able to achieve higher plucking averages,

would stand to lose by the scheme. In the light of comments and suggestions, the

minimum quantity of leaf to be plucked as well as the incentive slabs and rates were

modified, and a compromise was reached within the management camp, it being evident

from the calculations that all managements would stand to gain from the proposed

incentive system.

During that period, parallel efforts were also under way to explain the scheme to some of

the influential trade union leaders and to seek their support in furtherance of a measure

which would enhance the earnings of their members. Formal bipartite discussions in this

regard were held during 1989 and, after several rounds of negotiations, an agreement was

reached in 1990 which was duly endorsed by the Government as being fair and equitable.

The essence of the scheme is that tea estates are classified into four categories depending

on the green leaf yield for the month. The base output to be plucked per day and the

incentive slabs and rates are different for the four classes. The same scheme is applicable

both to hand plucking and to plucking with shears, thereby securing acceptance of the use

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of tools without payment of a differential wage. The arrangement which took effect from

1 January 1990 had the incentive structure shown in the following table30

Table 6.0.A Productivity incentive scheme for tea pluckers, Tamil Nadu, India

Yield of green leaf per hectare per month (kg)

Base output

per day (kg)

Slab (kg)

Incentive rate (Indian rupees per kg)

1st 2nd 1st slab 2nd slab

1-40 12 13-15

16+ 0.26 0.31

401-800 14 15-20

21+ 0.26 0.31

01-1 600 15 16-30

31+ 0.26 0.31

1 600+ 16 17-35

36+ 0.26 0.31

Source: labour department. Government of Tamilnadu

30 The scheme comprised of the following aspects: (1) The green leaf yield was to be worked out by dividing the field weight of green leaf plucked for the month for the estate by the total area of mature tea; the area would include the pruned/skiffed area as well as the area under "tipping". (2) Green leaf yield per hectare was to be rounded off to the nearest kilogram. (3) The base output was not the task as such but only the indicator above which the incentives wage was to be calculated; all pluckers were expected to work normally and diligently for a full day and harvest the maximum output. (4) On the first working day of each month, the management was to display on the muster notice boards an indication of the probable Base Output applicable for the month, having regard to the yield of the same month in the previous year and the weather conditions, favourable or otherwise. The management could alter the indicated base output at any time during the course of the month or at the close of the month, to take account of changes in the cropping pattern. (5) For calculating the month's yield, any crop plucked on holidays was to be excluded. (6) The operation of the scheme was to be reviewed after 12 months for any anomalies in its implementation and working, so that any necessary correction could be made. (7) A joint implementation committee comprising three representatives each of the employers and workers was to be appointed in all districts to oversee the implementation of the scheme and to examine workers' grievances concerning the correctness of the yield or other parameters.

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On renegotiating the scheme three years later, a third incentive slab was incorporated

apart and there was an across-the-board improvement in the incentive rates. The revised

structure, which took effect from 1 January 1993, is shown in the following table.

Table 6.0.B

Yield of green leaf per hectare per

month (kg)

Base output

per day (kg)

Slab (kg)

Incentive rate (Indian rupees

per kg)

1st 2nd 3rd1st

slab2nd slab

3rd

slab

1-400 1213-15

16-30

31+ 0.27 0.35 0.40

401-800 1415-20

21-40

41+ 0.27 0.35 0.40

801-1 600 1516-30

31-50

51+ 0.27 0.35 0.40

1 600+ 1617-35

36-60

61+ 0.27 0.35 0.40

Source: labour department. Government of Tamilnadu

An evaluation of the scheme indicates that it has been implemented with fairness and

transparency and, in the process, has gained credibility in the eyes of the trade unions.

The existence of a grievance redressal process has added to the successful working of the

scheme. Both management and workers have gained, albeit to a different extent.

According to one estimate -- and this comes from a highly productive and well-managed

group -- a combination of programmed plucking based on leaf expansion time (LET),

selective use of shear harvesters and the adoption of the new incentive system has led to a

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36 per cent improvement in the plucking average since the scheme has been in operation.

In terms of incentive earnings, the benefit to pluckers has gone up by as much as 25 per

cent.

6.1: measures needed with respect to smallholders

(1) Need for the state to encourage small holdings

It was a view expressed across the spectrum of small holder tea producers I met that the

government should take an active role in encouraging them and ensuring their survival in

the face of the current crisis confronting the tea growing regions. Such government

intervention; according to representatives of small holdings in Tea; could be multifold.

For one by providing the small holders with different types of incentives for raising their

yield rate, the government can ensure that the overall productivity of the industry can be

raised. An alternative measure for improving the productivity of the Indian tea industry,

particularly that of the small holdings would be for the government to play a facilitative

role in amalgamating the small firms (at least operationally, if not in terms of ownership)

into cooperatives; a model that has been shown to have a high rate of success and greater

tolerance Many industry insiders with involvement in small holder production of tea were

of the opinion that in the presence of economies of scale, as observed in this industry,

such an amalgamation may result in a higher level of efficiency of these firms, since the

favorable cost conditions which are enjoyed by the large firms, could then be availed of

by the amalgamated ones.

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Many of the small producers I interacted with in the field believed that the state in India

could learn valuable lessons from the Kenyan model of small holder cultivation and the

manner in which small producers in Kenya were facilitated by the state there. For one

many of them were of the opinion that what the government in India needs to do first and

primarily was to seriously conduct studies aimed at differentiating small holder tea

cultivators into varying groups; rather than consider them as a uniform whole along with

small holder cultivators of all cash crops and among themselves; as has been the manner

in which policies and programs have been formulated for them; which they believed they

were not. This is a fact that has been acknowledged even in numerous international

forums that have openly stated that diversity is an important characteristic of small holder

cultivation be it in tea or in other crops and the real challenge while making policy in

such a sector is to address this issue of diversity. Returning to the issue at hand a suitable

model for differentiation according to the small holder tea cultivators I spoke to was

differentiation on the basis of acreage within the small holder sector itself. Such a

measure of differentiation within the sector; many of those I spoke to believed; would

facilitate the more efficient disbursement of loans etc to farmers.

There was also among these small producers of tea a comprehensive demand for the state

to increase its investment into agriculture and particularly into measures aimed at

empowering small holder cultivation; applicable in this context to small holder

cultivation of Tea. Following analysis of household- level data-sets on costs of farm

production for the 1980s and 1990s numerous scholars have come to the conclusion that

small-holder farmers are perhaps the more-productive form of farm organization. Their

vital contribution stems primarily from their responsiveness to public policies and to

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national investments in agricultural research and development and in public

infrastructure. Thus, the current declines in public investment in these critical public

goods raises much concern for future agricultural growth calling for the need for strong

and urgent needs for policy interventions to reverse these declining trends of public

investment in agriculture and its infrastructures.

The need for serious and much more focused and in-depth government interventions

aimed at facilitating the survival of small holder tea producers in the face of the onslaught

of the present crisis was considered to be a necessity by almost everybody I spoke to.

This need has gained particular importance in the context where with the emergence of

small-scale tea cultivation, the nature of technological requirement has changed

tremendously. The demand for efficient plant type, improved crop management practices

and post-harvest technology have in recent years grown substantially calling for greater

concerted efforts in terms of private-public interface on R&D including the promotion of

delivery system. The demand has risen that the state should invest more on effective

demand-driven R&D in the Tea plantation sector. In a context where a limitation exists

that for Tea, processing is time-demanding and urgent; ,with the harvest needing to be

processed into marketable forms within a specified time to preserve the quality, there is a

particular need for the establishment of processing facilities including marketing

networks and infrastructure to cater particularly to the requirements of the small

producers who lack the kind of facilities available to established large players in the

sector. Only the state can make such kinds of investments while at the same time

ensuring that these units are centrally located around the large number of small plantation

units and setting up structures for them to be managed by the stakeholder groups. Since

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the processing units are capital as well as skill intensive, it is inaccessible to the small

farmers under normal circumstances and this is where the roe of the state comes in. In

this context the cluster village approach and the farmers’ cooperative management

system could be a viable proposition (Baruah, Saikia and Deka).

(2) Encouraging Industry partnerships between established big players and small

holdings/producers/cooperatives

Alongside that established players too can step in and forge partnerships with small

growers that will benefit both of them. A classic example of this was the interrelationship

that I observed between the KDHP and numerous small holder tea producers in Kerala’s

Idduki district who were engaged in a symbiotic relationship. In a situation where small

holders were finding it economically unviable to continue with running their holdings due

to low prices of tea (were ceasing plucking operations and watching in dismay as weeds

and pests invaded their small plots to quote Johnson Varghese, a small grower of tea)

companies like Kannan Devan stepped forward and played a dominant role in revitalizing

the small growers by building a long-term relationship with the small growers;

relationships that have yielded significant results: profits for the farmer and the company.

The large company has helped the small growers by providing them with high-yielding

clones, fertilizer and pesticides and most importantly the technology and wherewithal to

cultivate and harvest the tea leaves in a scientific manner while the small growers have

ensured for the company a steady supply of green leaves at highly competitive prices.

Available data shows that such a model has been applied; and applied successfully at

that; in a large scale in Kenya as can be seen from the following case study.

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Initially some 60% of Kenyan tea was grown by smallholders, whose output was almost

40% lower than large estate yields, largely due to the high cost of farm inputs, poor

husbandry practices and low farmer morale. Adoption of good practices to improve yield

was slow as the main communication route to farmers was via the Kenyan Tea

Development Agency (KTDA), where each ‘field officer’ dealt with at least 1,000

farmers. Unilever developed a program to work with KTDA to transform its outreach to

smallholders by developing farmer field schools, which would help smallholders achieve

better financial returns as a result. The program was managed and funded in collaboration

between Unilever, KTDA and the UK Department for International Development

(DFID).31The first farmer field school was started in August 2006, with another 20

launched over 2007.

(3)Need for weather insurance for small holder producers of Tea.

Continuing on the vein of small holdings in the tea plantation sector; one of the serious

discussions doing the rounds among managements of small holdings that I visited; whose

perception of their susceptibility to inclement weather conditions was high; was for the

need for a weather insurance programs on the likes of that being promoted by BASIX in

India. In this regard it would be relevant to get an idea of the BASIX insurance program

to get a comprehensive idea about how such insurance works. BASIX Index-based

weather insurance products are contingent claims contracts for which payouts are

31 By virtue of the kind of assistance that the large company provides the small holder and the system of oversight of produce quality that has been worked out the quality issues associated with such kind of relationships ; that I had mentioned as a liability earlier have largely been ironed out.

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determined by an objective weather parameter (such as rainfall, temperature, or soil

moisture) that is highly correlated with farm-level yields or revenue outcomes. For

example rainfall-indexed insurance is well suited to agricultural production in regions

where widespread crop losses are caused by drought or excess rainfall; a classic example

being tea producing regions. In such regions, rainfall can be used as a good proxy for the

actual losses incurred by farmers. In other areas, farm incomes can be indexed on

temperature or rainfall indicators for production sensitive to heat or frost, such as

horticulture. In such a system the underlying index used for an index insurance product

are correlated with yield or revenue outcomes for farms across a large geographic area.

“In addition, the index must satisfy a number of additional properties that affect the

degree of confidence or trust that market participants have that the index is believable,

reliable, and void of human manipulation. The properties for a suitable index are that the

random variable being measured is (1) observable and easily measured, (2) objective, (3)

transparent, (4) independently verifiable, (5) able to be reported in a timely manner and

(6) stable and sustainable over time with good historical data. Publicly available

measures of weather variables generally satisfy these properties. Index-based insurance

is less susceptible to some of the problems intrinsic in traditional multi-peril crop

insurance. Because payouts for indexed contracts are automatically triggered once the

weather parameter reaches a pre-specified level, the insured farmers receive timely

payouts” (Ornsaran, World Bank)

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The automatic trigger reduces administrative costs for the insurer by eliminating the

need for tedious field-level damage assessment. Because administrative costs are lower,

premiums are relatively low and products are more affordable to farmers .The objective

and exogenous nature of the weather index prevents “adverse selection” (that is, farmers

know more about their risks than the insurer, leading the low-risk farmers to opt out and

leaving the insurer with only bad risks) and “moral hazards” (that is, farmers’ behaviors

can influence the extent of damage that qualifies for insurance payouts). Indexed

products also facilitate risk transfer to the international markets, because international

reinsurers are likely to provide better terms when the insurance is based on measurable

weather events and not farm-level losses. The advantages of such a system are (1)

Reduced moral hazard: The indemnity does not depend on the individual producer’s

realized yield (2) Reduced adverse selection: The indemnity is based on widely available

information, so there are few informational asymmetries to be exploited (3) Lower

administrative costs: Index-based insurance does not require underwriting and

inspections of individual farms (4) Standardized and transparent structure: Insurer could

apply uniform structure of contracts (5) Availability and negotiability: Standardized and

transparent, index based insurance can be traded in secondary markets (6) Reinsurance

function: Index insurance can be used to more easily transfer the risk of widespread

correlated agricultural production losses and (7) Versatility: Index products can be easily

bundled with other financial services, facilitating basis risk management.

What we have been able to learn from this chapter on solutions and strategies to

overcome the crisis confronting the tea plantation sector is that (1) nothing is possible

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without the state. The current situation prevailing today calls for the active intervention of

the state. Whether it is with respect to lobbying internationally and domestically to

include the tea industry in India under the special safeguard mechanism provision of the

WTO; to increasing subsidies to the tea plantation sector; to creating favorable

legislations and schemes or extending currently existing schemes to benefit all players in

the tea plantation sector ; to providing institutional support in terms of creating research

facilities and collecting and disseminating data; providing market extension services;

providing support in terms of establishing institutions like cooperatives or in terms of

taking over and managing plantations that have shut down or are running in

insurmountable loss; the government (both at the level of the centre and the state) has a

vital role to play; as a leader or as a facilitator depending upon the case (2) secondly is

the need for plantations themselves to evolve innovative strategies of labour

management, plantation management and cooperation between large holders and small

holdings so as to balance out their advantages and disadvantages and adopt the mode of

operation that is most efficient and cost effective and sustainable in terms of profits and

most importantly quality.

It was pointed out to me by most of the experts that I spoke to that measures targeting the

plantation sector would only serve a temporary stop-gap purpose of buying time and

staving off the final collapse for a few more years even as the industry underwent a shift

towards a model of production that is based around small holdings and cooperatives – a

transition; they believed; it could take voluntarily in the next few years; or be forced to

take involuntarily once matters reached a head. The consequences in waiting for the end

to take action would be severe was their opinion.

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Thus state investment in India through departments like the Tea Board and the commerce

ministry needs to be sufficiently enhanced to make small holdings viable and sustainable

in the long run.

Small holders with whom I corresponded during the course of my field visits told me that

the price paid by the agents of private processing factories (Bought Leaf Factory’s, BLF)

to the small growers was based on the auction price fetched by some ‘representative’

factories. However, there on the public domain or in the knowhow of the small holders

there was no formal list of these ‘representative’ factories and there were no disclosures

made on how the green tea price for the period was arrived at. This highlighted the fact

that small growers do not have any control over green leaf prices, and the price

fluctuation in the auctions directly and immediately affects the price realized by them.

Most of the BLFs sell their first-grade quality tea to the direct market at a higher price

and sell the poorer quality tea at the auctions. As a result the factory only pays the

average auction price for all the tea leaf procured from the smallholders which works to

their disadvantage. The state needs to intervene in this scenario to bring in fairness and

transparency in the system.

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Conclusion:

A lot of issues pertaining to various aspects of the plantation sector in Kerala and how

they have either contributed to or been the consequence of the crisis in the tea plantation

sector in Kerala have been discussed in the preceding chapters. Here are some of the

important conclusions that I have arrived at through this study on the crisis in the tea

plantation sector in Kerala.

First and foremost is the fact that the tea plantation sector in kerala continues to reel

under the impact of the crisis that has been plaguing the tea industry in India over the past

many years. The causes are many; from low international prices due to oversupply in the

international markets to fall in demand and loss of numerous markets due to competition

from other producing countries to other factors; both internal and external; Tea industry

specific and pertaining to Indian agriculture in general; that have been responsible.

Just as has happened in other tea growing states like Assam and West Bengal; numerous

plantations in Kerala have been forced to shut down or are running in massive losses;

unable to pay their various liabilities to their employees or to the state while continuing

with running the estates and engaging in production. They face the threat of being liable

to close down if the situation prevails and conditions do not improve.

Today the price of tea continues to be volatile and dependent on weather conditions and

numerous other factors both in India and globally. With expected stagnation in world

production and the fundamental oversupply in the world market likely to persist prices

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are likely to remain depressed and infact further weaken. Thus in order to become

globally competitive for expanding exports, the domestic Tea industry; whose part the tea

plantation sector is; needs to ensure that their cost of production is considerably reduced

without compromising on quality of tea.

Large multinationals that previously had been an important element of Kerala’s

plantation sector have to a great extent withdrawn from it to escape the costs that

accompany running the large plantations; which had truly become a drain on their profits.

Realizing that in the tea supply chain it is the downstream stages such as blending,

packing and marketing that are the most profitable while incurring the least cost; these

multinationals have chosen to focus on these aspects of the industry leaving the

plantations to run themselves and only buying their produce from them. The

multinationals like TATA and Unilever buy the produce of the plantations at fixed prices;

process, blend, pack and market the tea and sell it for profits while not having to worry

about social welfare costs, replanting and rejuvenation costs etc.

Having no source of large capital necessary for overcoming the crisis; justifiably or

unjustifiably; most of the sick plantations have reacted by undertaking measures that

have, in most cases, had the greatest negative impact on labour; which they blame for the

crisis in terms of the costs that it imposes. In this regard what my study shows is that

while labour cost (inclusive of wages and social welfare obligations of large plantations)

is one of the factors responsible for Indian tea being less competitive on the international

market due to the fact that it is responsible to a certain degree for the high cost of

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production that makes it impossible for Indian companies to market tea internationally at

competitive prices like their competitors from Kenya etc; the fact also remains that there

are other more pressing and fundamental problems; like the low quality of tea produced

in India and most importantly the institution of the plantation itself which today seems to

have outlived its purpose and finds itself unable to compete with small producers in other

competing countries who have gone on to usurp India’s traditional foreign markets.

Designed for the kind of socio-economic and political realities characteristic of a colonial

environment the plantation as a system of production today finds itself too inflexible in

adapting to the rapid market fluctuations characteristic of today’ s international trade. The

advantage of scale economies plantations once offered today finds itself a less better

alternative to newer emergent structures like bought leaf factories etc that have proven to

be more economical and adaptive. Also plantation suffer from the disadvantage that

alongside their requiring huge volume of investments their large size often results in

misallocation of resources and mismanagement and prevents diversification while at the

same time showing less responsiveness to yield enhancement measures.

Though in chapter 5 I have suggested numerous measures that industry insiders and other

experts as well as workers and trade union activists to name a few believe can help stave

off the inevitable for a bit longer the fact remains that the time has come for a

reorganization of the production structure of Tea in India that banks upon large

plantations to produce the bulk of Indian tea production even though in percentage terms

they constitute only a small segment of the total number of Tea producers in India. There

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is today a need for a radical shift towards a production structure that gives greater

prominence to small holders and cooperatives as the spearheads of Tea production in

India.

Though this process has already been ongoing for many years now the pace of the shift

needs to be accelerated and a more important role needs to be played by the state. In a

situation where small-holders are under continuous pressure to increase production from

their limited land resource firstly there is a need for the state to implement and ensure

effective agrarian and land reforms. It has been seen that lack of title deeds for cultivable

land for tea cultivation is a major concern for the small tea segment in kerala. The

absence of title deeds prevents small-scale cultivators from registering with the Tea

Board thereby failing to avail themselves of subsidies and financial assistance under

various schemes of the Tea Board and other financial institutions in the state.

Secondly there is a need for the state and central government to implement adequate

policies to provide subsidies and assistance to the small holder cultivators over and above

the token subsidies that are provided now that most small holder cultivators feel are not

enough. This entails the need for creating a special purpose tea fund intended for

providing financial assistance and loans exclusively for small growers so that they can

buy land and set up tea estates. The loans should be given at a nominal rate of interest

and should come with a grace period attached. Public sector banks should be encouraged

to invest in the small holder sector; something which is not happening today due to high

risk and default perceptions.

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Since small holders do not have their own factories and have to rely on bought leaf

factories the state also needs to ensure a system of transparency and fairness in the

interrelationships between them. Where adequate facilities do not exist the state needs to

make investments in setting them up or play a facilitative role in organizing the small

holders into cooperatives who run their own factories that process their produced tea

leaves. In doing so the state must also ensure to give the cooperatives true autonomy in

running their affairs; implying that it should free them even from the threat of coming

under the bureaucratic control of the state and the stagnation that could result. The role of

middlemen and leaf agents need to be studied and adequate safeguards need to be brought

in to ensure that they do not swindle or exploit the small producers. In this regard the

creation of the cooperative comes in handy.

Adequate mechanisms need to be brought in by the state to ensure the quality of produce

produced by small holders and the tea produced by bought leaf factories. This can be

achieved by setting guidelines and standards for small holders only if they adhere to

which will they be eligible for subsidies and assistance by the state or their produce to be

processed by the bought leaf or cooperative factories. Such a system will ensure stringent

quality controls voluntarily at the level of the small holder producer itself and if

implemented and monitored by the state properly can bring about over all improvements

in quality of tea output in the country.

Also state support is integral to allow small holder producers to diversify among on- farm

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and off-farm activities and thereby enhance sustainability and productivity. The income

from off-farm and non-farm employment will assist the small-farm households to become

or remain hunger-free. Through effectively-managed “monetization”, small farm

households could benefit from globalization and avoid poverty.

The need to resolve the crisis in the tea plantation sector both in order to (1) ensure that it

does not become a vicious cycle that further worsens the condition of the tea industry

destroying it irreparably and (2) in relation to other issues gains in importance when

viewed from the perspective that the plantation sector in the country and specifically the

state of kerala is located mostly in ecologically fragile locations. Studies have indicated

that response of farmers to cultivation becoming less profitable in the form of excessive

felling of shade trees which could have adverse impact on the ecology and long-term

sustainability of the plantation sector itself while also affecting the stability of the

surrounding environment. Just as the processing of some of crops is known to contribute

towards environmental pollution; the issues of decline in the yield of certain crops despite

excessive use of chemical fertilizers etc cannot be de-linked from ecological degradation.

Also various issues pertaining to climate change and global warming and enquiries into

the potential of plantation sector to arrest many adverse effects will in the years ahead

give rich dividends.

There is a need for Trade Unions in the state; who are mobilizing plantation labourers;to

adopt a more professional approach like their counterparts in Tamilnadu. They need to

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study each and every aspects of the industry such as productivity, wage rate, profit and

loss, administration, drawbacks in management etc and should also be well aware of the

impact of external factors like trade policy, government policy etc in terms of its effect on

the plantation sector and the crisis. Micro level knowledge and participation in the affairs

of the tea plantation sector should be a pre- requisite for macro level movement. In brief,

‘professionalism’ in Trade unions should be enhanced for them to become an effective

force to negotiate and mediate for the rights of workers under the current climate of crisis

and to participate along with managements and the state in evolving policies and

strategies to overcome the crisis.

The tea producing sector in Kerala provides employment to thousands of people and their

families and plays a vital role in terms of influencing the socio-political and economic

conditions of the districts where they are situated and the state. If it is allowed to

collapse; which it will if apathy and disinterest continues to be the norm of behavior

amongst the actors who have the power and the responsibility to intervene; the

consequences will be devastating. One potential impact would be these regions becoming

Kerala’s Vidarbha; something which they have already become to a certain extent

considering the high rates of suicide prevalent in these regions. Effective structural and

consequential changes therefore need to be implemented and undertaken quickly if the

sector and the people who depend on it have to be saved.

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