Guwahati: There have been several demands from stakeholders in the tea industry to have a MSP (Minimum Support Price) for small tea growers to help them get fair and remunerative prices for green leaf. Though the small tea growers today produce more than half of the country’s tea output but still don’t get a fair price for their produce as they are facing several challenges related to profitability, availability of finance, processing, and marketing of tea leaves and value addition.
Now a study on the determination of the price-sharing formula (PSF) carried out by BDO LLP on request of Tea Board India to propose an effective price-sharing mechanism has stated that in spite of the high penetration and consumption of tea in Indian households, it is not classified as an essential commodity. “Even though the beverage has its inherent health benefits, it still does not qualify to be a part of the indispensable food basket in an average household; rather it is considered as a discretionary consumption,” the study report says.
MSP is the guaranteed price paid to farmers when the government buys their produce. MSP is formulated based on the recommendations of the Commission for Agriculture Costs & Prices (CACP). Various factors such as Cost of production, demand & supply, the current trend in market prices, and price-parity among others. The primary objective of formulating MSP is to ensure fair and remunerative prices to the farmers which will not only help avert any financial loss(es) but also enable farmers to have a surplus for income augmentation through various means and ensure them a better living.
Currently, in India, there are MSPs for 22 mandated crops, out of which 14 belong to the kharif seasons, 6 are rabi crops and 2 are commercial crops. MSP is based on a calculation which should be at least 1.5 times the cost of production as incurred by farmers. MSPs are applicable for products which are essential for food security and fall under the Essential Commodity Category.
The report says the tea supply chain is a complex one, and introducing MSP (or a floor price) for Green Leaves will not work effectively without fixing a similar floor or support price for the made tea (finished product). “This is a difficult proposition as buyers will be mandated to pay above the support price, which works against the free market policy. Unlike in other major producing countries like Sri Lanka, and Kenya, there are multiple marketing channels for tea in India. While the auctions are still regulated by the Government, private channels are beyond Government regulation. Though the producers are mandated to sell a minimum of 50% of their produce in auctions, there is no stipulation on minimum purchase quantity by the buyers,” the report says.
“Introduction of MSP in tea might attract potential backlash from stakeholders in the supply chain. In the unlikely event of buyers not participating in the public auctions, there might be a situation where there will be an excess stock with producers which will remain unsold & put them in financial distress. This will have a deep impact on the supply chain adversely impacting over 2.3 lakh small growers who depend on the bought leaf factories for the price of their green leaves,” the study report said.
The report said such a move, including tea under the MSP regime, will require the Government to develop and maintain infrastructure for procurement and maintenance of stock to avoid any adverse situations that may arise due to imbalance in supply, demand and other external factors. “This will have a significant financial and operational burden on the Government,” the report says.
The report says last but not least, tea is a cash crop which is under the ambit of the Ministry of Commerce while the MSP is currently administered by CACP (under MoAFW). “Implementing such a thing may not be feasible without classifying tea as an “Agri” commodity product. More importantly, around 1366 million Kg of tea is produced in India annually, where the quantity of foodgrain is 3,30,5341 million Kg. Thus with the proportion of tea production being significantly smaller, it might not get the required attention and may not benefit the farmers,” it said.
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