Guwahati: How would Small Tea Growers (STGs) get real value for their produce, if they have to depend on agents to supply to the bought leaf factories?
With 90 percent of STGs in the country supplying green leaves to factories through agents, true price realisation for growers would be impossible.
A study report by BDO LLP commissioned by Tea Board India to determine the price sharing formula in the plantation districts of the country says agents play a crucial role in the tea value chain in major tea growing states, as they collect green leaves from various small tea growers, aggregate them, and transport them to the factories.
Currently, around 2.3 lakh STGs are having a production of over 691 million kgs of tea and a combined area of around 2 lakh hectares under tea cultivation. They are spread across the country; mostly they are co-located with the organized segment in the four major states (Assam, West Bengal, Tamil Nadu, Kerala) and also scattered across other states such as Karnataka, Himachal Pradesh, Bihar, Tripura, Sikkim, Nagaland, Manipur, Arunachal Pradesh, Meghalaya and Mizoram. The STG segment produces more than 50 percent of tea in the country.
The emergence of STGs has led to the growth of Bought Leaf Factories (BLFs), which are typical standalone tea leaf processing units without any captive tea garden. Currently, there are around 750+ BLFs located across India with a combined installed capacity of 640 million kgs per annum.
“Agents play a big role in the price realization to growers. The emergence of agents has increased significantly in recent decades due to the rapid rise of STGs and their limited financial capabilities to develop leaf collection, storage, and transportation infrastructure. Agents typically collect leaves from growers who are located in remotest areas and have limited knowledge about the prices the factory is paying. The role of the agents is quite important from a socio-economic perspective as they provide upfront payments (financial assistance to the growers) who by and large face difficulty in accessing credit from financial institutions” the study report says.
The report says according to the STGs interviewed the agents charge around Rs 3-3.5 per kg of green leaf.
Discussions with stakeholders and field surveys revealed that there is a tiered system (such as smaller agents who collect leaves from STGs, middle agents who aggregate leaves from smaller agents, and the larger ones who liaise between the middle agents and the factories) currently functioning in the ecosystem, the report says.
“These agents work as aggregators or bridge financiers,” a tea industry official said.
A small tea grower in Upper Assam said it is true that agents play a big role in the tea value chain and it is a very complex network. “Nobody can say exactly how much the agents charge as commission from the agents,” the grower said.
“The average price for green leaves in Assam ranges between Rs 16.50 to 18.50. However, during our primary interactions with growers, it was revealed that in certain districts, the production cost of green leaves is higher due to the maintenance of plucking cycles, stringent quality standards, and specific hand-plucking methods. During our survey with over 411 Small Tea Growers (STGs), it became apparent that the production cost of green leaves is rising, primarily attributed to the escalating costs of fertilizers and pesticides. In many instances, STGs are not adhering to Good Agricultural Practices (GAP), leading them to employ higher quantities of fertilizers and pesticides to boost production. This, in turn, results in increased overall production costs” the report says.
“There are a total of around 330 BLF factories in Assam. During our interaction with the representative of BLF associations and around 41 individual BLF factories in Assam, it has been revealed that the average cost of processing 1 kg of made tea ranges from Rs 44 to 46, with about 70% of the total cost attributed to power, fuel, and labour expenses. It was found during these discussions that around 4.5 to 5 kgs of green leaves are required to make one kg of tea. The out-turn percentage of Assam is around 21.65%” the report says.
The study report says these agents are transacting on an average volume of over 3000 million kgs of green leaves on an annual basis with significant monetary value (around Rs 4500-5000 crores) which is totally beyond any kind of supervision and regulation by the government. “This growing phenomenon is a serious point to consider while analysing the root cause for price suppression to the growers,” the report says.
The report says the agents have developed good networks with factories and charge commissions in lieu of the services rendered. “In the absence of a proper mechanism for price tracking and dissemination to STGs, the transparency in price realisation to STGs at many times is affected which results in sub-optimal price realisation to STGs who are mostly at the receiving end due to lack of bargaining power and information asymmetry,” it says.
The agents in the tea value chain are currently not regulated by the Tea Board of India. “Absence of such regulation has led to a rapid proliferation in the number of agents. Given the lack of regulation, there is leakage in the price in the form of commissions which distorts the price realisation to growers” the report says.
SETTING UP OF FARMER PRODUCER ORGANISATIONS(FPO): The only way out for small tea growers to move away from the agent’s control is to set up producer organisations and producer companies to address the many challenges faced by the small growers’ sector.
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Tea Board India has a scheme for promoting and supporting member-owned Producer Organisations and companies that enable small tea growers to move to a higher plane through efficient, cost-effective, and sustainable resource use and realize higher returns for their produce.
The primary objective of federating the SHGs and moving them higher up the value chain through FPO formation is to enhance production, productivity, and profitability of the small growers (in the participating SHGs) and quality of tea produced in various tea-growing regions across the country.
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