Guwahati: Far away from the tea that cheers you up every morning, there is another story that remains largely unknown—the story of buying and selling green leaf. This side of the story is more for the small tea growers who contribute over 52% of the state’s total tea production and are the most vulnerable link in the tea value chain.
A status paper on the Small Tea Sector in Assam, brought out by the All Assam Small Tea Growers Association (AASTGA) and the All Bodoland Small Tea Growers Association (ABSTGA), with support from the Indian Tea Association and Solidaridad Asia, highlights the challenges faced by small tea growers and the policy interventions that the government can undertake to address these challenges effectively.
The tea industry in Assam has evolved significantly over the years, with a substantial increase in the number of Small Tea Growers (STGs). The number of STGs has grown by 56%, from 78,091 in 2011 to 122,415 in 2023. Correspondingly, the tea area under the STG sector expanded from 88,674 hectares to 114,847 hectares during the same period.
Small Tea Growers (STGs) represent the most vulnerable segment in the tea value chain. Their vulnerability is compounded by their limited landholdings and a lack of access to capital for expanding operations or adding value. STGs also face challenges due to insufficient technical and managerial skills, making it difficult for them to compete effectively in the market. Typically, STGs sell their green leaves to Bought Leaf Factories (BLFs) through agents, with only a small percentage (around 7–8%) selling directly to BLFs.
“Typically, agents charge growers Rs. 2 to 3 per kilogram of green leaf as a commission. Considering that agents in Assam handle around 1,600 million kilograms of green leaf annually, the green leaf commission generated each year amounts to approximately Rs. 3,000 crores. This significant revenue stream is completely beyond any government supervision or regulation, making it a lucrative and profitable business for agents. The unregulated trading of green leaves raises serious concerns about fair pricing and transparency in the tea value chain,” the status paper states.
The paper notes that the price paid to green leaf producers is usually determined by agents and BLFs based on factors such as the production season, demand and supply, and the quality of the green leaves.
“Unfortunately, this process often disregards the price-sharing formula notified by the Tea Board under the Tea Marketing Control Order (TMCO),” it states. The Price Sharing Formula (PSF) was introduced under the TMCO in 2003 to establish a fair price-sharing mechanism between small tea growers (STGs) and processing factories. The aim was to ensure that both stakeholders received an equitable share of the revenue from tea sales. According to the TMCO, all registered tea manufacturers who source green leaves from small growers are required to pay a reasonable price based on the net sale average price realised.
Since its introduction in 2003, the PSF has undergone several amendments, but it still falls short of achieving its intended objective of ensuring a fair price-sharing arrangement between factories and small growers. “This is primarily due to distortions in the supply chain caused by leaf agents,” the paper states.
Agents have become vital players in the tea value chain, especially over the last two decades, due to the rapid rise of STGs. STGs often lack the scale and financial capacity to develop leaf collection, storage, and transportation infrastructure.
Socioeconomic factors also contribute to STGs’ reliance on agents, particularly since many STGs face difficulties in accessing credit from financial institutions. “In the absence of proper mechanisms for price tracking and dissemination, STGs often realise sub-optimal prices for their green leaves,” the paper states.
Unfortunately, agents in the tea supply chain operate without any regulatory oversight from either the state government or the Tea Board. This lack of regulation has led to a rapid proliferation of agents across Assam and other tea-growing states.
At the grassroots level, smaller subagents collect green leaves from STGs at their farm gates. Middle agents aggregate the leaves collected by subagents and supply them to big agents. Big agents liaise between middle agents and tea factories, supplying green leaves according to factory requirements and negotiated prices.
“This unregulated system creates considerable distortions in the price STGs receive for their green leaves. Agents often deduct commissions for leaf collection, transport charges, and reductions in moisture content, leading to reduced earnings for STGs,” the paper states.
Many STGs lack visibility in the supply chain due to intermediaries and are often unaware of potential value addition opportunities. Green leaves from STGs are processed by BLFs, auctioned, and then bought by packeteers for consumer sale.
Currently, the price realisation for STGs is closely tied to the made tea prices in auctions. “However, due to various factors, auction prices are not an accurate reflection of the green leaf price for STGs. Furthermore, the slow growth in auction prices has led to a slower increase in price realisation for growers compared to the rising cost of production,” the paper states.
To address these challenges, the paper recommends classifying tea as an agricultural crop in Assam. The average cultivable landholding size of small tea growers is around 1.00 hectares.
Currently, 58% of their land is used for tea cultivation, and the remaining 42% is used for other crops. An analysis of the actual holding size of growers shows that 27% of them own less than 0.5 hectares, 46% own between 0.5 to 1.00 hectares, and 19% own between 1 and 2 hectares. Only 8% of growers own between 2 and 10 hectares. This distribution of landholding indicates that tea is not a bread-winning crop for growers, who remain subsistence farmers.
Classifying tea as an agricultural crop and extending agricultural schemes to tea growers would help them transition from subsistence to sustainability.
The paper also highlights the need for promoting collectivisation among small tea growers. The fragmented and scattered nature of small tea growers makes it difficult for them to gather the necessary resources for field maintenance. Issues such as poor plucking standards, improper pruning cycles, and inadequate fertilisation and plant protection lead to higher costs and lower productivity.
This situation can be improved by encouraging small tea growers to form collectives, such as Self-Help Groups (SHGs) or Producer Organisations (FPOs). These collectives can leverage their combined strength to secure financial resources from banks, purchase field inputs and machinery at wholesale rates, and negotiate better prices for their green leaf from factories.
Additionally, facilitating financial linkages for small collectives and providing loan guarantees would be beneficial. Even if small tea growers form collectives like SHGs or FPOs, they may struggle to secure resources from banks without government-backed guarantees. The state government should establish an authority to regulate SHGs, FPOs, and leaf aggregators (leaf agents).
This authority would assess their financial needs and recommend them to financial institutions for loans, providing guarantees to ensure loan repayment. The regulatory authority could be funded by the corpus created from the green leaf cess to support its regulatory functions, provide margin money, and offer loan guarantees to these collectives.
The paper further advocates for supporting the establishment of micro and mini tea factories by small growers. Both the Tea Board and the Government of Assam are encouraging small tea growers and collectives to establish their own mini, micro, or larger tea factories, with the Tea Board offering a subsidy of 40% of the cost, subject to a ceiling. Despite this generous subsidy, growers and collectives often struggle to set up factories due to a lack of bridging loans from banks.
To address this, the paper suggests that the Tea Board should increase subsidies, offering 50% of the cost to large-sized FPOs, 60% to individual entrepreneurs setting up mini-factories, and 70% to SHG-led tea manufacturing units. The state government’s regulatory authority could assist these enterprising growers and collectives by helping them secure bridging loans from banks, providing the necessary margin money, and offering guarantees for these loans.
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