What drives high prices for small tea farmers?
Darjeeling black tea prices reflect a structural problem for small farmers and plantation workers. The pandemic pushed South Indian auction prices to record highs, while northern Darjeeling saw volume and prices fall under lockdowns. The Tea Board's minimum price, auction mechanics, and government agricultural reforms all shape the picture, and one consultant has proposed giving plantation employees land ownership.
Tea is highly perishable, so small farmers without fresh leaf supply contracts queue at nearby buying factories, and quality plus price drop as leaves oxidize. The Tea Board set a minimum purchase price, though it fluctuates; January's per-kilogram price was 23 percent below December's despite a long-term upward trend. In 2020, Coonoor turnover rose from $73 million to $115.2 million.
Behind the price fluctuations of Indian black tea lies a structural predicament faced by small farmers and plantation workers. The pandemic spurred record-high auction prices in South India, while Darjeeling in the north saw both volume and prices fall due to lockdowns. The Tea Board's minimum price, the gamesmanship of the auction mechanism, and the government's radical agricultural reforms together weave a complex picture of the industry. Independent consultant Narendranath has proposed allocating land ownership to plantation employees, attempting to break the vicious cycle of wage increases and cost pass-through. This article takes an in-depth look at the real situation of India's tea industry and explores possible paths for sustainable development. Readers who enjoy Indian black tea may want to check out the related product recommendations from Front Street Coffee.
Tea is an extremely perishable agricultural product. Those small farmers who have not signed fresh leaf supply contracts with local plantations can only send their harvest to nearby buying factories and queue up, hoping to get a decent price. Once fresh leaves begin to oxidize, quality declines by the minute, and the selling price falls accordingly.
The Tea Board of India has set a minimum purchase price to prevent excessive exploitation, but this price itself fluctuates. For example, the price per kilogram in January was 23% lower than in December, though the long-term trend remains upward, offering small farmers a possibility to improve their livelihoods.
The Coonoor Tea Trade Association (CTTA) points out that two favorable factors brought by the COVID-19 pandemic combined to push CTC (crush, tear, curl) tea prices to a historic peak for the year. Total turnover in 2020 jumped from $73 million in 2019 to $115.2 million (about 846 million rupees). The situation in the north was completely different. In 2020, affected by pandemic lockdowns, auction prices fell by 60 to 100 rupees, and production is estimated to have shrunk by 152 million kilograms.
Arijit Raha, Secretary-General of the Indian Tea Association, described the situation as "extremely worrying." Shrinking overseas tea consumption has clearly dragged down domestic market sales, and exports are also declining.
Flourishing Producers
Plantations in southern India also encountered similar restrictions, but local tea is mostly produced by farmers growing diversified crops on small plots. The monthly minimum price set by the Tea Board is based on the all-India auction average, but conditions vary by region. In December 2019, the leaf price was set at 12.45 rupees per kilogram. By December 2020, this threshold had been raised by 10.85 rupees/kg, an increase of 87%. That month, the average fresh leaf price in the Nilgiri region was 23.26 rupees per kilogram, a considerable premium compared with previous years.
The impact of this change has been direct and positive. Producing one kilogram of finished tea requires four kilograms of fresh leaves, which means that for every kilogram of finished tea a factory produces, it must pay local farmers 44 rupees more. Small farmers spend more on fertilizer, plant protection, and energy, and their transport costs are also higher than those of plantations, but they hire outside labor at a very low rate. If auction prices remain stable, factories without their own plantations have an incentive to encourage local people to produce and deliver the high-quality fresh leaves necessary for making premium tea.
In the past, factories willing to pay high prices for better-quality fresh leaves rarely received corresponding returns at auction, so the burden of rising costs could not be offset.
In the first week of January, auction prices in Kochi surged to 158 rupees per kilogram. CTTA data show that in every auction over the past six months, the average price of Coonoor tea per kilogram has stood at 100 rupees, setting historical records for several consecutive weeks. As northern buyers compete to bid for South Indian tea, Coonoor's tea arrivals remain higher than the same period last year.
A report in The Hindu BusinessLine said: "In 2020, many factories received prices unheard of since they began production."
At the final auction in December, Cross Hill Estate "sold multiple lots of broken orange pekoe small leaf grade at $3.97 per kilogram (291 rupees), becoming the top lot of the session." Cross Hill Estate is the oldest fresh leaf processing factory in the Odayar region and is currently celebrating its platinum anniversary. The key point is that small farmers now produce 50% of India's tea. If small farmers can maintain a decent livelihood, failing plantations will resell their land to tea-picker families, who can then, like Chinese tea farmers, live comfortably by growing and selling tea.
Although most of China's tea (by volume) is now concentrated on large industrial plots inland, China's most valuable tea is still produced on small plots. Peers in the local market are willing to pay fair prices, and competition thus drives quality improvement. Every year, the village winner sets the price for the tea recognized by peers as the best. Out of respect, other growers do not openly ask a higher price for the same tea. Because of this, families engaged in tea production generally enjoy good housing, education, and mobility. Tea pickers can earn $40 a day. But in India, the situation is the exact opposite: tea pickers earn only $2 (137 rupees) a day.
Land Reform
Despite opposition from farmers and farm labor organizations, the Indian government is vigorously pushing agricultural reforms. The Modi government amended the Essential Commodities Act, removing existing food stock limits. Second, it introduced a new law—the Farmers' Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020, or FPTC Ordinance—aimed at ending the monopoly of Agricultural Produce Market Committees (APMCs) and allowing anyone to buy and sell agricultural produce. Third, another law—the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020, or FAPAFS—has been enacted, legalizing contract farming and enabling large enterprises and corporations to cultivate large tracts of land through contracts.
Dharmaraj Narendranath, an independent tea consultant, former CEO of Harrison Malayalam, and former chairman of the United Planters' Association of Southern India, has proposed a different solution. In an article titled "Brewing New Ideas to Sustain the Tea Industry," he wrote: "Overall, the industry urgently needs structural change in its operating model. One way to ensure the overall sustainability of cultivation appears to be allocating land ownership to plantation employees and buying back raw materials through cooperative institutions."
"Once workers become landowners and are no longer plantation employees, the government will be responsible for providing them, through existing programs, with the social and welfare facilities currently borne by plantation management. This will further reduce enterprises' production costs. The government can thereby ensure comprehensive social and welfare protection for these people—something that may not necessarily be achievable at present. Such a plan could also be used to negotiate a balance point with the government, allowing enterprises independent use of a certain proportion of land without any restrictions on government use (plantation companies currently do not have this freedom)."
He suggested "purchasing fresh leaves according to a pricing formula linked to published industry auction prices. Individual enterprises may be willing to pay higher prices based on final price realization (as in the purchase of fresh leaves)."
Workers will have the social and financial safety net that comes with land ownership, as well as the guarantee of crop buyback. They can also build housing themselves or through government programs.
Narendranath wrote that, in the final analysis, reducing investment in plantations will shield enterprises from the cycle of wage increases and link raw material costs to final price realization.
He concluded: "This is a win-win for everyone, and therefore a truly sustainable and transparent model—a key requirement for a labor-intensive industry such as plantations."
The above content is compiled by CoffeeHunters, a coffee news website.
