Tea Estates are going through difficult time since last 15 years. Few of the issues faced by the industry include:
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Over Supply – Supply has increased constantly while demand has increased at tepid rate, causing stagnant/declining tea prices over many years.
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Organized to Unorganized shift – Small tea growers have increased constantly during last 15 years. From 25% during 2010, they now contribute 50% of the total supply of tea.They dont follow government regulations of paying minimum wages to labour and hence are cost competitive.
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Political Hindrance – Major cost of tea estate is labour and governement continues to raise minimum labour price every few years, which causes increase in expense for corporate tea growers.
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Internationally Uncompetitive – Indian Tea is not compeptitive international market, because of high cost of labour, power and irrigation. So, Indian tea cannot be sold at profit in international market.
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Raw Material Prices – Input costs for tea production has been rising since last decade. Power, Irrigation, Pesticides and Labour all have become expensive but tea prices have remain stagnant.
All tea estate companies are in losses since last few years, which explains why they are classified as Investment Gutter in the market.
However, every commodity has its cycle and it rhymes from peak to bottom and vice versa. Tea as a commodity is essential need of humans, and it has to remain viable for producers. With current state, it looks like the entire industry will close, which offcourse is not possible.
Yes, many tea etates may close down, but eventully that will bring demand supply in balance.
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