STiR coffee and tea magazine

32 STiR coffee and tea | 2023 Issue 5 (October / November) China, India, Kenya, Sri Lanka, Turkey, and Vietnam are the world's top six tea producers. Source: International Tea Committee World Tea Producers hoods, creating a downward spiral that makes it hard for the sector to act more sustainably," writes IDH. The industry is falling short on its obligation to provide a living wage for laborers, funds to mitigate climate change, and to recover the expense of fuel and input costs that boost yields, according to IDH. A fair farmgate price for green leaf should reward farmers that invest in their land and should incentivize the next generation of tea growers. Minimum floor price Anshuman Kanoria, chairman of the Indian Tea Exporters Association, told STiR that in India, "The carry forward and floating stock along with an over- supply of low and low-medium teas is the reason for depressed tea prices." India's Ministry of Commerce is weighing a request by the Indian Tea As- sociation (ITA) to establish a minimum floor price (MFP) for tea. The mini- mums would apply to processed tea, while green-leaf minimum prices would be benchmarked to quality. That approach is ill-conceived, according to Ka- noria. He said that small and big tea growers would be tempted to increase plucking rounds, producing more tea. "The crop would possibly increase by 15% to 1.6 billion kilograms," he said. He also argued that fewer producers would make orthodox because or- thodox plucking requires "a huge sacrifice in crop volume." He said that or- thodox growers are highly dependent on international markets, where quality is paramount, which drives up costs. "An MFP would dissuade them from making orthodox, and they would instead convert to CTC [cut, tear, curl]," he said. Growers committed to orthodox production already get prices well above the minimum. Rising wages, the small scale of most factories, and the labor-intensiveness of orthodox processing increase production costs in the orthodox segment. Kanoria writes that if the MFP exceeds the cost of production, "the natu- ral tendency of buyers would be to cherry-pick." When buyers pay more for fillers, there is less available to pay premium prices for the best teas, he ob- served. "This would substantially reduce the price differential between the quality teas and MFP. Only bought leaf factories and medium-quality pro- ducers gain. Quality producers would suffer, and availability will decline. A minimum floor price will only encourage higher production by small and large growers," he said. In the export market, India would then be competing on price rather than quality. "India's competitors would be forced to cut their prices. Without domestic demand in their respective countries, they will have to offload their teas. As a result, prices for this category, too, will be in a continuous down- ward spiral," said Kanoria. The upshot, as Kanoria sees it, is that tea production would increase sig- nificantly. North India would lose heavily in "range-bound" bidding, and a very probable scenario would be millions of kilos of teas remaining unsold. "It would be the death knell of Indian ortho- dox and surrender the current Indian export mar- ket to other origins," he concluded. Kenya's minimum price Kenya enacted significant reforms to its tea in- dustry in 2020 to "enhance monthly earnings and grant greater financial freedom and flexibility for growers." The Tea Board of Kenya was re-estab- lished, new directors were seated by the Kenya Tea Development Agency (KTDA), and the monthly rate paid to farmers was increased in August 2021 from KES 16 to KES 21 per kg (from 9 to 15 US cents), up by 250% since 1999, when farmers earned KES 6 per kg (8 US cents). Tea growers in neighboring Rwanda earn RWF 86 per kg (7.5 US cents) and are pressing for RFW 100 (9 US cents). Kenya enacted a minimum auction price of $2.43 per kg from July 1, 2021, to finance the farmgate increase for KTDA growers, who pro- duce approximately 60–65% of Kenya's tea crop. During 2022, the volume of tea sold at auction in- creased to 410.26 million kg, but buyers were not prepared to pay the differential for many of the KTDA teas. As a result, they sought better value by sourcing from other producers. Prices closed the year at $2.34 per kg, well below the minimum. In 2023 through June, the average price fell to $2.07 per kg. The minimum did not hold partly because Pakistan and Egypt, Kenya's two top trading part- ners, experienced foreign currency shortfalls; con- flicts in Sudan and Ukraine further depressed de- mand, as did sanctions on Russia. As a result, total exports to April this year are down 51,000 metric tons compared to 2022. Price sharing India established a raw leaf price-sharing formula in 2004 that was revised in 2013 to reflect rising production costs. In West Bengal, small tea growers (STGs) and bought-leaf factories (BLFs) split the price paid for made tea at the nearest auction. As- sam's split is 60 (STGs): 40 (BLFs), reflecting the fact that it costs more to cultivate and harvest tea than to process it. In West Bengal, the split is 58:42. In June, the Tea Board of India commissioned BDO India, an accounting and tax consultancy, to research the current cost of cultivating and processing tea. A revision of the existing split is needed, according to a report published by the Confederation of Indian Small Tea Grower As- sociations (CISTA). India's 240,000 small growers need a greater share of the auction price to pro- tect the "business viability of the STG segment," CISTA concluded. Failure to do so "may have serious socio-economic repercussions in terms of livelihood."

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