In 2012, large tea estates were the primary producers of tea in India, contributing approximately 75% of the total tea production, while small tea growers (STGs) accounted for about 25%. It is 45% now and 55% is ontributed by STG as on 2023 production data.
the growing dominance of small tea growers (STGs) over large estates is a major reason for the dire state of the Indian tea industry. Here’s why:
1️⃣ Oversupply & Poor Quality
- STGs focus on volume, often neglecting quality standards, leading to an oversupply of low-quality tea.
- Large estates, which follow global certifications (Rainforest Alliance, Trustea, etc.), are struggling to compete because their cost of production is much higher than that of STGs.
- Excessive production by STGs keeps tea prices depressed, leading to poor realizations for all producers.
2️⃣ Unchecked Pesticide Usage & Regulatory Crackdown
- Many small growers overuse pesticides, which has triggered export rejections and quality concerns in domestic markets.
- The government’s crackdown on poor-quality tea (banning certain pesticides, enforcing stricter MRL limits) is hurting low-cost producers, but benefits large estates in the long run.
3️⃣ Rising Costs & No Pricing Power for Estates
- Labour wages (which are a major cost for large estates) have been rising without a corresponding increase in tea prices.
- Meanwhile, STGs don’t bear the same labor obligations, making their cost structure much lower.
- Large estates are forced to shut down or sell gardens, as margins have been wiped out.
4️⃣ No New Investments & Industry Apathy
- No major player is willing to invest in new estates or quality improvement because returns are poor.
- Many large players (McLeod Russel, Apeejay, Warren Tea) exited the industry, leading to further industry distress.
Final Take
The uncontrolled expansion of STGs, lack of pricing power, and deteriorating quality have pushed the Indian tea industry into a structural crisis. However, if regulations curb bad-quality production, and if demand continues growing, quality tea producers like Goodricke might benefit significantly from a demand-supply shift.
If small growrers tea quaility is not at par with big growers then why the realization by big estate growers has not grown significantly?
The reasons boil down to market dynamics, oversupply, and broken price discovery mechanisms.
1️⃣ Oversupply of Low-Quality Tea Drags Down Prices for Everyone
- Small tea growers (STGs) produce nearly 55%+ of India’s total tea output now.
- Since their production is largely low-quality CTC tea, it floods the market and keeps overall tea prices depressed.
- Even though large estates make higher-quality tea, buyers still benchmark prices against bulk tea auctions, which are dominated by lower-quality tea from STGs.
🔹 Effect → High-quality estates don’t get rewarded properly, as bulk buyers blend STG tea with estate tea to maintain cost efficiency.
2️⃣ Auction System is Not Rewarding Quality Enough
- Large estates sell a significant portion of their tea via auctions, where prices are determined by bulk buying demand.
- Since most blenders and packers prioritize cost over quality, high-quality estate tea isn’t getting significant price premiums.
- Unlike coffee or wine, where specialty grades command huge markups, tea prices don’t differentiate enough.
🔹 Effect → Even quality tea doesn’t command exponential price growth because of the way it is sold.
3️⃣ Blenders and Packaged Tea Companies Control Pricing Power
- The biggest buyers of tea (Tata Consumer, HUL, Wagh Bakri, etc.) dictate tea prices, as they buy in bulk for their packet tea brands.
- These companies mix lower-quality STG tea with high-quality estate tea to maintain margins.
- This means estate tea producers don’t have much control over pricing—big buyers determine what they will pay.
🔹 Effect → Even if estates produce better tea, they can’t dictate higher prices because buyers have other (cheaper) options.
4️⃣ Rising Costs Have Eaten Up Any Pricing Gains
- Even when estate tea prices have increased, their costs (mainly labor wages, fertilizers, and energy) have risen even faster.
- Large estates have fixed labor costs, while small tea growers rely on casual labor, keeping their costs lower.
- As a result, profitability hasn’t improved significantly, even if realizations increased moderately.
🔹 Effect → Estates don’t benefit much from higher tea prices because their costs rise equally or faster.
5️⃣ Export Market Has Not Been a Strong Catalyst
- Indian tea exports have struggled due to competition from Kenya, Sri Lanka, and Vietnam, which offer cheaper tea.
- Many Indian estate teas are of high quality, but they haven’t found strong branding in the global market (unlike Sri Lanka’s Ceylon Tea).
- This means estates still rely heavily on domestic bulk buyers, who keep prices under pressure.
🔹 Effect → Estates don’t get rewarded internationally, which could have been an alternative pricing boost.
What Needs to Happen for Estate Tea Prices to Boom?
✅ Supply Cut of Low-Quality Tea → If the government strictly regulates pesticide-heavy tea from STGs, supply could tighten, lifting overall prices.
✅ More Direct-to-Consumer Branding → Estates need to reduce dependence on auctions and sell directly to premium consumers (like Darjeeling estate brands do).
✅ Better Export Positioning → If India markets its high-quality teas better globally, estates can get premium pricing abroad.
✅ Cost Control → Estates need productivity gains to offset rising costs.
Final View
Right now, small growers’ oversupply and pricing power of bulk buyers are capping estate tea price growth. However, government interventions, pesticide regulations, and rising demand could finally start favoring high-quality estates.
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