TEA INDUSTRY- An Overview

ABOUT TEA
After water, tea is the most widely-consumed
beverage in the world.
Tea is obtained from Camellia Sinesis Plant
The four types of tea most commonly found on the
market are black tea, oolong tea, green tea and
white tea, all of which can be made from the same
bushes, processed differently
Grows mainly in tropical and sub-tropical
climates
Age profile of a tea bush is 80-100 yrs but they are
highly production only between 20-40 yrs of age.
INDIAN TEA INDUSTRY
Tea Industry: Pride for India
India is the largest consumer and the second
largest producer of tea in the world.
Turnover of the tea industry is more than Rs.
7000 Bn.
Tea is a significant foreign exchange earner
with exports of around Rs. 24 billion in 2008.
The listed companies account for about 40%
of total tea production.
HIGHLY REGULATED
INDUSTRY
Major revenue earner for the government in terms of taxes and
foreign exchange.
GOVERNMENT controls
 minimum and maximum prices of tea in domestic and export markets
 the maximum quantity of tea which can be sold to any entity in one
transaction.
Tea imported or exported have to undergo certification for quality
check.
Mandatory to obtain a license for commencing business
operations.
Mandatory to obtain NOC for expanding area under under
cultivation.
Tea imported into India for purpose of re-export has to be re-
exported within 6 months with a minimum value addition of 50%
A Governed commodity!!
Governed by: The Tea Act, 1953
Apex body: Tea Board of India
As a food product, tea is governed by:
 Essential Commodities Act, 1955
 Prevention of Food Adulteration Act, 1972
 Packaged Commodity Act, 1980
As a plantation industry, tea is governed by:
 Plantation Labor act, 1951
 Land Reforms Act, 1950
 Forest Conservation Act, 1980
SUGAR PRODUCING REGIONS
23401
22358 TAMIL NADU
21263 17% ASSAM 49.00%
14091 KARNATAKA WEST BENGAL24.65%
1%
22107 others 1.35%
23605 KERELA 7%
23043 KARNATAKA 0.50%
KERELA
23072 7% TAMIL NADU 17%
246898 980818 ASSAM 100.00%
25% 49%
others
1%

WEST BENGAL
25%

NORTH INDIA accounts for 75% of domestic tea production !!

 Region Wise Production
2002 % 2003 % 2004 % 2005 % 2006 % 2007 % 2008 %
of total of total of total of total of total of total of total

Total
north India 631,748 75.3 648,277 73.8 662,184 74.2 700,975 75.5 729,619 76.3 724,690 75.8 733,920 74.81
Assam 433,327 51.7 434,759 49.5 435,649 48.8 474,137 51.1 483,649 50.6 479,925 50.2 487,497 49.7
West
Bengal 188,021 22.4 200,635 22.8 214,541 24 214,660 23.1 233,286 24.4 231,436 24.2 233,133 23.76
Others 10,400 1.2 12,883 1.5 11,994 1.3 12,178 1.3 12,684 1.3 13,329 1.4 13,290 1.35
Total
south
India 206,726 24.7 229,852 26.2 230,781 25.8 227,009 24.5 226,288 23.7 219,988 23 246,898 25.17
Tamil Nadu 143,121 17.1 166,572 19 163,015 18.3 154,598 16.7 152,267 15.9 153,132 16 170,532 17.38
Kerala 57,772 6.9 58,012 6.6 62,146 7 67,033 7.2 68,761 7.2 61,831 6.5 70,287 7.16
Karnataka 5,833 0.7 5,268 0.6 5,620 0.6 5,378 0.6 5,260 0.6 5,025 0.5 6,079 0.6
Total India 838,474 100 878,129 100 892,965 100 927,984 100 955,907 100 944,678 100 980,818 100
Source: Tea Board Of India
TEA MAP of India
Area under cultivation
Total area under cultivation is 567999
hectares (2007).
Average size of land holding is 3.96 hectares
in 2005
North has 76% of area under tea cultivation.
North has higher number of large size land
holdings (more than 10.12 hectares).
In south, most of the area is used for coffee
cultivation.
Growing season
Requires: warm days, long hours of sunshine,
high humidity, adequate rainfall.

Monthly Production In 2008

120000

100000

80000

60000

40000

20000

0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

North India South India

July – September gives the maximum produce in North India.

Parties to the industry
Planters
Integrated players
Non-integrated players
Green leaf Growers
BLFs (bought leaf factories)
Distribution channels
Auction sales
Private sales
Direct Exports
Auction sales
Auction centers: Single point of contact for the
buyer and the seller.
7 auction centers in India: Gauwahati, Siliguri,
Cochin, Calcutta, Coonoor, Coimbatoor, Amritsar.
Guwahati is the largest CTC tea auction centre in
the world.
Tea Marketing Control Order: requires tea
producers to sell a specific % of their output
through auction. The order excludes packaged
tea,value-added tea and exports from its purview
PRODUCT INTRODUCTION
PRODUCT CLASSIFICATION
 Black tea constitutes 75% of
global consumption
CTC m ethod of Orthodox m ethod of
production production
Flavour Strong Delicate

Cuppage High: 550 cups per kg of Low : 250 cups per kg of tea
tea

Pricing Low er. Mainly positioned in Higher. Mainly positioned in the

the medium and popular tea super premium and premium tea
segments segments

Grades produced Mainly fannings and dust All grades - w hole leaf, broken
leaf, fannings and dust

Major consuming countries Pakistan Russia

Source: Industry, CRISIL Research
 A SHIFT to CTC production
from Orthodox
 Domestic demand high for CTC type
 CTC method leaves higher cuppage

 Cost of production lower by Rs. 8-10 per kg.

 After the disintegration of USSR in 1991 demand

was more for cheaper CTC variety.

Currently, orthodox production accounts for
about 9% of the total domestic production.
North: 7:93
South: 16:74
But, opportunities bright with
ORTHODOX
Russia, India’s biggest export
destination is reverting to Orthodox
variety after an economic recovery.
60% of global consumption is of
orthodox variety
India’s exports stagnated; Govt
providing boost to production and
export of orthodox tea.
 DOMESTIC
CONSUMPTION (80%)

Loose Tea 55% Packaged Tea 45%

•Government is the largest purchaser of packaged tea (to sell

through defense canteens, railways, aviation etc.)
•Packaged tea consumption registered a growth of CAGR 5.7%
from 1986 to 2007.
•Packaged tea demand is price sensitive at lower end tea consumers.
Packaged Tea
Prices of loose tea are influenced by demand-supply
dynamics as there is low value addition and product
differentiation
Packaged tea prices are stable and relatively higher
due to better quality, value addition and strong
brand image.
TMCO excludes packaged tea from its provision of
selling 75% of the produce through auction sales.
300 recognized brands in packaged tea market
HUL and Tata Tea are the market leaders
accounting for 40% of market share.
 Domestic Branded Tea Market
Players
HUL
TATA TEA
WAGH BAKRI
DUNCANS
GOOGRICKE
EVERREADY
JAY SHREE
DHUNSERI
OTHERS (local and regional players)
Source: Crisil research
TEA DYNAMICS
What determines TEA
SUPPLY?
1. Average age of bushes: Tea plant is most productive between
20-40 years.
 Around 40% of tea bushes in India are over this productive age.
 In Assam and Tamil Nadu 40% of bushes above this age.
 In kerela and karnataka, more than 75% of bushes are above
this age.
2. Yield
3. Weather conditions
4. Area under cultivation: India has the second largest area under
cultivation after China.
Acreage not Expanding due
to restrictions by Govt.
Area (Hectares)

580000

560000
a re a (h e c ta tre s )

540000

520000

500000

480000

460000
2000 2001 2002 2003 2004 2005 2006 2007
Area (Hectares) 504366 509806 515832 519598 521403 555611 567020 567999
Yield is deteriorating due to
growing age of bushes.
YIELD IN Kg/Hectare

2500

2000

1500
kgs

1000

500

0
2003 2004 2005 2006 2007
North India 1601 1630 1649 1684 1616
South India 2004 2003 1899 1910 1839
India 1690 1713 1703 1732 1663

Yield has declined from 1844 kg in 1998 to 1663 kg per hectare in 2007
due to inadequate investments, inefficient production practices and
growing age of bushes
Special Purpose Tea Fund- A
GOVERNMENT INITIATIVE
Purpose: to solve the problem of deteriorating age
profile of tea bushes.
STPF targets area of 2.12 lakh hectares OF OLD
TEA AREA (above 50 years of age) to be re-
planted/rejuvenated over a 15 year period
commencing 2007.
 Replantation : 1.7 lakh hectares
 Rejuvenation: .42 lakh hectares
Financing : 25% as govt. subsidy
: 50% as term loan
: 25% by Tea Gardens
Implications of SPTF
Corpus of SPTF: 4500 crore
Till the end of 11th 5-year plan (i.e 2012) .68 lakh
hectares will be replanted and .16 lakh hectares
rejuvenated.
Gestation period for replantation: 5 yrs
Rejuvenation: 9-12 months
As a result, effective area under tea cultivation will
decline leading to a fall in production with a
subsequent rise in tea prices
What determines the DEMAND
for Tea??
Changes in tea drinking population
 To grow at CAGR of 1.91% for 2007-2011
Growth in per capita consumption
 Has been growing at CAGR of 1%
SO….. do we IMPORT?
Imports remain negligible and are done chiefly
for the purpose of re-export after blending.
100% duty on tea imported.
Majorly, black tea is imported, with nominal
quantities of green tea.
Under the free trade agreement,
 Sri Lanka exports to India at a special duty rate of 7.5%
upto an annual quota of 15 Mn. kg.
 However, the imports through Sri Lanka have also been
minimal
BUT, we do EXPORT !!
India is the fourth largest tea exporter
in the world
share in world exports

Sri Lanka
Others 20%
28%

Kenya
India 20%
14%
China
18%
Destination wise exports
(MN Kg) 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008
CIS 128.6 81.6 95 82.2 62.1 56.7 53.4 48.1 49 53.4 54
UAE 4.8 13.7 22.1 23.3 26.4 23.7 25.6 26.5 21.9 24.5 25
UK 21.7 21.1 20.9 16.1 20.9 19.9 19.8 21.4 23.2 17.9 19.3
IRAN 10.9 1.7 3.4 2.8 1.2 1.5 5.3 6.6 8.7 13.1 16
USA 1.7 2.7 7.5 6.2 7.4 8.7 7.8 9.1 8.5 9.6 9.55
PAKISTAN 0 0.2 3.3 3.3 0 3.7 5.8 11 14.7 5.5 7.67
POLAND 7 15.8 12.5 8.3 7.2 5.8 5.2 4.1 3.7 4.4 3.45
IRAQ 0 0.1 10.9 16.9 44.2 13.4 25.8 35.8 52.1 2.5 5.1
OTHERS 34.4 30.3 31.1 23.5 31.6 50.3 49.1 36.4 36.9 47.8 63.03
Total 209.1 167.2 206.7 182.6 201 183.7 197.8 199 218.7 178.7 203.1
Key export markets
Country Analysis Major competitor

RUSSIA ORTHODOX market SRI LANKA (better quality,

low rates)

UK CTC market KENYA (cheaper rates)

PAKISTAN 100% CTC market. Ideal market for India in terms of KENYA (political relations
proximity and category of consumption influence Indian exports).

EGYPT CTC market. KENYA

IRAQ ORTHODOX market. SRI LANKA, VIETNAM

Payment issues in IRAQ

JAPAN GREEN TEA MARKET CHINA

USA ICED TEA ARGENTINA

 Categories of exports
EXPORTS

PACKAGED TEA
BULK TEA (87%) (13%)

Packet Tea Tea Bags Instant

44% 41% Tea 15%

•Bulk tea is increasingly used for blending abroad and not for direct consumption.
•Instant tea is not widely consumed in India due to its high price and therefore major
produce is exported

•Orthodox tea accounts for 30-45% of total export volumes.

As per 2007 data Source: Tea Board of India
Export trends
Exports have been on a declining
trend due to:
 Disintegration of USSR
 Competition from Sri Lanka, Kenya and China
 Uncompetitive pricing of Indian Tea
 Govt Policies (export duty, ban on exports from
time to time etc.)
• The ratio of exports-to-domestic consumption
has changed from 25:75 in 1997 to 20:80 in 2007
India: DEMAND-SUPPLY
scenario
 INDIA’S PRODUCTION DECLINING
Tea Production increasing @ CAGR 1.35%

1000000

980000
960000
940000
to n n es

920000

900000
880000
860000
840000
2004 2005 2006 2007 2008 2009P
Tea Production 892965 945974 981805 944678 980818 968050

Production had fallen in 2007 due to poor weather

conditions and is expected to fall in 2009 also due to
the same
Production fell by 10 % in
Jan- May 09 Y-o-Y

Monthwise Tea Production In India

90
80
70
60
M n Kg

50
40
30
20
10
0
Jan Feb Mar Apr May

2008 2009
Domestic consumption
increasing
Domestic Consumption Increasing @ CAGR 2.5%

900 710
705
850 700

Gram m es
695
M n kg

800
690
685
750
680
700 675
670
650 665
2004 2005 2006 2007 2008 2009
Domestic 735 757 771 786 802 850
Consumption (Mn.
Kg)
Per Capita (Gms) 681 691 693 696 701 705
Result: Decline in Export
Surplus
(million kg) 2005 2006 2007 2008 2009 P
Production 928 956 945 981 968
Imports 16.376 23.81 16 20 18
Total Availability 944.376 979.81 961 1001 986
Domestic
consumption 757 771 786 802       850.0
Exports Surplus 187.376 208.81 175 199 136
Export Surplus

250

200

150

100

50

0
2005 2006 2007 2008 2009 P
Depletion of inventory to
serve the Deficit
Depletion of inventory

310 4.8
4.6
300
4.4

Months
290
Mn kg

4.2
280 4
3.8
270
3.6
260 3.4
2005 2006 2007 2008
Closing stock 299.9 306.9 285.9 281.9
Closing stock 4.6 4.6 4.2 3.9
(months of
consumption)
RESULT: PRICES RISE
PRICE RISE AS STOCK DECLINES

350 120

300 100
250
80

Price Rs./Kg
200
Mn. Kg

60
150
40
100

50 20

0 0
2005 2006 2007 2008 2009P
Closing stock 299.9 306.9 285.9 281.9 220.7
Price Rs./kg 58.1 66.01 67.27 86.99 95.31
 THE CURRENT SCENARIO
(million kg) 2005 2006 2007 2008 2009 P
Production 928 956 945 981       968.0
Imports 16.376 23.81 16 20         18.0
Domestic
consumption 757 771 786 802       850.0
% increase
Exports 199 219 179 203       180.0
Closing stock 299.9 306.9 285.9 281.9       220.7
Closing stock
(months of
consumption) 4.6 4.6 4.2 3.9           3.0
Price Rs./kg 58.1 66.01 67.27 86.99 95.31
 EXPORTS TO SUFFER DUE TO FALL IN
PRODUCTION AND INCREASE IN DOMESTIC
CONSUMPTION

250
219
199 203
200 179 180

150
M n kg

100

50
24 20 18
16 16

0
2005 2006 2007 2008 2009P

Imports Exports
Exports fell by 22% in Jan-
May 09 YoY
Monthwise Exports from India

20 18
18 17
16.1
16 14.2
14 13
12 12 12 11.3
12
Mn Kg

9.8
10
8
6
4
2
0
Jan Feb Mar Apr May

2008 2009
…And with growing demand and falling
supplies, prices of tea at auction are
being pushed up..

AUCTION PRICES

120

100

80

60

40

20

0
2005 2006 2007 2008 2009 P

Price Rs./kg 58.1 66.01 67.27 86.99 95.31

pr ice Rs ./k g

Price Rs./kg
COMPANY: COSTS AND
PROFITABILITY
 THE COST STRUCTURE
For Integrated Players

Source: Crisil Research

• HIGHLY LABOR INTENSIVE: Wages & Salary accounts for about 40% of gross sales
• HIGH ENERGY COSTS: Affected by increasing prices of fuel oil and coal. At the level of Rs. 5-
7 per kg.
• LOW DEPRICIATION: As it is a labor intensive sector, capex is limited to putting up a factory,
initial investment in plantation, periodic expenditure on replantation/ rejuvenation.
• LOW INTERSET COSTS
MANPOWER: A Big Cost
Productivity declining, currently at only 20-22 kg
per worker per day.
High social costs:
 The Plantation Labor Act,1951 has mandated tea

estate management to provide a wide range of

welfare activities for the employees.
 Labor welfare costs in NORTH: Rs 7.17 per kg

Only a small portion of wages actually linked to labor

productivity
Huge level of excess employment ( cannot be cut
due to several labor laws)
 Employee cost

Wages Statutory Pay Non-Statutory

•Paid in Cash Benefits as per Other benefits

plantation act: by North Indian
housing Employers
•Drinking Water •Fuel- free of
•Sanitation cost

•Medical •Subsidised
food
•Education
Total employee cost of different states range in between Rs.70-80 per
employee per day.
HIGHLY TAXED INDUSTRY
40% of the income is subject to corporate income tax
Remaining 60% is subject to agricultural income tax at a rate
determined by respective state governments and are much higher
Indian taxation structure is very high in India at around 45% as
compared to around 23% in Sri Lanka
Taxes in Assam are highest in the country
Agriculture Income Tax Rates
State Rate (%) Othe r de tails

Assam 30 Levied on 60 per cent of the total income

We s t Exe m pt for a pe r iod of 3 ye ars w .e .f.
Be ngal NIL April 1, 2006
Kerala
(companies
only) 35 On income up to Rs 25,000
40 On income above Rs 25,000 to Rs 100,000

45 On income above Rs 100,000 to Rs 300,000

50 On income above Rs 300,000

Tam il
Nadu Nil Abolis he d w .e .f. April 1, 2004
Source: J Thomas Tea Statistics, CRISIL Research
INDIRECT TAXES
Import duty is highest in India @ 103%
Excise duty : Reduction in excise duty from
16% to nil on tea in Budget 2009-10
Customs duty reduced from 7.5% to 5% on
specified machinery for tea in Budget 09-10
Cess: @ 30 paise per kg
: for Darjeeling tea @ 12 Paise per kg
VAT : @ 4 % or 12.5 %
REALISATION
Branded Segment Players get the highest realizations followed by
those who are present in both bulk and branded segments.
Pure bulk players get the lowest realizations

Operating margins of Integrated bulk tea players

SALES MIX OF LEADING
PLAYERS
Branded
tea Loose tea
HUL Not integrated 100 0
Tata Tea Ltd Partially integrated * 90 10
Dhunseri Integrated 37.6 62.4
Goodricke Group Integrated 25.2 74.8
Mcleod Russel Integrated 0 100
Parry Agro Integrated 0 100
Warren Tea Integrated 0 100
AFT Industries Integrated 0 100
Rossell Tea Integrated 0 100
Effect of rising auction prices
Integrated non-branded players enjoy
better margins with rising auction prices
Non-integrated branded players face
margins pressure as hike in auction
prices means hike in their cost
WORLD TEA MARKET
 WORLD TEA PRODUCTION
YEAR WORLD WORLD +/-
SUPPLY DEMAND
2004 3334.53 3192.93 141.6
2005 3457.59 3348.52 109.07
2006 3572.66 3466.99 105.67
2007 3802.94 3710.84 92.1
2008 3749.78 3603.25 146.53
World tea production is growing at CAGR of 2.4% from 2004-2008
World Tea Consumption is growing at CAGR of 2.5 % from 2004-
2008
 THE BIG TEA PRODUCERS
CONTRIBUTION TO GLOBAL PRODUCTION

  India 
  Others 25%
30%

  Kenya
8%   China 
  Sri Lanka 29%
8%

•China is the biggest tea producer, India ranks second.

•India is the biggest black tea producer and China is the biggest Green Tea producer.
•India, Kenya and Sri-Lanka together accounts for 80% of black tea production.
•Black tea accounts for 75% of global tea consumption
 China accounts for 46.6% of
the total area under tea
cultivation in the World
ACREAGE

16
14.3
14

12
lakh hectares

10
7.47
8
5.6
6

4
1.9
2 1.4

0
CHINA INDIA SRI LANKA KENYA OTHERS
KENYA has the most
productive tea cultivation in
the World
YIELD

2500
2112
2000
1732
1648
Kg / Hectare

1500

1000
718

500

0
CHINA INDIA SRI LANKA KENYA
MAJOR TEA CONSUMING
NATIONS

RANK COUNTRY
1. INDIA
2. CHINA
3. CIS
4. UK
5 JAPAN
6. PAKISTAN
THE MAJOR IMPORTERS OF
TEA
Imports have expanded at the CAGR of 2.85%.

%
THE BIGGEST EXPORTERS
Share Of World Exports

Kenya
Others 23%
29%

Sri Lanka
India 18%
12%
China
18%

Growing at CAGR of 3.4% from 1996-2006

 EXPORTS BY THE MAJOR TEA PRODUCERS 2008

1400
1160
1200 980.82
1000
800
Mn Kg

600
25.60% 345.82 111% 317.7
400 21% 94%
200
0
EXPORT

EXPORT

EXPORT

EXPORT
PRODUCTION

PRODUCTION

PRODUCTION

PRODUCTION
CHINA INDIA KENYA Sri Lanka
WHO IS INDIA EXPORTING
TO ?

CIS
OTHERS 26% CIS
30%
U.A.E.
UK
IRAN
AFGHANISTAN
U.A.E. U.S.A.
12%
PAKISTAN PAKISTAN
4% U.S.A. UK OTHERS
5% IRAN
10%
8%
AFGHANISTAN
5%
WHERE IS INDIA IMPORTING
FROM ?
MAJOR IMPORTERS TO INDIA (2008)

OTHERS
12%

KENYA NEPAL
16% 39%

CHINA
7%

VIETNAM INDONESIA
9% 17%

Imports are made only for the purpose of blending and re-
exporting and not for consumption.
CURRENT GLOBAL SCENARIO
Global TEA DEFICIT in 2009
and 2010
GLOBAL SURPLUS/ DEFECIT

200
141.6 146.53
150
109.07 105.67
92.1
100

50
Mn Kg

0
2004 2005 2006 2007 2008 2009 (P) 2010 (P)
-50

-100
-100
-110
-150
 HENCE, WORLD AUCTION PRICES
ARE RISING….

WORLD AUCTION PRICES

Guwahati 101.83 80.48 21.35
Cochin 87.13 60.86 26.27
Chittagong (BANGLADESH) 85.76 66.11 19.66
Jakarta (INDONESIA) 79.6 59.68 19.92
Mombasa      ( KENYA) 119.53 95.69 23.84
Limbe (MALAWI) 72.97 54.11 18.86
139.94 107.94 32
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