Your favourite cup of tea has undergone a makeover, but the tea industry is grappling with challenges
The humble Indian tea has undergone quite a makeover in recent times from initially being seen as a social drink to now being recognised as a health drink in the market. However, at the ground level, the tea industry is dealing with various issues and challenges. Also, COVID-19 and the inclement weather have only added to its woes.
Anushruti Singh September 20, 2021
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Imagining India without tea would be an offense to chai lovers, who cannot fathom starting their day without a hot cup of this beverage with lots of milk and sugar added in, occasionally zinged up with ginger or cardamom. In fact, for them any time can be chai time.
Tea is now the default social beverage, making it is almost irreplaceable, and it is the de facto beverage in any type of hospitality offering. Many still assume that tea has had a long history in the subcontinent, which is quite incorrect. As a matter of fact, in just the latter two-thirds of the 20th century, tea drinking started to become a part of Indian culture, thanks to the British, and is now a ubiquitous habit in this country with a sizeable market share.
Tea board statistics say that India’s per capita tea consumption equals to 840 grams. Even though our per capita consumption is not the topmost in the world, due to our large population, tea consumption in India accounts for 19 per cent of the global consumption of tea. Even better, almost 89 per cent of the total production is consumed within the country.
Along with providing a quality sensory experience, the health benefits that tea bestows on its drinkers is another reason for its massive popularity in India. That is why, besides, what we call chai, black tea, green tea or herbal chai and every possible tea mix and concoction can be seen on the supermarket aisles nowadays.
Moreover, over the years, a plethora of tea start-ups have emerged, brewing their own formulas, introducing quirky combos and opening tea lounges all over the country, making it a more premium product than it ever was. Which certainly indicates how global our palates have become. The outbreak of the pandemic has led to the inception of more trends in the Indian tea industry.
A new tea culture in brewing
For quite some time, the tea market has been in the grip of rapid changes and alterations. From your local chaiwallah to tea points like Chaayos or Chai Point, all are now offering new tea’tails (tea cocktails) with quirky combos. And people are loving them.
Also, with tea having so many health benefits, especially drawn from dadi, nani ke nuskhe— it has become the go-to drink for all Indians amidst the lockdowns.
Ekta Jain, CMO at the 150-year-old tea brand, Octavius Tea, says that it is unquestionably true that this green beverage has helped individuals to establish a healthy lifestyle.
According to her, due to people becoming more health-conscious, and the rising momentum towards wellness, the concept of wellness teas has gained immense popularity.
“Herbal and immunity teas are becoming relatively popular. The love for superfoods based herbal tea and kadha has really soared. While gourmet tea and coffee are trending as well. Over the past few years, people have started to love exploring and trying different flavours and super-food ingredients that are beneficial to their health,” she says.
Parimal Shah, a third-generation tea farmer and the Founder & CEO of Cherise India feels the same. He says that tea-based beverages are becoming popular due to their anti-viral properties. “It has been consumed more as a stress-buster in these unprecedented times. People have realised the importance of healthy eating and are shifting towards healthier variants of tea including green, white or black tea. Consuming tea as a part of wellness is a common trend now in every household,” he avers.
Given the popularity of the old and new concoctions, newer segments within the tea industry are being engendered. According to Market Research Future, a research firm, the herbal tea market is growing at a rate of 4.94 per cent and is projected to reach $4,226.9 million by 2025.
Another rising market is that of organic teas. This market was $820.8 million in 2019 and it may go up to $1,918.7 million by 2027, with a CAGR of 11.2 per cent, globally.
“Herbs in all forms have always been a part of the Indian diet and is even more so now. Herbal teas are now a global phenomenon and will continue to be a growing segment,” says Atul Rastogi, President at Luxmi Tea Company Private Limited, a brand extant since 1912.
Adding Ayurvedic healing virtues to the humble chai, Kolkata based The Indian Chai is another brand which has been thriving on consumer demand for herbal concoction. Its founder & CEO, Amit Jain says, pandemic has given Ayurveda a lot of exposure and ancient ways of healing gained limelight. “A lot of herbs that were not widely known suddenly witnessed huge sales. Blending these herbs with tea leaves hence became the latest trend,”
The trend has added to their revenue cycles, as they hit the benchmark sales in July 2020. Amit tells us, “We sold more than 12,000 units in that month. ever since we are thriving continuously to maintain the same. We also revamped our packaging and gave TIC a new look and feel. We will soon launch a gifting range for the coming festive season. We are also catering to launch more teas related to women’s health,” he said.
But that doesn’t mean that conventional tea drinking is going to be impacted in any way as it’s just the conventional chai but in a modern avatar. “Consumers still love their traditional teas. There will not be a major impact as consumers actually do prefer a cup of Darjeeling or Assam Tea to kick start their day and then have a cup of green tea or herbal tea later in the day preferably as a post meal hot beverage,” Rastogi opines.
This will only have a constructive effect on the tea-based beverages industry. Due to the surge in tea consumption, many start-ups and tea joints are popping up, armed with innovative recipes and they are also encouraging out of home tea drinking to further enhance the tea drinking experience for their consumers.
For example, have you heard of shilajit tea, detox haldi tea or fruit-infused teas?
No more tapri—it’s a serious business
From our chaiwallah prime minister to chai pe charcha—tea in India means business.
And this business has now become a competitive arena. People nowadays have an insatiable appetite for something new—even in the arena of a traditional beverage like tea. That is why, experimental offerings and businesses tend to attract a wider audience and garner much attention. For instance, the people of Surat are enjoying tea beverages from the first chai on wheels café called Mr. Chai Bike, a mobile shop shaped like a chocolaty giant mug. Its video is going viral on social media, further increasing its popularity.
Similarly, there’s NRI Chaiwala, an intriguing café in Noida, which sells 35 variants of tea with the most bizarre names. Some of them are—Mummy Ki Hath Wali Chai, Mardon Wali Chai, Corporate Wali Chai and Doston Wali Chai, which makes it a unique joint and it has been clocking average daily sales of Rs 30,000 to 40,000.
Its founder, Jagdish Kumar, an ex-hotelier from New Zealand and an ardent supporter of Prime Minister Narendra Modi, returned to India in 2018 and began selling tea in 2019. “Tea drinking is an emotion in India. The market has a huge potential of Rs 6,000 crores to 8,000 crores. With this, there is much opportunity which needs to be explored,” he tells us.
Seeing the response, the café has continued to expand the variety of the products it offers. And now, with the health trend in full swing, it is planning to launch a tea for women that will aid them during their menstrual cycles. “I can’t disclose the name as of now, but we are working on it and it will come soon,” says Kumar.
Cherise India is another tea player in the field which wants to popularise tea vending in India. Shah feels that the perception of vending machines here has always been a bit negative. “People tend to avoid having beverages from vending machines due to low hygiene, poor taste or inferior technology. Cherise is an attempt to solve these issues…” he says.
Setting up IoT based tea vending machines, Cherise founder Shah calls his business a ‘farm to cup’ ecosystem. Where they buy from the farm, make their own blends, brand and vend them. “The concept is to bring cherishable moments on-demand by way of super-smart IoT and android-based smart vending kiosks. The likes of which were earlier seen only in Western countries,” he says.
Through smart vending machines and kiosks, Cherise offers a unique experience by providing traditional Indian beverages such as Mumbai Masala Chai, Madras Coffee etc. Shah tells us that during FY 20-21, Cherise vending kiosks have sold over 30 lakh cups of tea, coffee, milk, and soups in the cities of Pune, Mumbai & Goa. Since the start of this new FY 21-22, the company has entered Hyderabad, Nagpur, and Ahmedabad. By the end of FY 21-22, Cherise smart vending kiosks will be available Pan-India.
However, even as the competition keeps growing in the market with numerous start-ups coming up, the legacy brands are optimistic that they are here to stay.
Jain of Octavius Tea says, “It is true that with the new entrants, there is a vast choice of teas, tea gifts, etc. available to the customers. Still, customers seek quality products and a trusted brand. Most new entrants in this industry lack a tea background or have little experience in this industry. Many of them do not have their own plantations with tea experts. Therefore, we have a distinct advantage over the new companies in terms of quality and blends that are of the highest quality. With a long-standing legacy, a rich heritage, experience, and experts, established companies can better understand the needs of their clients, which ultimately results in gaining their trust.”
Farm to cup is gaining ground
Tea businesses such as Cherise India, Vahdam Teas or even Karma Kettle are all new age businesses running on the farm to cup concept. Which indicates how business models have altered over the years.
In a nutshell, these businesses are consciously eliminating middlemen on both the buying and selling side. Which puts more money directly into the hands of the farmers. “The farm to cup model is wonderful in more ways than one,” says Rastogi, a long timer of this industry as he further elaborates on this business model.
“The journey from the farm to the cup is the shortest possible in this model as it does away with the traditional route that involves several middlemen. From a brand’s perspective, we build a valuable relationship with our customers, and we get real time insights into their likes and preferences that enables us to customise their experience as well as our product offerings. So, we see it is as a win-win situation for the consumer as well as for us,” he explains.
Sustainability in chai too
India, being the world’s second largest tea producer has a lot of concerns over climate change, unethical farming and business operations. With a renewed emphasis on going back to nature, and improving social standards, the industry players are gradually incorporating sustainability into their operations.
Tea companies and brands such as Tata tea, the ITC group and others already have their sustainability goals in place.
Speaking more on this, Rastogi of Luxmi Tea avers that keeping sustainability goals is not a mere trend but a standard practice now, and it’s an imperative business practice which a brand should follow for their own advancement.
“We take sustainability very seriously at Luxmi. It is much more than a trend for us,” he says.
He then tells us about their take on sustainability, saying, “We have been the stalwarts of organic and pesticide free farming for several years now. We are also planting a lot of trees in and around our tea estates. Our operations are less dependent on chemicals, and we are practicing indigenous technical knowledge (ITK)– sprays made from locally grown herbs which give resistance to pests. We are also improving the soil quality through natural processes. While we are making these changes, it will take several years before the good results show.”
Being an early adopter of sustainable practices, Octavius Tea also relies on sustainable farming. Jain tells us, “Our objective has always been to live sustainably and to be accountable for a better environment. To conserve wildlife and wetlands as well as promote employee and community well-being, we have set high standards for sustainability. Our efforts enrich the environment because we are passionate about it.”
Besides sustainable farming, the company also offers sustainable packaging across all of its product categories as an attempt to contribute towards fostering a more eco-conscious environment. “The company makes a conscious effort to promote sustainability in the way we live. We at Octavius believe in recycling, so we design our packaging with that in mind. Each year, Octavius saves thousands of trees through its waste-free process. We also use compostable packaging in a lot of our products,” she informs us.
At the same time, this term has been hyped up quite a lot and brands are leveraging it more as a marketing tool now to attract customers, as people are now more focused on all things sustainable.
How COVID-19 impacted this industry
The COVID-19 crisis has also had an impact on the Indian tea industry. The good news is that tea consumption is increasing, and the market is seeing more innovations and new products. All the various brands that we spoke to have experienced a buoyancy in their sales revenues, despite the ill effects of the pandemic.
For instance, the Goodricke Group, another tea brand, has reported a total income of Rs 175.34 crores during the period ended June 30, 2021, as compared to Rs 115.24 crores during the period ended March 31, 2021.
Octavius also tells us about a surge in their sales, “We benefited from that because the price was higher. The recent period, however, has seen a stunning increase in sales,” says Jain. Similarly, Luxmi Tea has also witnessed an increase in their sales. Rastogi says, “Revenue has remained buoyant at around Rs 150 crores for the same period this year and the same period for the previous year.”
However, there have been some negative repercussions on the industry, which the end user cannot see. Globally, the advent of COVID-19 spelt doom for many tea producers because of the lockdowns and social distancing requirements. Trade-related restrictions and logistics issues have affected the tea market as well, remarks Jain. Almost every tea player experienced some sort of challenge at various levels.
Low tea production
Initially during the start of the pandemic, it was mostly tea production that was hampered.
Tea Board estimates state that India produced 1255.60 million kilograms of tea in 2020. But the production has dropped 9.7 per cent from 2019. “Restrictions on garden activities in the initial periods of the lockdown, followed by the inclement weather conditions and the flooding in Assam has impacted tea production,” says Shah of Cherise.
Rastogi also cites climate change as one of the most daunting challenges for the tea plantation owners, “It does have some amount of impact on our crops every year,” he points out.
Similarly for Octavius, the supply of tea was lower than the demand as certain tea plantations were shut down to combat the COVID cases in their gardens. “Being a producer and manufacturer of tea, our company had to develop and implement emergency response measures to prevent the spread of COVID-19 in our tea plantations, factories and packaging centres,” says Jain and according to her, there has also been a drastic decrease in the out-of-home consumption of tea at tea stalls, restaurants, cafes, hotels, offices, and factories.
Rastogi of Luxmi Tea also weighs in, saying, “It was the fortitude of our pluckers and estate managers that saw the entire company through, what was possibly the roughest patch in its history. Compared to 2020, there has been an increase of 10 per cent in our crop in 2021. Prices are 15 per cent lower than what they were in 2020.”
The industry is witnessing a lot of improvement in FY21, and it will provide some respite to the beleaguered tea industry, which has been plagued by a consistent increase in costs and stagnating tea prices, feel the tea players.
“Despite the burdens incurred due to COVID-19, the global tea industry predictions appear optimistic. Retail sales in India are expected to pick up in the second quarter of 2021 because of the laxer COVID-led restrictions in many states,” says Jain.
Fluctuating prices are a sore point
Even if tea retail is doing fine, the plantation segment has still not gotten any respite from the doom inflicted by the coronavirus pandemic. The cost of production has escalated, and the price of tea has dropped. Meanwhile, the decline in auction prices is rubbing salt on the wounds suffered by this sector.
“In the tea industry, the biggest challenge lies in tea prices that are not keeping pace with the rising costs. In India, production costs continue to rise faster than the prices,” asserts Jain.
Take for instance, the Assam zone, which contributes roughly 55 per cent to India’s total tea production, is struggling due to falling prices. A worried North-eastern Tea Association (NETA) states that the prices have gone below the cost of production (CoP) and there has been less production of the crop due to the COVID-induced situation.
NETA advisor Bidyananda Barkakoty says, “The price realisation of tea is lower by Rs 44.19 per kg, which is about 18 per cent lower compared to last year. While, CoP has gone up by Rs 25 per kg of made tea due to the recent hike in daily wages from Rs 167 to Rs 205. It has also gone up by Rs 7 per kg of made tea due to the increase in the cost of inputs like fertilisers, pesticides, diesel, natural gas, coal, transportation etc. Therefore, the net negative impact on the industry so far is to the tune of Rs 76 per kg of made tea.”
According to the apex body, Assam’s total tea production in 2021, from January to June, was less by about 41 million kgs, which is about 19 per cent less compared to the same period in 2019.
At the same time, auction prices are dwindling, recording an all-time time low at various centres.
NETA Chairman Sunil Jallan told media that the average price realisation of CTC (crush, tear, curl) tea at the Guwahati Tea Auction Centre (GTAC) this year, from April to July, was Rs 208.02 per kg, whereas it was Rs 252.21 per kg during the same period last year. “Therefore, the average price realization this year is lower by Rs 44.19 per kg. Only about 9 per cent tea has fetched above Rs 300 per kg and about 51 per cent tea has sold below Rs 200 per kg,” he informs us.
While at the Coonoor Tea Trade Association, tea auction prices were the lowest in a fortnight. According to media reports, the average price was brought down to Rs 93.79 a kg. While the tea volume on offer was at a four-month low—18.66 lakh kgs in the first week of September. Which is around 72,000 kgs less than the offer for last week. As per the association officials, this is due to the lower production of green leaf tea and the volume on offer has dropped drastically.
Which only indicates that the plantation players are not getting any respite soon. Even rating agency ICRA feels the same. Its analysis projects that the tea industry may continue to face challenges due to the hike in wages and its impact on prices, as production returns to normal amidst a somewhat improved performance.
“The impact on bulk tea prices once the production returns to normal in the new season would be a critical factor in determining the profitability in the next financial year. West Bengal has recently announced a 15 per cent increase in wage rates, on an interim basis, which would increase the cost of production for bulk tea companies,” it states.
Nepal tea turns a spoiler for your cup of Darjeeling tea
As a result of the Gorkhaland agitation, the Assam tea industry lost business in 2017. At the time, European buyers gravitated towards the Nepalese tea industry. This resulted in considerable losses for the Indian tea industry, which is still felt today.
Nepal tea, also known as Himalayan tea, is orthodox and similar to Darjeeling tea. It is, however, much less expensive than the well-known Bengal Hills tea.
Simultaneously, the zero-duty imports of Nepal teas under the South Asian Free Trade Agreement (SAFTA) have tarnished the reputation of the Assam tea industry. The majority of the industry’s stakeholders claim that its flow is unchecked, having a negative impact on the sector. Furthermore, Nepal tea disguised as Darjeeling tea is available in markets, which is a serious violation of the law.
“The low cost of production of Nepal teas makes them a serious competitor to our famous Darjeeling teas. In addition, Nepal tea is being sold as Darjeeling tea in the domestic and international markets, which is an infringement against the GI tag,” says Jain.
The stakeholders claim that Nepal tea blended with Darjeeling tea, depreciates its quality and the lowering of prices is hurting the Indian market. That is why, after grappling with the various challenges due to the COVID pandemic and the inclement weather, the tea planters are now strongly urging the government to impose a ban on Nepal tea imports.
According to the Darjeeling Tea Association (DTA), last year 8.9 million kgs of made tea from Nepal entered the Indian market. This has further compounded the issues that are already being faced by the Darjeeling tea export industry and it has been detrimental for its overall growth and development. Industry sources estimate that there was a 10-12 per cent drop in exports of Darjeeling tea last year.
Lower tea exports from India
Last year, tea exports from India dipped significantly and are likely to fall by 15 per cent in 2021 as well.
Tea Board data says that exports fell by 13.23 per cent between Jan-March this year as against the corresponding period a year ago, and by 29.03 per cent compared to 2019.
The dip in the share of shipments from North India has been more compared to South India since the last three years. While the tea export share of South India fell by 5.41 per cent in 2021 between January and March compared to the same period in 2020, the decline was 25.85 per cent compared to 2019.
In case of exports from North India, the figure for the three-month period was lower by 17.83 per cent as against 2020 and 31.04 per cent compared to 2019. Industry sources claim that exports have suffered in the last two-three years due to the very low prices of Kenyan and Sri Lankan tea.
Sources blame the Kenyan tea auction price average, which is below $2 per kg, which is much lesser than our auction average. According to market research, Kenyan tea is available for $1.8 per kg (Rs 130-135 per kg) on an average, while for Indian tea, the average auction price is nearly Rs 200-210 per kg.
But we cannot place all the blame on other regions.
In fact, India, as a large consumer market, retains more than 80 per cent of the tea produced in it for domestic consumption. While Kenya and Sri Lanka sell 90 per cent of their produce to third markets because they grow tea as an export crop and their consumption is limited.
Commenting about Kenya and Sri Lanka’s success in tea exports, Jain explains, “Kenya as an exporter takes advantage of Egypt’s zero duty policy. While, with Pakistan (second largest tea importer) it has negotiated a favourable quid pro quo trade agreement (tea for rice). Adding both, these two countries import over 175 million kilograms of tea from Kenya. If we talk about Sri Lanka, it also has a barter system with Turkey, which is a high-tax tea-producing country and is now negotiating a PTA (preferential trade agreement) with China and Bangladesh.”
That’s why Kenya and Sri Lanka are doing well in exports, she says, “Such advantages are not available to India.” If India wants to top tea exports, it needs to expand its market share in traditional markets such as the US, Russia, Iran and the UAE. “For this active participation is required from the government, as well as the development of a strategic plan for the industry that addresses the short, medium, and long-term issues,” continues Jain.
India will keep sipping tea
In India, tea is basically a staple. And its consumption is being veritably driven by the high penetration of the beverage in the country across socio-economic classes. That’s why it is going to be the favourite beverage of almost every Indian for a long time to come.
Jain and Rastogi say that the per capita consumption of tea remains lower in India than it is in the other Asian or European countries. “According to a recent survey and forecast, the market is expected to grow again during the forecast period of 2021-2026, growing at a CAGR of 4.2 per cent. In India, tea production is expected to reach 1.4 million tons by 2026,” they claim.
Rastogi explains the reasons behind this growing market, saying, “India’s healthy economic growth and the subsequent rise in the middle-class population are also proving to be the catalysts for the industry’s growth as the consumers are preferring premium brands.”
While the rising demand for the packaged variety of the beverage in both urban and rural areas due to the lesser chances of adulteration, convenient storage, and their superior quality is further aiding the tea industry in India, he adds.
The demand for packaged varieties with natural ingredients is also witnessing a growth. The major drivers of the industry are the rising disposable incomes, increasing population, and the healthy production and consumption of the beverage.
On the other hand, the industry finds itself amidst an exciting and innovative phase.
“The Indian tea industry is innovating itself and diversifying into the fields of developing flavours through herbs and micro-nutrients,” says Shah.
The demand for teas with exotic flavours and quirky combos incorporated with health enhancing qualities is surging.
“Blending herbs with traditional teas so far has been the best innovation in the tea industry. For example our PCOS tea has seen a huge surge in demand. Also positive feedback from our customers are encouraging us to launch a few more healthcentric teas,”comments Amit of The Indian Chai.
Besides that, new business models and other trends such as sustainability are trending as well.
Being one of the oldest industries in the nation, the Indian tea market will remain one of the largest employers of the nation, after Indian Railways. Thus, it has a great and strategic importance for our economy.
“When you see so many new players entering the tea industry you know that it has a huge scope. The Tea Industry is a continuously growing market, it all depends on how best you make use of the opportunity when it arrives,” comments Amit.
Also, undoubtedly it has always enjoyed great appeal amongst the masses in such a way, that it’s a way of life for most of us. Experts opine that with the growing perception of tea as a health drink, the demand is expected to rise in the years to come. However, the industry is grappling with many challenges at the ground level, which the consumers may not be aware of. The ultimate solution lies in regular interactions with the people in the field and the government’s active support in the form of strong export policies.