Wage hike in Assam to push up cost for bulk tea producers

The ₹27 per day increase in cash wage of tea workers in Assam is likely to push up the cost of production by nearly ₹14-15 a kg for producers thereby exerting pressure on margins.

Assam Chief Minister Himanta Biswa Sarma had. at a recent meeting with stakeholders, announced that the wages for tea garden workers would be increased by ₹27 a day to ₹232 effective August 1. The supply of foodgrains by management to tea garden workers would continue as usual.

With this increase, all the tea garden workers in North India including West Bengal and Assam are set to receive wages almost at par.

It is to be noted that the West Bengal government had, in June this year, announced an interim increase in basic wage rate by 15 per cent to ₹232 a day to be brought into force restrospective January 1. This move by the West Bengal would push up cost of production by ₹16 a kg, industry insiders said.

According to Vikram Singh Gulia, MD&CEO, Amalgamated Plantations Private Ltd (APPL), the increase in cost for producers, who deploy more people on the gardens for producing better quality teas, is likely to increase by nearly ₹15-17 a kg.

“There has been a drop in production in June and July due to unfavourable weather conditions. We, at APPL, have lost close to 20 lakh kg. With this kind of wage increase and the drop in production, the overall cost of production would go up. It becomes non-tenable for large estate owners,” Gulia told BusinessLine.

Limited impact

The North Indian gardens of Assam and West Bengal have witnessed close to 15 per cent decline in production in June and July due to unfavourable weather conditions. However, the prices have remained firm so far, particularly of good quality teas and the orthodox variety. This is likely to offset the cost push at present, Kaushik Das, Vice-President and Co-Group Head, Corporate Sector Ratings, ICRA, said.   

For the week ending August 6, the average price of CTC leaf and dust sold at the auction centre in Kolkata was up by nearly 19 per cent at ₹250.88 a kg against ₹210.38 a kg same period last year; while the same at Guwahati auction centre was up by nearly 20 per cent at ₹209.95 a kg (₹175.63), Tea Board data suggest.

According to an analysis by ICRA on the auction prices during H1 CY2022, average prices of North India CTC (crush, tear, curl) teas produced by the top 50 estates, at ₹319 a kg, was 79 per cent higher than the overall auction average. The premium has increased this year compared to 65 per cent in CY2021.

In its latest report on bulk tea, ICRA had also highlighted that any revision in wage rates in Assam, the major producer of bulk tea, which contributes nearly 60 per cent of North India production and close to 50 per cent of all-India production, would materially impact profitability of the entire North India bulk tea industry, unless there is a commensurate increase in tea prices.

It had also noted that the wage hike in West Bengal would have a substantial impact on the margins of tea estates in the State, which contributes around 37 per cent to the North India production. However, the impact would be lower for producers of quality tea, given the price premium they enjoy over the average market realisations. 

“This interim wage hike is likely to result in a margin contraction of around 700 basis points on a YoY basis, for bulk tea players based out of West Bengal, at a steady state level of realisations. However, the impact is likely to be lower for bulk tea players focused on producing quality teas, given the high premium their produce fetches over the market prices,” Das said.

Published on

August 13, 2022