"Tea industry in crisis", the Indian newspaper headlines screamed. "Over 100 tea-processing factories in Nilgiris (Tamil Nadu) closing down", "Tea prices are dropping rapidly. This year, a kilo of tea is sold at the Coonoor auction at half the price of June 1993". Prices are collapsing and sales at the auctions are stagnating. The recession is not restricted to the South of India. Some 40% of all tea at the India auctions is sold at below cost price. The low tea prices are the result of plentiful supplies, caused by an increase in production, the formation of buffer stocks by large corporations, and declining exports. The parties involved are pointing the finger of reproach at one another. (1)
These alarming reports made the government and industry join forces to find ways to avert the crisis and offer a new incentive to the tea industry. The Indian government decided to take protective measures, including a restriction on tea picking in the period from December 1994 to February 1995. After this intervention by the Indian authorities, prices at the auctions showed a slight rise. The crisis in South India has, in particular, hit the small tea producers and tea workers. Although large enterprises such as Tata Tea and Brooke Bond Lipton India Ltd were faced with lower margins, these companies are big enough to survive the crisis. But small tea producers no longer had an outlet for their crops and tea picking on the large plantations had been suspended. Thousands of workers were sent home - a catastrophe for the many tea workers and their families who lost their livelihood. Indeed, even in good times it is not the tea workers or the small tea producers who benefit from the profits. In spite of the equal pay law and the plantation workers labour law, women and men receive different payment for their work, overall wages are low and the working conditions of many Indian tea workers are miserable, particularly in the North-East of India. Child labour is very common on the plantations, and small tea producers, even if organized into cooperatives, can hardly keep themselves afloat due to the fierce competition from transnational companies.
The Indian situation is not unique. In British colonial times, Tamils from India were recruited to do unskilled work on the tea plantations of Sri Lanka, the world's biggest tea-exporting country. The tea Tamils have found themselves in a disadvantaged situation ever since. On the 'labour lines', the houses of the plantation workers, housing is primitive, with poor water and electricity supply and inadequate sanitary facilities. Sri Lanka does have a legal minimum wage level. Governmental 'labour officers' control the observance of the legal regulations, but just like in India, the number of inspectors is insufficient to enforce the law.
Although tea came originally from China, India, Sri Lanka, Bangladesh, Indonesia, Kenya, Tanzania, Malawi and Zimbabwe are now the most significant producer countries. The tea from the relatively 'young' tea countries in Africa is often of high quality and stands up to competition from the traditional tea-producing countries. Although definitive figures for 1994 are not yet available, world tea production will approach the 1993 record level of over 2.5 million tonnes. However, growth rates differ greatly from one country to another. The tea crop of Sri Lanka, which ranks third on the world list of tea-producing countries, increased by an estimated 8%. Production in Bangladesh rose by 5%. The East African countries also showed a slight growth in production. However, despite the favourable weather conditions, India's crop was below that of 1993, with a drop of over 1% (which mainly attributable to the intervention by the Indian government). (2) Because a lot of tea is consumed in the producer countries, the biggest producers are not necessarily the biggest exporters. In 1994, only 40.5% of worldwide production was exported: a slight decrease from 1,147,661 tonnes in 1993 to 1,009,438 tonnes in 1994. In particular exports from the main Asian countries - except Sri Lanka - were down. The sharp drop in exports from Bangladesh, India, Indonesia and China may be due to reduced demand from the former Soviet Union. Sri Lanka succeeded in raising its exports to a record high of 225,086 tonnes in 1994.
Tea prices show great differences due to enormous diversity in quality. In contrast to coffee, there is no single world market price for tea. This does not alter the fact that prices are subject to strong fluctuations.
In 1994, India accounted for 30% of world tea production. One might expect that this would give the country a key position in establishing tea prices, but this is not necessarily the case. Although the quantity and quality of the Indian tea crop does affect the tea prices, the impact is limited. More important in determining tea prices are the economic relationships between South and North and the power of transnational companies. To start with, developing countries depend on foreign exchange for financing economic and technical developments and for paying off loans. Export is essential for earning foreign currency. Today, tea is cultivated in 30 countries, and the economies of several countries depend heavily on the export of tea. The more a producer country depends on the receipts from tea exports, the more decisive tea prices are for the country's future development.
Since the end of the 1970s, tea prices have hardly changed. So in real terms the price has dropped. States such as Rwanda (which earns more than 90% of its foreign exchange through export of tea and coffee) are particularly hard hit. It is not only national governments which are affected. Lower prices for tea are passed on to a country's less advantaged social groups in the form of lower wages and high inflation. In order to compensate for dropping export earnings and subsequent dwindling purchasing power, many countries extend their cultivated area and expand export volumes. Between 1980 and 1990, worldwide production of tea increased by more than 40%. Major tea producers such as Bangladesh, India, Kenya, Malawi and Tanzania have extended their tea production area by a total of 130,000 hectares over the past few years. Moreover, competition has become stronger since the 1960s due to the emergence of the African tea industry, resulting in continued low prices. Expectations are that production will increase further in years to come, whereas tea consumption will remain more or less stable. Increased production in many tea-producing countries and reduced demand led in 1994 to drops in prices at virtually all tea auctions. (3) The average price at the London tea auction, for example, fell by 3.6% compared to 1993. Higher tea prices are not expected in the short and medium term.
Tea is usually exported in cases. In the buyer country, it is blended and packed by the tea companies. This is the most lucrative part of the tea trade. The large profits do not accrue to the tea-producing countries; the big money is made abroad, in the countries where blending and packaging takes place. In Europe, 30 to 50% of the consumer price goes to blending, packing, packaging material and promotion. Many producers do try to sell processed tea in tea bags or prepacked consumer units. However, the export of ready-for- use tea is often impeded by poor marketing and absence of funds for expensive marketing strategies.
Tea is still grown as a typical plantation product. Tea plantations have both agricultural and industrial features. The work in the tea gardens is basically of an agricultural and labour-intensive nature. The planting, maintenance and harvesting is done by hand. In tropical areas, the tea can be picked all the year round, the work mostly being done by women. The leaves are put in baskets or bags which the women carry on their backs. The full baskets and bags are regularly taken to a collecting point, weighed and transported to the processing factory. The processing has a large-scale and industrial character. The tea must be processed on the same day as it has been picked, so there must be a processing factory on the plantation or in its immediate vicinity. In the factory, where the tea undergoes five different treatments, the work is largely mechanized and accounts for only some 10% of total employment in the tea sector.
Plantation work The situation of the people employed at the plantations can differ both between and within producing countries, but in general one can say that tea producers, e.g. plantation owners or state enterprises, can only survive with tea prices if the tea workers' wages are low too. Many claims for the implementation of labour laws and minimum wages remain unattained for the tea pickers and or tea workers. In India, for instance, the plantation sector was formally reformed after independence and laws for the protection of workers were passed. However, controls on the implementation of the law are fake, and the sanctions for breaking laws are so minimal that plantation owners are hardly affected by them. The implementation of the law is thus essentially left to the employers, and the improvement of working conditions is obviously not the first priority for the companies.
In South India, around the cities and on the larger plantations, the conditions are relatively good. In the North and the North-East, many tea pickers still live and work in miserable situations. The workers in the Indian tea sector are highly organised. But there may be strong rivalry between the various unions on the tea plantations, and the labour unrest thus caused is rather to the disadvantage of the workers and to the benefit of the management. The 'elected' union leaders do not always present the interests of the group of men and women working on the plantations. The plantation workers belong to the lowest socio-economic group and have many women and Adivasi (indigenous people) among them. The union leaders are often 'outsiders' from the middle class. Besides being indifferent, some of them are even prejudiced against Adivasi, women and unskilled labour.
Small tea farmers Although tea is traditionally a plantation product, in many countries it is also cultivated by small- scale producers. In Sri Lanka, for instance, more than half the tea crop is produced by small tea farmers, and in Nilgiris (the biggest tea area of South India) small-scale production is predominant. Kenyan tea comes almost exclusively from small farmers' cooperatives. The cultivation of tea is attractive to small farmers; tea provides work and income the throughout the year, requires relatively little investment, and the risk of complete crop failure is rather small. Small farmers sell their crop to middlemen, to plantations or to 'bought leaf factories' - factories which buy up green tea, process and sell it. The prices paid for the green tea are usually low. According to the intermediaries, the tea supplied by small farmers is inferior to the plantation product. This of course depresses the price paid to them even further. The farmers are said to lack the necessary knowledge of how to pick and store the leaves and treat the shrubs and the land. Due to poor transport possibilities, it often takes too long for their tea to be processed - which does not improve its quality. Besides, small farmers may lack the resources to afford the necessary technical input (e.g. irrigation and fertiliser).
Tea was included long ago in the product range of the European fair trade organisations. The EFTA member organisations import tea from 17 partners in Asia and Africa, who are for the most part private companies such as Stassen in Sri Lanka, but also include small farmers, (for example in Zimbabwe) (see boxes). Since 1994, two different fair trade seals have been issued to fairly traded tea. The TransFair label is currently applied to teas in Germany, Luxembourg, Austria and Japan, whereas the FairTrade Mark can be found on products on the British market. Neither of the fair trade marks restrict themselves to purchases from small farmers. In fact, the producer registers include large plantations, which have to satisfy at least the local legal criteria for working conditions such as minimum wage, housing and health care. Neither of the labelling initiatives has established a minimum price. Instead, a premium price is paid on top of the market price (which must cover at least the costs of production). These premiums go into a fund for the benefit of the workers. A consultative body, in which both the workers and the management are represented, decides on the use of the money. In this set-up, the relationship between workers and management is of vital importance.
The situation of many tea producers is harrowing; there is a large group of underprivileged workers and farmers. These most disadvantaged producers in the tea sector would benefit most from the fair trade relationships. On tea plantations, involving millions of workers worldwide, the working conditions often leave much to be desired. Fair trading with plantations where the workers are paid and treated well, can contribute significantly to elimination of structural poverty. Of course, trading with small tea producers continues to be an important option as it offers the best opportunities for the empowerment of tea producers. One obvious problem is that small farmers have to turn to privately owned factories for the processing of their tea.
Ownership of a factory requires considerable capital, so small tea farmers' cooperatives with a factory of their own are few and far between. Moreover, with a few exceptions, the quality of the tea from small farmers is considered to be below export standards. The small farmers generally lack the necessary knowledge of how to pick and store the leaves and treat the shrubs and the land. They also lack the resources to afford the necessary technical input and transport facilities. In both Africa and Asia, there are cases of small farmers who have organised themselves to deal with these problems. They can achieve the qualities produced on large private plantations thanks to appropriate organizational structures. A well known example is the semi-governmental small farmers' organization "Kenyan Tea Development Authority", which has become the world's biggest single exporter of tea.
In the Netherlands, Fair Trade Organisatie, the National India Working Group and the labelling foundation Max Havelaar are currently examining new possibilities for cooperation with small farmers. Their study shows that importing from small farmers' cooperatives in other areas is not impossible. There are cooperative factories in South India, and farmers are also beginning to organise in Sri Lanka. A few obstacles are still to be surmounted, especially in the field of quality, but fair trade may provide just that bit of support for the cooperatives to develop into reliable trading partners who are able to supply good quality tea.
Large tea corporations |
The price of tea is largely determined by supply and demand. But large tea corporations such as Brooke-Bond Lipton Ltd (Unilever), Lyons Tetley and Premier Brands have a considerable influence on supply and demand and thus on the price-fixing process. Market concentration is extremely high: 90% of Western trade is in the hands of 7 transnational companies and 85% of world production is sold by multinationals. Their market power is a main determinant at all tea auctions. With their buying policy these corporations strongly influence both price move and the demand for certain qualities of tea. Their ownership of both plantations and processing factories is called horizontal integration, but there is vertical integration as well (in that they also control transport companies, shipping agencies etc.).
This concentration of power, with corporations sometimes controlling the entire production process from tea shrub to tea bag, offers ample scope for manipulation. This happened for instance in the mid-1980s, when Indian tea prices rose considerably because the former Soviet Union bought up large quantities of tea, while consumption in India was increasing as well. The transnational corporations decided to bring down the high price by temporarily refraining from buying Indian tea, which gradually depressed the price. During that period, the Indian government attempted twice to get a grip on the market by imposing export restrictions, thus trying to avoid shortages on the local market. At the same time, it set a minimum export price with the aim of keeping prices at a profitable level. The large tea corporations then decided to withdraw collectively from the Indian market, with the result that nothing could be exported at all. The Indian government had no choice but to lift the measures again.
Transnational corporations can afford such actions thanks to their high degree of flexibility, their buffer stocks and their speculative transactions. The flexibility of companies is enhanced by deliberately reducing differences in quality. With the exception of a few quality-conscious consumer countries, a constant degeneration and adaptation of tea qualities goes on all over the world. Many tea qualities have become exchangeable and are bought where they are cheapest.
Fair Trade criteria |
In fair trade, prices paid for tea should at least cover the costs of production and provide for an extra margin for the improvement of working and living conditions and future might investments which include. conversion to organic cultivation and education and training for small farmers.
Advance payment prevents producers from falling into any debt trap before they can see their harvest. At the producer's request, part of the product value can be paid in the form of advance payment. Small growers can use this money for example to improve the productivity of their land and therefore the quality of the tea.
Producers are very vulnerable to the erratic movements of the international tea market. Fair trade organisations in principle maintain trade relations on a long-term basis which gives producers security in planning. This allows them to plan social development projects or transition to organic cultivation with long term goals.
Fair trade organisations prefer tea to be packed in the producer countries. In this way, producers receive the added value and new jobs are created. This step is particular important for the trading partners. They wish to be more than the suppliers of a commodity is usually refined, blended and packed in the industrialized countries.
Pioneers in ecological tea cultivation |
Fair trade organisations also promote nonpolluting production and cultivation methods. Organic cultivation of plants is not just a question of producing unpolluted food for the consumer. For the plantation workers health protection is particularly important and on a long-term basis organic cultivation also helps to increase soil fertility and to restore the ecological balance in a region. In intensive tea cultivation this balance is lost. In monocultures, intensive use of pesticides and fertilizers is needed to protect the plants against pest infestation and to enhance productivity. The soil is being leached out. The application of chemical fertilizers and pesticides without proper protection is particularly dangerous for the people who live and work on plantations. Insufficient safety regulations and growing contamination of drinking water damage the health of the people living on the plantations.
The German fair trade organisation Gepa did pioneering work in this field. In cooperation with its Sri Lankan trading partner Stassen, Gepa initiated the first organic tea project in 1986. Artificial fertilizer is replaced by compost, made of cow dung and plants gathered near the plantation. It is distributed on the fields by hand. Shade trees prevent soil erosion and improve the microclimate around the plants. At first, yields declined drastically but they have stabilized over the years. Crop yields of organic tea cultivation are lower than of conventional cultivation, but the slower growth produces tea that is more aromatic. More people find regular work in the cultivation of organic tea and benefit from the improved infrastructure and social services. Today, seven small, privately owned tea plantations are part of the organic tea project. A social programme for plantation workers is also included. Health care, housing and education have improved a great deal. Young people are now being trained to become tailors or bricklayers, so that they no longer depend on tea picking as their only source of income. Through workers' committees, the plantation workers have a real say in the way things are done on the plantations.
Today the European fair trade organisations buy organically grown tea from different plantations in Asia, including the Samabeong plantation in Darjeeling, Singampatti in South India and Idulgashena in Sri Lanka.
Tea from small farmers in Zimbabwe |
In Zimbabwe the cultivation of tea is not restricted to large plantations. A large number of small farmers grow tea shrubs alongside staple food. Patrick Chikomba is co-ordinator of the Honde Valley Tea Growers Association in a area near the border with Mozambique. "In the 1970s we founded the Association, to be able to speak in one voice at the yearly fixing of purchase prices", he recalls. "The Honde Valley is a vast region and therefore our organisation is decentralized. Thanks to short distances the farmers can attend the meetings and take charge of regional administrative tasks". The 600 active members of the tea growers' association, live scattered in small villages with ten to twenty families in each. Every village represents a producer group within the association. The Honde Valley tea growers sell their tea to the Katiyo tea factory. This tea company markets its own tea and that of the small farmers' association. On the basis of a yearly fixed price the fresh tea leaves are collected and processed by the tea company. The tea factory is owned by the Agricultural Rural Development Authority (ARDA), a semi-governmental corporation. ARDA aims to improve basic food supply and to step up the processing of agricultural produce. "For the time being, processing and export have to be done by ARDA Katiyo factory, as we lack the necessary infrastructure e.g. a tea factory. We are confident, however, because ARDA approves the independence of the small farmers' association and supports its close cooperation with alternative trade organisations", Patrick Chikomba says.
The extra price paid by fair trade organisations goes into a fund that is administered by small farmers. It serves to finance social and economic development programmes. An agricultural advisory service holds training courses for quality control. In cooperation with the farmers, proposals are worked out for optimizing cultivation on mountain slopes. In addition this development fund is used to buy bicycles and wheelbarrows, in order to make it easier for tea growers who live in remote places to bring their tea to collecting places. The members' meeting decides on the projects and the distribution of funds. Representatives of the different regions pass on ideas from the members to the management committee. Patrick Chikomba states: "So far, only part of the tea has been sold to alternative trade organisations. Therefore, we don't want to distribute the premium indiscriminately. We want to start developmental projects that are for the benefit of all."
| 1978 | 113.69 |
| 1979 | 102.05 |
| 1980 | 96.12 |
| 1981 | 99.30 |
| 1982 | 110.49 |
| 1983 | 149.58 |
| 1984 | 262.85 |
| 1985 | 158.96 |
| 1986 | 131.96 |
| 1987 | 105.09 |
| 1988 | 100.84 |
| 1989 | 125.99 |
| 1990 | 115.35 |
| 1991 | 104.67 |
| 1992 | 112.78 |
| 1993 | 123.50 |
| 1994 | 119.08 |
World Tea Production 1993 |
|
| India | 29 |
| China | 23 |
| Sri Lanka | 9 |
| Kenya | 8 |
| Indonesië | 5 |
| Turkije | 5 |
| Japan | 4 |
World Tea Exports 1993 |
|
| Sri Lanka | 18 |
| China | 18 |
| Kenya | 16 |
| India | 16 |
| Indonesië | 11 |
| Malawi | 3 |
Share of tea in exports 1992 |
|
| Rwanda | 30 |
| Kenya | 29 |
| Sri Lanka | 11 |
| Malawi | 8 |
| Tanzania | 6 |
| India | 2 |
| China | 0,5 |
