Tea Industry

Introduction:

Tea has a long history in India since 18th century, China has even older share in history of tea
where it was mainly reserved for royal family. The industry has grown a lot since then with
innovation and improvement in quality of production. In India tea has been a morning queen for
households for a long time now, the first thing in the morning that family prepares is hot tea.
India is the second largest producer of tea and the largest producer of Black tea. All the activities
related to production, import, export etc. are controlled by Tea Board India, which comes under
the control of Union Government. The board was constituted in 1903 after the Tea Cess bill was
passed. Most of the demand is local, of the 1325 million kgs produced last year only 256 kgs was
exported out of India and rest was consumed in India. Though this number is commendable but it
reflects that the industry is mostly dependent on local demand. Here is the table showing the
production and export of tea from 2012 till 2017.

PRODUCTION AND EXPORT OF TEA

Production Export
1325.05
1400 1200.41 1207.31 1208.66 1239.15
1126.33
1200
IN MILLION KGS

1000
800
600
400 208.26 219.06 207.44 228.66 216.79 256.57
200
0
2012 2013 2014 2015 2016 2017
AXIS TITLE

As it is depicted in the graph, tea production and export touched an all-time record in 2017 when
the production was 1325.05 and export 256.57. It can also be inferred that due to a high domestic
demand, the industry has become complacent, and not focusing on the expensive varieties of tea.

There are many types of tea produced in India.

Tea production requires a lot of care and tea planters states that the green leaf is a perishable
commodity. It is required to pluck these leaves daily otherwise, there is high chance of quality
deterioration and thus work can not be postponed to next day in this industry. This industry is
facing a lot of challenges, stagnated auction price and increased production cost are a few of the
major issues. According to a report ITC Supplement to Annual Bulletin of Statistics, 2016[1] tea

1
prices around the world have remained same over the years. The table shows price of tea ( in $)
in different countries.

Year All India Bangladesh Sri Lanka Indonesia Kenya Malawi

2012 2.28 2.68 3.07 1.97 2.88 1.7
2013 2.2 2.46 3.44 1.98 2.41 1.82
2014 2.08 2.19 3.53 1.66 2.03 1.43
2015 1.94 2.41 2.97 1.56 2.73 1.56
2016 2 2.55 3.2 1.64 2.29 1.55

It can be inferred from the table that tea is price sensitive and the prices have come down in all
the countries around the globe.
In India there are many factors that affects the production of tea that ranges from regional
political issues to global warming. Assam is India’s largest tea producer and tea production is the
lifeline of Assam, where lakhs of people are dependent on its cultivation. In one of the report in
Economic Times, the Chairman of North Eastern Tea Association said that “The tea industry is
sure to have a slow and painful death if this menace of bandh is not stopped immediately.”[2]
Other factors that are likely to affect the supply of tea are increased wage rate in states like
Assam and West Bengal, which are the two largest tea producers in India.

Initially there was only one type of tea, but in recent times, number of variants have increased.
The list below shows the number of variants available in the market now.

1. Normal Black tea

2. Bai Mudan tea
3. White tea
4. Green tea
5. Oolong tea

With more types available in market, more and more health conscious people are shifting to tea.

2
Demand and Supply of Tea
Many factors decide the demand and supply curve of tea. The data available below is real data
that means inflation factor is not taken in consideration. It creates a constrain for plotting the
same on line curve. The table shows the demand and quantity supplied in the market over a
period of 5 years from 2012-2017.

Demanded Average Price of

Year Average Price of Supply Supplied Quantity Quantity Demand
2011 104.06 1115.72 856 178.6
2012 121.81 1126.33 873 190.12
2013 128.46 1200.41 890 196.47
2014 126.88 1207.31 911 224.07
2015 124.48 1208.66 932 218.81
2016 134.34 1267.36 951 228.31
2017 133.11 1278.83 983 218.15

Exact equilibrium point can not be plotted on the graph as the factors such as demanded quantity
on price is not available.

To find what are the factors that affect the supply and demand, elasticity concept has been
applied. To calculate various elasticity, data for 2016 - 2017 has been used.

1. Price Elasticity of Supply

Δ𝑄 𝑃
Es = *
Δ𝑃 𝑄
Δ𝑄
Where Δ𝑃 is Change in quantity supplied / Change in Price.
The calculated value is little less than 1 in magnitude, but moving towards 1 it implies that the
supply is moving towards the unit elasticity.

2. Price Elasticity of Demand

Δ𝑄 𝑃
Ed = *
Δ𝑃 𝑄
Δ𝑄
Where Δ𝑃 is change in Change in quantity demanded / Change in Price

The calculated value is less than 1 in magnitude it implies that the demand is relatively inelastic
of the price change.

3. Arc elasticity of Demand

∆𝑸 (𝑷𝟏+𝑷𝟐)/𝟐
Arc Elasticity of Demand = ∆𝑷 (𝑸𝟏+𝑸𝟐)/𝟐

3
 4. Income elasticity of Demand

Δ𝑄 𝐼
EI = *
Δ𝐼 𝑄

Market Structure

Results:
Only secondary data was collected for use from different sources such as Tea Board of India, IndiaStat
website, various reports available on tea industry and newspaper excerpts.

Inference:

Tea is supplied by different suppliers who participate in auction and bid for tea. If the product is not profitable then it
will be hard to find auctioneers for tea.

[2]//economictimes.indiatimes.com/articleshow/65476526.cms?utm_source=contentofinterest&utm_medium=text&ut
m_campaign=cppst