Tea producers push for Minimum Sustainable Price amid rising production costs

Guwahati: India’s tea industry has called for the early introduction of a Minimum Sustainable Price (MSP) after a committee constituted by the Tea Board of India recommended a benchmark pricing mechanism to address the widening gap between production costs and tea prices.

The recommendation comes at a time when tea producers are grappling with rising input costs, stagnant price realisations and the prospect of further wage increases under the Code on Wages. Industry associations say the proposed mechanism could provide a financial cushion to producers, particularly small tea growers, whose livelihoods depend on the prices they receive for green leaf.

India, the world’s second-largest tea producer, produces around 1,350–1,400 million kg of tea annually. Small tea growers account for nearly 55% of the country’s production, making their economic sustainability critical to the industry’s future.

The Indian Tea Association (ITA), Tea Association of India (TAI), United Planters’ Association of Southern India (UPASI), Confederation of Indian Small Tea Growers Associations (CISTA) and Federation of Indian Tea Manufacturers Association (FITMA) have jointly welcomed the committee’s recommendation and urged the Ministry of Commerce to notify the proposed MSP at the earliest.

The associations said tea prices have increased at a compound annual growth rate of around 2–3% over the years, compared with an estimated 10–14% rise in input costs. This growing disparity, they said, has weakened producers’ ability to sustain operations, invest in replantation and improve productivity and quality.

Wage costs add to pressure

The proposed MSP assumes significance in an industry where employment costs account for approximately 60% of the total cost of production.

With the anticipated notification of floor wages by the Centre and state governments under the Code on Wages, producers expect further increases in operating expenses.

C.K. Dhanuka, chairman of Dhunseri Tea and Industries, said the industry was facing mounting cost pressures while tea price realisations remained relatively stagnant.

“A Minimum Sustainable Price framework is therefore essential to bridge the widening gap between production costs and market realisations and to ensure the long-term sustainability of the industry,” Dhanuka said.

He said the mechanism would help producers accommodate wage revisions, protect employment and maintain the competitiveness of Indian tea.

The committee has recommended a composite index incorporating wage movements and the Consumer Price Index (CPI) to determine the benchmark MSP. It has also proposed periodic reviews to ensure the benchmark reflects changes in production costs and inflation.

However, the recommendation has not yet been notified as a pricing mechanism. Its implementation will depend on the government’s consideration of the committee’s proposals.

Small growers at the centre of the debate

For Assam and other tea-growing states in the Northeast, the proposed pricing framework has particular significance because of the large number of small tea growers who supply green leaf to bought-leaf factories (BLFs).

Unlike organised tea estates, small growers generally sell freshly harvested green leaf to factories, which process it into made tea for auction or other markets.

The economics of this supply chain is closely linked to the prices realised for made tea. When auction prices are insufficient to cover processing costs and provide viable returns, bought-leaf factories come under pressure to reduce the prices offered to growers.

This creates a cascading effect across the value chain, with small growers often bearing the consequences of weak market realisations.

A sustainable pricing mechanism could help address this imbalance. However, its effectiveness would depend on how the benchmark is calculated and whether it translates into viable returns for growers, factories and organised estates.

Bijoy Gopal Chakraborty, president of CISTA, said the economic viability of small tea growers was intrinsically linked to the prices realised for green leaf.

“A properly structured Minimum Sustainable Price mechanism would help ensure more remunerative and stable returns for small tea growers, thereby safeguarding their livelihoods and supporting the sustainable growth of this important segment,” he said.

The proposed framework is also expected to recognise the operating costs of bought-leaf factories, which provide market access to small growers and play a critical role in processing green leaf into made tea.

Deven Singh, chairman of FITMA, said the sustainability of BLFs depended on the relationship between green-leaf procurement prices, processing costs and made-tea price realisations.

He said the proposed mechanism must adequately recognise the economics of factories while ensuring viable returns across the tea value chain.

Regional cost differences need recognition

The industry has also called for a pricing framework that accounts for differences in production conditions across India’s tea-growing regions.

Agro-climatic conditions, cultivation practices, productivity levels and operating costs vary considerably between regions, influencing the economics of tea production.

A uniform benchmark that fails to account for these differences could prove inadequate in addressing the financial pressures faced by producers across the country.

Suneel Singh Sikand, chairman of ITA, said remunerative returns were critical to sustaining operations and facilitating investments in replantation and productivity enhancement.

TAI president Shailja Mehta said improved financial viability would allow producers to maintain quality standards, invest in modernisation and respond more effectively to changing market requirements.

Sanjith R. Nair, secretary general of UPASI, said the framework needed to remain responsive to regional differences while ensuring the sustainability and international competitiveness of Indian tea.

What an MSP could mean for the industry

The proposed MSP is intended to provide a more predictable pricing benchmark for producers and help narrow the gap between production costs and market realisations.

Industry associations say improved returns could support investments in cultivation, processing, quality enhancement and modernisation. Greater financial stability could also encourage producers to maintain quality standards and strengthen India’s position in the global tea market.

However, the proposed mechanism’s impact on small growers will depend on how it is implemented across the supply chain.

For growers selling green leaf, the critical question will be whether the benchmark translates into better procurement prices. For bought-leaf factories, the challenge will be to balance sustainable procurement rates with processing costs and the prices realised for made tea.

The industry associations have urged the Ministry of Commerce to take favourable note of the committee’s recommendations and notify the MSP at the earliest.

A sustainable pricing framework, they said, would be essential not only to maintain the production of quality Indian tea but also to safeguard the livelihoods of millions of people dependent on the sector.