Tea prices to rise in 2012 on supply shortage, wage hike

Get set to pay more for your cup of tea. A continued demand-supply gap, high input costs and wage hikes for tea garden workers means tea prices will go up around Rs 10 per kg when the new season begins this year.

"There is supply shortage, wages were hiked in tea gardens in West Bengal and input costs have also increased. So tea prices will go up this year," said Arun Singh, vice chairman of Indian Tea Association.

Demand supply gap has been increasing in India in recent years. While tea consumption has been growing at 3-3.5% every year, there has been no significant increase in plantation land in the last few years, he said.

According to the Indian Tea Association, India produced 985 million kg of tea in 2011, up from 966 million kg produced in 2010. But the total output missed the 1 billion kg mark due to unfavourable weather (early winter in North East and rains in South India) in October-December.

Apart from the supply shortage, tea workers' wages were revised in West Bengal by as much as 34% last year, which has increased production costs. Singh, who is also the MD and CEO of Goodricke Group said a similar wage hike was on cards in tea gardens in Assam this year, and that would mean further rise in production costs.

"Negotiations are currently on and there will be wage hikes on retrospective basis," he said on the sidelines of a road show organised by the Indian Tea Association.

He didn't give a quantum of the likely wage hikes, but said it would be similar to those in West Bengal.

Labour accounts for 60-65% of total costs, while electricity, coal and diesel account for 20-25%.

Singh said tea gardens were increasingly facing labour issues as more workers now preferred to migrate to cities for work, thus in a way making wage hikes necessary.

Singh and other tea producers say mechanization is becoming more of a necessity due to shortage of labour. However, using machines on tea gardens will certainly lower the quality of tea producers, Singh said.

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