Bill Watterson, the genius behind the enduring legacy of Calvin & Hobbes once remarked that rainy days should be spent at home with a cup of tea and a good book. Back in India though, we don’t just drink tea; we add a little extra to it and market it as the masala chai. But even as you sit on the verandah sipping the chai off the saucer, have you ever wondered how your favorite brew got to your kitchen shelf?
In India, a tea auction is the primary channel for the factories for selling tea; this is particularly so for bought-leaf factories. The auction system has gone through many improvements in recent years and is an excellent platform (especially the new online auction platform), offering complete anonymity on the buyers’ bids. For larger estates and large scale bought-leaf factories, these auctions account for the sale of over 90% of the tea leaf production. However, the new mini-factories that have been set up by small farmers themselves face different challenges altogether.
Smaller scale mini-factories face an uphill struggle in the auctions due to a lack of proper initial promotions as well as reduced appreciation and demand for higher quality whole leaf teas. Despite all the improvements in online auction systems, there is still a long way to go towards generating more value for the small farmers. For instance, the auction prices are still only 50%-70% of export prices and only about 20%-40% (even lesser for higher quality whole leaf teas) of the final sales prices within and outside India. This is owing to the fact that there are still a lot of middle men, intermediaries and traders in the supply chain leaving behind a smaller share of the profits for the farmers & processors.
The logical next step in this journey should be to enable a direct connect between producers and consumers by leveraging technology. The coffee industry has been moving along this path for the last few years driven by multinational corporations (think Nespresso & Starbucks) as well as a large number of small/medium scale roasters demanding complete traceability and transparency – not just in quantity, but also in terms of visibility, pricing, among others – thereby passing on more value directly to the farmers. Many of these small-scale roasters have also partnered with other organizations at the grassroots to drive this change. These newer business models have not only added more value through fairer pricing, but also by training and financing the farmers.
While auctions and e-auctions have allowed the prices to be demand-driven, there are still challenges to be overcome in terms of processes and supply chain. A connection between the end consumer and the farmer along with the price transparency is key to delivering the real value back to the farmers, at least for a portion of their produce.
Although the tea industry is dominated by a large number of big estates and brands, about 60-65% of the total production comes from small-scale farmers, especially in regions like the Nilgiris. Returning their piece of the pie to the small farmers will drive long term sustainability in the tea industry and support many a happy rainy afternoon spiced with a cup of masala chai.