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Tea Smallholdings in Assam

With the declining competitiveness of tea estates, smallholdings have emerged as a major producer of tea in Assam. Yet despite higher productivity and lower outsourced labour costs, and regardless of market conditions, tea smallholdings remain at the mercy of estate processing factories in price determination. The Sri Lankan model of price fi xation and regulatory support can prove useful in this sector, but the current acreage defi nition for smallholdings needs to be lowered.







Tea Smallholdings in Assam

Is There a Way Out?

Kalyan Das

With the declining competitiveness of tea estates, smallholdings have emerged as a major producer of tea in Assam. Yet despite higher productivity and lower outsourced labour costs, and regardless of market conditions, tea smallholdings remain at the mercy of estate processing factories in price determination. The Sri Lankan model of price fi xation and regulatory support can prove useful in this sector, but the current acreage defi nition for smallholdings needs to be lowered.

Kalyan Das ( is with the Omeo Kumar Das Institute of Social Change and Development, Guwahati.

Economic & Political Weekly

march 17, 2012

mallholders producing tea in Assam are facing a crisis of anxiety and uncertainty over prices they receive for supplying raw tea leaves to the large estates and bought leaf tea f actories. The smallholders having no processing factories of their own, and hence depend entirely on the large estates and bought leaf tea factories to sell their output. The deceleration of the price of raw tea leaves has been so rapid in recent months that the price offered by the large estates factories has come down from Rs 21 per kg in August 2011 to Rs 4 in October 2011. This large decline has brought issues of distributive justice to the fore, creating uproar and protest among the tea smallholders. There have also been demands for state intervention for a mechanism that ensures a fair price for the raw leaves.1 The protest is so anguished that in one single day on 15 October 2011, the smallholders threw 10 lakh kg of tea leaves on the highways.

This is not the first time that tea smallholders are facing a crisis over uncertain prices. The history can be traced back to the year 2000, with periodic returns of low prices, with no linkages to the country’s or region’s tea market price.2 The uncertain prices of raw tea leaves and the dependence of smallholders on the large estate factories raise questions of

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distributive justice and the sustainability of tea smallholdings.

Space for Tea Smallholdings

Production and productivity trends in some tea-producing regions in the world show an encouraging picture. Tea culti

vation in Kenya, based primarily on smaller sized plantations with an average holding of about two acres, has emerged as a major producer. The average productivity for Kenyan tea has now reached 2,100 kg per hectare, much higher than the average productivity in India of around 1,700 kg.

In Sri Lanka, tea smallholdings, 97% of which are less than two acres of land, account for just 44% of the total tea plantations area, but contribute 66% of the country’s total production, according to a census of tea smallholdings of Sri Lanka in 2005. According to de Silva (1982), there is no criterion stating that the plantation has to be of a specifi c size. He points out that estates are not larger sized because of internal economics of scale. Crop production technology allows for divisibility, and is therefore more suitable for smallholdings. Instead, extensive plantations were preferred in the colonial economy because the agency houses had to take over a wide range of tasks on b ehalf of the British absentee owners.

These examples open up the case for smallholdings in tea plantations. The tea sector in Assam till the 1980s was entirely dominated by the large estates. Tea smallholdings are now mushrooming in Assam, and we see a distinct shift in the production structure with the decline in acreages and production share in the otherwise dominant estate sector. Smallholdings


now number 50,795,3 and account for 22.7% of the total tea acreages of the state (Government of Assam 2010) and an estimated 1.4 lakh workers.

In the context of India or Assam, the largest producer of tea in India, there are few regulatory or institutional forces in favour of consolidation of tea smallholdings.4 On the other hand, tea estates have now started to lose competitiveness due to old plantations, negligence in maintenance and failure to place tea in upper-end markets. More than 50% of tea acreage in India is more than 40 years old, awaiting replantation. Since 1991, no single year shows more than 0.4% replantation in tea acreage, as against the prescribed annual norm of 2%. No doubt these old plantations lead to lower productivity, and India has lost the status of largest producer of tea to China in 2006.

The challenges faced by the estate sector of tea plantations arise because of low productivity and associated high l abour costs.5 To a considerable extent, this is now addressed by fl exible outsourcing, or procurement of raw tea leaves, from the unorganised tea smallholdings. In the relatively new smallholding plantations, productivity is high, up to 3,500 kg/ha in some sampled holdings (Das 2010). This has helped to keep the labour costs low. Labour cost is also low in tea smallholdings because of the unorganised nature of work, which does not come under the domain of the Plantation Labour Act (PLA), 1951. Outsourcing to the smallholdings by the e state sector has two repercussions. On one hand, it restricts opportunities for work in the estate sector, and on the

o ther, limits the burden of providing to workers the compulsory pecuniary and non-pecuniary benefits set by the PLA.

We now see a clear advantage in the tea sector for smallholdings. Area under tea smallholdings (size class of less than

8.1 hectare) in 1991, according to the Tea Board of India, was just 10,853 hectares or 2.6% of the total tea acreage. These smallholdings were concentrated mostly in south India. Now smallholdings have emerged in the areas dominated by estates (Assam and West Bengal). In 2006, the area under tea smallholdings constituted 1,54,099 hectares or 27.2% of the total acreage of tea, with a size class of less than 10.1 hectares, according to the Tea Board of India’s revised criterion (2011a), accounting for 25.4% of total production. On the other hand, the acreage under tea estates declined from 4,09,684 hectares to 4,01,512 hectares, or about 1.99%, during 1991 to 2006.

The Operational Mode and the Present Crisis

Tea smallholdings are never expected to assume the mode of dominant producers. They are seen only as a means for providing some additional earnings to the peasantry, and thus absorbing rural surplus labour. The process of consolidation, however, can have two stages. One is the dependent subcontractor mode, where the smallholders just supply leaves to the estate factories. A more coherent mode is with the emergence of institutions ensuring real and regulatory services. It can be said that tea smallholdings in Assam are still at stage one.

Being placed in the situation of dependent subcontractors, tea smallholders remain disadvantaged. Tea smallholdings have just become a convenient source for outsourcing by the estate sector, which sets the price of the raw tea leaves in the process. The bargaining strength of tea smallholders with regard to this perishable item is at a bare minimum. Field interactions with smallholders reveal that there is little logical reason for the low price offered. Tea factories simply return supplies, citing inferior quality, or compel smallholders to accept the unremunerative price.

The present form of protest by the smallholders highlights the wastage and missed opportunities in raising market share through the production boom led by smallholdings. Considering the rising demand of tea even in the context of the domestic market,6 there seems to be no justification for the abrupt fall in the price of tea leaves. However, there may be i ssues with the capacity of processing factories on estates for accommodating rising field production and demand. There is scope for an assessment of capacity. Higher productivity on tea smallholdings provides a good opportunity for carving


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    out a niche in a competitive market for the decelerating tea sector of India.

    The Example of Sri Lanka

    India has a lot to learn from the Sri Lankan experience with tea smallholdings. In Sri Lanka, there are about 2.63 lakh smallholders, covering 2.31 lakh acres of land. The average size of smallholdings is just 0.88 acres (Ministry of Plantation Industries 2008). Sri Lanka has a dedicated authority, called the Tea Small Holdings Development Authority (TSHDA) to ensure institutional and regulatory support for tea smallholders. The TSHDA was established in 1975 u nder the Parliamentary Act No 35, with primary objective of supporting the development of smallholdings that do not have their own means of tea processing (Das 2010).

    The TSHDAs role presently ranges from helping smallholders gain the right price of their leaves, to assisting development and maintenance of holdings through subsidised incentives schemes for replanting, new planting, and distribution of fertilisers on credit. However, the major activity of the TSHDA lies in the extension services provided by its personnel. These personnel are trained in agriculture extension and give smallholders guidance in soil conservation, soil and nutrients analysis and fertiliser applications, pruning and harvesting of tea (Das 2010). The entire operational fund for the TSHDA comes from the share of the cess imposed on tea exported from Sri Lanka, which is Sri Lankan Rs 4 for one kg of tea at present. The TSHDA receives 37 to 40% of the total cess collected in a year.

    In an effort to ensure that smallholders share the gains from the market, Sri Lankan government operates a scheme that makes it obligatory for processing factories to pay the smallholders a price not less than that calculated according to a formula. The formula assumes that to make one kg of dry tea requires 4.65 kg of green leaves; the cost component for producing one kg of made tea in the factories is 32% of the total costs of production. The price that smallholders r eceive is linked to the Colombo auction; this helps to link benefits from any escalations in tea price. Thus the price payable

    Economic & Political Weekly

    march 17, 2012

    for a kg of green leaves is net sale average of processed tea at auction × (1/4.65) ×

    0.68 (the cost of production at fi eld).

    This formula serves as protection against exploitation by processing factories, though proponents of deregulation do not favour its continuation on the grounds that it stands in the way of smallholders improving leaf quality standards. However, viewed in the wider context of an uncertain and vulnerable tea market, it appears that the system has its merits (Sivaram 1996).

    Tea smallholdings have now emerged as a coherent mode of accumulation in Sri Lanka, contributing 66% of Sri Lanka’s total tea production. Unlike India, the surveillance system in Sri Lanka is able to capture the quantum of tea leaves procured by the estate sector from the smallholdings. This figure shows a rising trend over the years, going from 21.7% in 1998 to 27.4% in 2007.

    The emerging regime of smallholding initiated by the peasantry could be considered a bonus for India’s tea sector. As in the Sri Lankan context, the regime can be made mature, by introducing a ppropriate regulation. A major issue, however, revolves around the criterion for defining the size of tea smallholdings. Holdings are ideally called small if they are about two acres in size, manageable with two-three workers, and operated with family labour. With such a definition, regulation such as the adoption of a formula for fixing the price of tea leaf to ensure the right price to peasants would suffice. However, the Tea Board of India’s recognition of smallholding acreages of up to 10.1 hectares could lead to the creation of a petty bourgeoisie class using the labour pool in flexible mode. These smallholdings can take advantages of tax concessions and other regulatory support, leaving the workers engaged in an unregulated and insecure environment.


    1 The Tea (Marketing) Control Order, 2003 of the Ministry of Commerce and Industry, Government of India has a clause on fixation of a price-sharing formula for raw tea leaves, which states that every registered manufacturer engaged in the purchase of green tea leaves shall pay to the supplier a reasonable price according to the price-sharing formula. This formula

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    may be specified by the Registering Authority, from time to time and implemented in a manner as determined by the Registering Authority, with the prior approval of the central government. The reasonable price for the green tea leaves according to the price-sharing formula shall be determined taking into account the sale proceeds received by the registered manufacturer. This statement however appears to be a directive only; such individually arranged modalities lack the legal force to take a form of a universal mode. The entire process in fact has never tested and applied in the state of Assam.

    2 Data on the auction price of tea in the Indian market show a rising trend over the years, with the exception of 2005. The average price of dry tea in the Indian auction market was Rs 48 in 1995. This had increased to Rs 105.6 in 2009. Month-wise data for 2009 showed a low of Rs 80 in February and a high of Rs 119 in May.

    3 Unofficial estimates of the All Assam Small Tea Growers Association reveal the numbers of tea smallholders at more than 70,000. It may be noted that in upper Assam districts, the peasantry in recent time has gone for large-scale conversions of homestead land into tea plantations.

    4 In 1978, the agriculture minister of Assam a nnounced in the state assembly that the state government would like to encourage the peasantry to take up tea plantations in their homestead and fallow land.

    5 The estate sector plantations of Assam follow the system of payment to workers that combines wage as well as output contracts. To get the stipulated daily wage, a worker needs to pluck a minimum quantum of 23 kg of leaves. Labour demand, as well as fulfilling the minimum plucking task, require maintaining a certain level of uniform productivity over the extent of the plantation. This ensures optimum work for the workers. Unlike contract jobs, in the context of regular deployment of workers in the estate sector, low productivity leads to underutilisation of workers and higher costs of production in this labour-intensive sector.

    6 The tea sector of India was able to cultivate a domestic source of growth with huge internal demand. Internal consumption of tea in the country has increased from 673 million kg in 2001 to 802 million kg in 2008, according to the Tea Board of India (2011b) statistics.


    Das, K (2010): “The Smallholding Tea Plantations of Sri Lanka and Assam”, International Journal of Ethnic and Social Studies, 1(1):1-40.

    de Silva, S B (1982): The Political Economy of Underdevelopment (London: Routledge).

    Government of Assam (2010): Statistical Handbook of Assam (Guwahati: Directorate of Economics and Statistics).

    Ministry of Plantation Industries (2008): Plantation Sector Statistical Pocket Book (Colombo: Planning Division).

    Sivaram, B (1996), “Productivity Improvement and Labour Relations in the Tea Industry in South Asia”, Sectoral Activities Programme, International Labour Organisation.

    Tea Board of India (2011a): “Growers and Area u nder Tea”, Tea Statistics, Ministry of Commerce and Industry, Government of India, Kolkata. Accessed 3 February 2012: Area%20under%20Tea.pdf.

    – (2011b): “Estimates of (Internal) Consumption and Per Capita Consumption of Tea in India”, Tea Statistics, Ministry of Commerce and I ndustry, Government of India, Kolkata. Accessed 3 February 2012: http://www.teaboard.

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