Tea production industry in India projected to rise to 1.61 mil tons in 2027

India is the world’s second largest producer of tea, after China. In India, the production of black tea stood at 1.26 million tonnes in 2017. Total export rose by 12.71% to reach 0.26 million tonnes in 2017-18. Black tea production in India is projected to rise to 1.61 million tonnes in 2027. India set an export target of 300 million kilograms for 2020

Definition / Scope
Market Overview
Market Risks
Top Market Opportunities
Market Drivers
Industry Challenges
Pricing Trends
Regulatory trends
Other Key Market Trends
Market Size and Forecast
Market Outlook
Technology Roadmap
Distribution Chain Analysis
Competitive Landscape
Key Market Players
Strategic Conclusion
References
Appendix

Definition / Scope

Tea is one of the most popular but low-cost non-alcoholic beverage almost consumed by more than 60% of the Indian population from youth to old age group of people. It falls in the Ready To Drink (RTD) category of beverages and cost starting at USD 0.15 per cup.

Tea plantation is labor-intensive work and is planted in the hilly regions. Major tea growing regions in India are Assam, Darjeeling, West Bengal, and Tamil Nadu and tea produced in each region has got its unique Geographical Indication (GI).

Based on the production type, tea is divided into three types: CTC, Orthodox, and Green. Orthodox tea comes in the form of the whole leaf produced using the traditional process. CTC tea is made by the process involving crushing, tearing, and curling steps run in cylindrical rollers to process black tea.

Green tea is similar to orthodox tea but tea leaves are not fermented while making green tea. Each type of tea signifies its own physical attributes and social symbol in India.

Darjeeling Tea

Elevation: Teas are grown at elevations ranging from 600 to 2000 meters above sea level.
Annual Rainfall: The average annual rainfall in Darjeeling ranges around the 309cm mark.

Darjeeling Tea cannot be grown or manufactured anywhere else in the world. Just as Champagne is indigenous to the Champagne district of France, so is Darjeeling Tea to Darjeeling.

True Darjeeling Tea possesses a flavor and quality, which sets it apart from other teas. As a result, it has won the patronage and recognition of discerning consumers worldwide for more than a century. Darjeeling Tea that is worthy of its name cannot be grown or manufactured anywhere else in the world.

Geographical Indication: To assist the Tea Board in its role of authenticating the regional origin of Darjeeling Tea, it has developed a unique logo, known as the Darjeeling logo as a geographical indication.

At a legal level, Tea Board is the owner of all intellectual property rights in the Darjeeling word and logo both in common law and under the provisions of the following statutes in India:

The Trade Marks Act 1999
The Geographical Indications of Goods (Registration and Protection) Act, 1999
The Copyright Act, 1957

Use of the Darjeeling word and logo are protected as Geographical Indications in India and as Certification Trade Marks in UK, USA, Australia, Taiwan, and India.

The certification scheme put in place by the Tea Board covers all stages from the production level to the export stage and meets the dual objective of ensuring that (1) tea sold as Darjeeling Tea in India and worldwide is genuine Darjeeling Tea produced in the defined regions of the District of Darjeeling and meets the criteria laid down by the Tea Board and (2) all sellers of genuine Darjeeling Tea are duly licensed.

This licensing program affords the Tea Board the necessary information and control over the Darjeeling Tea industry to ensure that tea sold under the certification marks adheres to the standards for DARJEELING Tea as set forth by the Tea Board.

Thus, only 100% Darjeeling Tea is entitled to carry the DARJEELING logo. While purchasing Darjeeling Tea, you need to look for Tea Board’s certification and license number, or else you will not get the taste and character that you should expect from Darjeeling Tea.

Assam Tea

Elevation: Teas are grown at elevations ranging from 45 to 60 meters above sea level.
Annual Rainfall: 250 to 380cm.

Assam means ‘one without equal’ and that is really true about its teas. The strong tea, grown on the rolling plains by the Brahmaputra river that weaves her way through vales and hills, is famous for its smooth malty flavor.

A taste crafted by the region’s rich loamy soil, unique climate, and liberal rainfall. Assam is not just the largest contiguous tea-growing area in the world. All to make sure that the tea bushes yield high-quality tea.

Geographical Indication: Both Orthodox and CTC (Crush/Tear/Curl) varieties of tea are manufactured here. Assam Orthodox Tea is a registered Geographical Indication (GI).

Nilgiri Tea

Elevation: Teas are grown at elevations ranging from 1000 to 2500 meters above sea level.
Annual Rainfall: 150 to 230cm.

The beautiful Nilgiri Hills, sprawling through the states of Tamil Nadu, Karnataka, and Kerala, is home to the pastoral Toda tribe and tea gardens that create the fragrant cup of tea. Nilgiri tea has a slightly fruity, minty flavor, probably because trees like the Blue Gum and Eucalyptus dot the region.

And perhaps the spices produced in close proximity to the tea gardens lend the light brew its briskness. The balanced blend of flavor and body makes Nilgiri tea a ‘blender’s dream’. The Nilgiri Hills aka the ‘Blue Mountains’ come under the influence of both south-west and north-east monsoons.

Geographical Indication: Nilgiri Orthodox tea is a registered Geographical Indication (GI). Both Orthodox and CTC varieties of tea are manufactured in this region.

Tea Attributes: A deliciously fragrant and exquisitely aromatic tea, with high tones of delicate floral notes and a golden yellow liquor. Crisply brisk and bright. Lingering notes of dusk flowers with an undercurrent of briskness. Creamy mouthfeel. A truly flavored tea for a stressful day.

Kangra Tea

Elevation: Teas are grown at elevations ranging from 900 to 1400 meters above sea level.
Annual Rainfall: 270 to 350cm.

The climate, the characteristic terrain and soil conditions, and the coolness of the snow-clad mountains in Himachal’s famous Kangra region; all play a role in crafting a delightfully distinct cup of quality tea.

The history of Kangra tea dates back to 1849 when Dr. Jameson, then superintendent of the Botanical Tea Gardens, pronounced the region ideal for tea cultivation. Being one of India’s smallest tea regions makes Kangra green and black tea all the more exclusive.

While the black tea has a sweet lingering after taste, the green tea has a delicate woody aroma. The demand for Kangra tea has been increasing steadily and much of it is bought by natives and exported to Kabul and Central Asia via Peshawar.

Geographical Indication: Kangra tea is a registered Geographical Indication (GI).

Tea Attributes: The first flush of Kangra tea is known for quality, unique aroma and tinge of fruity flavor. A little milder than Darjeeling tea in terms of flavor, Kangra tea has more body and liquor.

Market Overview

Globally tea is grown in more than 48 countries. However, only the top seven countries including India contributed 70% of the total world tea production.

India is a major producer of black tea with annual production of 1,278 million kilograms.
India is the third largest tea exporter to China while on an average more than 75% of the production is annually consumed in Indian.
The country is home to a wide variety of teas, including CTC tea, orthodox tea, green tea, and organic tea.
Unlike much other tea producing and exporting nations, India has a manufacturing base for both CTC and orthodox tea, in addition to green tea.

India offers high-quality specialty teas, such as Darjeeling, Assam Orthodox and the high- range Nilgiri, which have a distinctive aroma, strength, color and flavor.

In 2017, India clocked the highest tea exports in 36 years with 240.68 million kilograms. The figure depicts the Indian tea export in 2017 and 2018. In December 2017 alone, the export was 14.64 million kilogram.
Orthodox tea is expected to be a competitive advantage for Indian tea exports. Iran and Iraq will be the two major destinations for orthodox teas this year. China and Egypt are also emerging as major black tea markets for India.
In dollar terms, total exports were USD 678.56 million in 2018. In the previous year, the figure was stood at USD 687.02 million.
The CIS region including Russia and Ukraine was the largest importer of India tea. It accounted for 24.26% of total exports during the first eleven months of 2018 and nearly 30% of its demand is met by India.
It is followed by Iran, which imported 27.26 million kilograms of tea.
UAE was the third largest importer of tea accounting for 8.37% of the total exports.
Similarly, India exported around 14 million kilograms of tea to Pakistan and UK each.

Organized sector produces 703.44 million kilograms of tea while the remaining 47% of the total 1325.05 million kilograms output comes from small growers.

India now consumes 19 percent of the world’s tea. Per capita, tea consumption was 26.5 cups in 2017 while spending USD 1.5. UK has the highest per capita consumption of 170.7 cups with per capita spending of USD 16.7.

Market Risks

Oversupply of cheap tea

Small growers supply 47% of the tea and the growth trajectory is taking over the organized sector that is regulated by the government framework of the Plantations Labour Act. The tea that small growers have not marked any quality standards that government grants after inspection.

In the international market, this trend is cannibalizing the brand image tea produced in India. Because of which despite having the international brand reputation of Darjeeling and Assam Tea, these brands are relegating in international market against Dilmah, a globally reputed brand from Sri Lanka

Climate risk

Unlike other production industry, tea is very sensitive to climate change. Tea cultivation has a specific temperature and precipitation requirement. Rainfall, low or no rainfall in crop season, prolonged dry spell, sometimes flood like situations, increasing temperature, etc. are major challenges in almost all tea gardens thereby reducing the annual operation cycle from 9-10 months to 8-9 months or lower impacting the fragrance and quality of originality.

In Assam, there has been a steady increase in the number of days with temperatures greater than 30˚C. The annual and seasonal maximum temperatures have also been considerably above the ideal temperature range of 18˚C to 30˚C.

In Assam, the environmental body predicts a 75% increase in the number of drought weeks and a 5–38% increase in the number of extreme rainfall days between 2021 and 2050.

Tea production is highly sensitive to changes in growing conditions. Tea can only be produced in narrowly defined agro-ecological conditions and, hence, in a very limited number of countries, many of which will be heavily impacted by climate change.

Changes in temperature and rainfall patterns, with more floods and droughts, are already affecting yields, tea product quality, and prices, lowering incomes and threatening rural livelihoods. These climate changes are expected to intensify, calling for urgent adaptation measures.

In parallel, there is a growing recognition of the need to contribute to climate change mitigation, by reducing carbon emissions from tea production and processing.

Price stagnation risk

The auction price for tea has barely changed since 2013. At the country’s largest auction center in Guwahati, the average price for tea per kg between 2013 and 2018 was USD 1.76, USD 1.75, USD 1.78, USD 1.86 and USD 1.85, respectively.

Top Market Opportunities

Chinese market

The Chinese market is proving to be a lucrative opportunity for Indian exporters. The export of Indian tea to China reached 9 million kilograms in 2017 from just 2 million in 2002. It is expected that 20 million kilograms of Indian tea will be exported to China by 2022.

E-commerce, branding, and promotional activities in China have made it possible to market the tea produced in India. Moreover, China’s relatively low import tariff of 7.5 to 15 percent compared to 30 percent in Russia has made it possible for a big export market for Indian tea.

China consumed 2 million tonnes of tea worth USD 33.8 billion in 2017. Tea import from Sri Lanka, Kenya, Uganda, and Vietnam comprise 30 million kilograms valued USD 150 million.

Changing landscape of consumption

The emergence of companies like Teabox, Vahdam Tea, and Tea Trunk have made a wide variety of teas, including 250 premium varieties and selling in both online and offline stores.

Tea bars run by chains like Chai Point and Chaayos have taken tea serving beyond homes and roadside stalls. This changing pattern is creating more demand over carbonated drinks where consumers can have the same purchasing behavior but a different taste from cold tea to hot tea.

Growing consumer segment

The psychological demand for coffee has stagnated though the functional attributes still exist in people’s mind. Millennial is the experiential group of people who go beyond the norms. As coffee has become routine they are shifting to have a different taste of tea considering its superior benefits over coffee.

Millennial are following the morning trend of sipping green/herbal tea by the fitness geeks that the follow on social media. In the domestic market, coffee is not a commonly drunk beverage that is why Starbucks is not outperforming in the Indian market.

One-third of India’s population is aged between 15-34. Tea cafes are attracting this young millennial segment with varieties of flavors and tastes.

Changing landscape of consumption

The emergence of companies like Teabox, Vahdam Tea, and Tea Trunk have made a wide variety of teas, including 250 premium varieties and selling in both online and offline stores.

Market Drivers

Change in taste: As the carbonated drink market is losing sharing to healthier beverages, and given the shift in consumer preferences, Ready TO Drink (RTD) tea market is predicted to grow at a CAGR of 7% during 2015-2020.
New healthy ingredients: Tea brands like new entrant Tea Box are adding health beneficial ingredients for creating their USP. Tea Box adds fragrant spices, ginger, and red pepper keeping in mind the healthy ingredients. Tata Tea also provides health and energy ingredients in its tea. The ingredients include basil leaf and garcinia, and ither herbs.
Unpackaged tea: The primary driver of the growth of unpackaged tea is the price. Unpackaged tea is often priced much lower than its branded equivalent and thus more appealing to lower-income consumers, particularly those that reside in rural India. Attracting this important demographic for more consumption through lower price points achieved through small packaging or lower quality tea will be key for producers seeking to increase their penetration in rural India.

Industry Challenges

Labour Shortage

The tea sector is a highly labor-intensive industry. The interest of workers on garden-based field work is diminishing due to sociological change. Shortage of workers is a major problem in many of the gardens now and it is increasing.

Being a very special kind of item, tea demands a high level of touch of hands where complete automation is not the answer.

Moreover, labor cost is around 65% of the total production cost. It consists of a cash wage as well as non-cash components like health, shelter, power, water, subsidized food etc. Currently, the industry employs around 8 million workers but the demand is much higher than this.

International Competitiveness

India was the second largest producer of tea globally, accounting for 23 percent of world production in 2015. But the rank went down to the fourth position in 2017. Rising Kenyan tea production hit the Indian tea sector to stand at this position.

Pricing Trends

Unit price varies based on the importing countries and their distance from India. The following table highlights the dynamic pricing structure for various countries. Sri Lanka’s premium orthodox teas are priced at USD 5 per kg while Indian varieties are 20 percent cheaper on average, at USD 4 per kg.

Similarly, in the case of the traditional black teas or CTC, Indian teas are selling at USD 3 per kg, lower than USD 3.5 per kg being charged for the Kenyan varieties.

Price in Indian market:

The cost of buying tea is least in Uttarakhand state where per kilogram of tea is sold at E-auction is USD 1.29 (INR 90.59/kg). However, the most expensive E-auction held in Sikkim at USD 10.64 (INR 744.54) per kilogram. India has an edge over both Sri Lanka and Kenya in tea exports.

Regulatory Trends

All teas produced in the tea growing areas of India are administered by the Tea Board, India under the Tea Act, 1953. Since its establishment, the Tea Board has had sole control over the growing and exporting of Darjeeling Tea and it is this which has given rise to the reputation enjoyed by Darjeeling Tea.

The Tea Board has been engaged in the protection and preservation of this treasured icon of India’s cultural heritage as a Geographical Indication on a worldwide basis.

The ‘Agriculture Export Policy, 2018’ is promulgated to double farm exports to USD 60 billion by 2022 from USD 30 billion in 2017, and will invest USD 200 million (INR 1,400 crore) to set up specialized clusters in different states for different products to push exports.

India has requested for a preferential trade agreement on tea. India has requested the Russian government to put a blending norm in place so that packet tea sold in Russia as Indian tea should have 75% of Indian tea by weight.

The commerce ministry has asked Russia to reduce the import duty on packet tea from 12.5% at present so as to boost exports of value-added teas from India.

India Sustainable Tea Program: The effective delivery of the India Sustainable Tea program is to ensure:

A sustainable tea industry in India
Prepare for rising consumer demands for food safety and sustainably produced Indian tea
Increase the competitiveness of the Indian tea industry
Improve the international image of the Indian tea industry
Realize livelihood improvement of tea workers
Improve the tea growing practices of the quick-growing smallholder segment
Ensure Indian tea can and will be produced in the generations to come

Other Key Market Trends

Household tea penetration is 88% on average. Overall, 64% of the total population is tea drinker in India. More than 80% of Indian consumers prefer to have tea before or during breakfast. More than 80% of the population prefers milk tea while only 20% like black tea.

19% of tea drinkers are from Eastern states while 31% are from Western states. North accounts for 30% while South represents 18% of total tea drinkers in India.

Market Size and Forecast

Globally, 3.33 million tonnes of black tea was produced in 2017 while green tea output was 1.77 million tonnes. In contrast, worldwide consumption of black tea was recorded at 3.29 million tonnes in 2017.

In India, the production of black tea stood at 1.26 million tonnes in 2017 and the total production grew by 6% amounting 1.32 million tonnes in 2018 while the total quantity of tea exported during the financial year 2016-17 stood at 0.23 million tonnes. Total export rose by 12.71% to reach 0.26 million tonnes in 2017-18.

The global tea market is estimated to rise from USD 12.8 billion in 2017 to over USD 20 billion by 2025.

The organized branded tea segment was at about USD 1.8 billion (Rs 12,970 crore) in 2017, up from USD 1.7 billion (Rs 12,240 crore) in 2016.

In dollar terms, the total value of the exports was pegged at USD 656.05 million during 2016-17. The value realization increased to USD 723.55 million (9.33%) in 2017-18.

India exported 228.56 million kilograms of tea worth USD 678.78 million in 2015. The export volume declined slightly in 2016 by 5%. However, in the next year it grew gradually to reach USD 766.04 million. With little fluctuation in 2018, Indian tea export is estimated to reach 300 million kilograms totaling USD 900 million in 2020.

Market Outlook

Black tea production is estimated to increase to 4.4 million tonnes globally by 2027 from 3.33 million tonnes in 2017, while green tea production is projected to increase to 3.6 million tonnes from 1.77 million tonnes.

The world-wide, the annual output of green tea is projected to grow much faster by 7.5 % over the next decade when compared with black tea at only 2.2 %.

Global consumption of black tea is estimated to increase to 4.16 million tonnes in 2027 from 3.29 million tonnes in 2017.

Black tea production in India is projected to rise to 1.61 million tonnes in 2027 from 1.26 million tonnes in 2017.

The global production is forecasted to rise at an impressive 5.7% CAGR during the 2017-2025 periods. On the other hand, the output in India is expected to surge at a CAGR of 6.8% between 2017 and 2025.

India set an export target of 300 million kilograms for 2020 but based on year-to-date production totals it is unlikely to meet this goal. In 2018 tea exports will again be closer to 255 million kilograms where they have stalled in recent years.

Technology Roadmap

Robotics in tea picking

Tea picking requires a conscious level of expertise to differentiate between the different colors. Moreover, tea gardens are located in a hilly terrain hence difficult for machines to transport without a definite rail track.

Therefore, it becomes difficult to adopt any kind of technology. But in the near future, robotics equipped with artificial intelligence can recognize which leaves to pick and will make the process more robust.

Distribution Chain Analysis

Tea production usually takes place on large estates or tea gardens. However, there are smallholder tea producers that sell tea either directly to plantations or to middlemen/traders. After plucking and processing, tea is sold by plantations either directly to tea traders and wholesalers or via agents at the auction centers or sub-agents if upcountry.

Tea traders then sell onto blending and packaging companies who sell onto retailers, either under their own-brand or the retailer brand to the end consumer.

The India tea value chain is buyer-driven, meaning that retailers and brand names have significant power in structuring and driving trade. The hourglass-shaped value chain has a large number of producers upstream, a handful of processors and big traders in the middle, and many retailers and consumers downstream, in Siegmann et al.

This places pressure on tea plantations to be price competitive and exposes them to the risk of price or exchange rate fluctuations.

Tea plantations in India cover 600,000 hectares accounting for 16 percent of the total area. Tea is produced across 15 states, of which Assam, West Bengal, Tamil Nadu, and Kerala are the major tea growing states.

Approximately 78 percent of India’s total tea production is consumed within the country. Due to a large population, India is the largest consumer of tea, accounting for 20 percent of global tea consumption. Remaining 22 percent is exported in the international market.

India represented around 7.5% of the world’s tea export. Exports are predominantly in the form of bulk tea (over 70 percent), followed by packed tea, tea bags, and exports of instant tea.

It is estimated that around 85 percent of the tea processing, retailing, trade, blending, and packaging are in the hands of relatively few multinationals. These companies dominate the tea trade and have a strong influence on other supply chain actors such as transport companies.

The tea supply chain is characterized by a very strong vertical integration by just a few multinationals. At the global level, 85% of global production is sold by multinationals. Direct links between manufacturers and producers are common. The main packers, Unilever (12% of the global market) and Tata Tea (4% of the market) are key players in the consumer market.

Competitive Landscape

There are 162 small registered gardens in Mandi district and 747 small registered tea growers in Kangra district in Himanchal Pradesh state of India.

Small tea growers in Assam and Meghalaya: There are combined 56570 small tea growers in Assam and Meghalaya. Assam dominates the tea production with 99% of small tea gardens located here.

North Indian region is benefited by its geographic location to produce tea. It constitutes 82% of the total tea output. In 2017, the region produced 1087.11 million kilograms of tea while the south region produced just 234.65 million kilograms.

The bulk of India’s tea production is CTC, at 90%, while orthodox accounts for 8.4% and green tea represents 1.5%. The rest comes from green tea. CTC also makes up 60% of India’s exports.

Key Market Players

Key players of blending and packaging:

Hindustan Unilever : Brooke Bond Taj Mahal Tea is the first launch by HUL in 1966. Till 2017, its products varieties in tea segment include Brooke Bond Taj Mahal, Brooke Bond Taaza, Brooke Bond Three Roses, Brooke Bond Red Label, and Brooke Bond Lipton. HUL enjoys 21.2% market share in tea.
Tata Tea: Tetley is one of the largest global brands owned by Tata Global Beverages. It is sold in more than 40 countries and market leader in Canada. Product depth covers Super Green, Super Fruit, Super Everyday Black, Herbal, Estate Blends, and Black and Green. Tata tea is another tea brand sold in India. Teaveda and Elaichi Chai are its newly launched products. Tata Tea Life, Tata Tea Agni, Tata Tea Gold, and Tata Tea Premium are national brands while Tata Chakra Gold, Tata Kanan Devan, and Tata Gemini are regional brands. Its ingredients include 15% longer leaves and are the market leader in the Indian market. Tata Teapigs is a premium brand tea launched in 2006. Tata Tea had 21% tea market share in India.
Tea Box: It is a newly established tea brand in 2012. It has aggregated about 150 gardens in India and Nepal and sells 250 varieties on tea exclusively online. It receives an average order size of USD 52. 40% of the company’s products are exported to the USA. Recently, the company has raised USD 7 million Round B funding. The company has so far sold more than 40 million cups serving customers in 110 countries. It made history by reaching to more than 100 countries in just 4 years of operation.

Key players of trade:

Unilever
Tata Tea

Strategic Conclusion

India represents geographically indicated brands of tea such as Darjeeling Tea, Assam Tea, etc. in the global Ready To Drink (RTD) market. Tea is produced in more than 48 countries in the world. Despite the huge competition around the world, India ranks second after China in tea production.

Data from 2017 showed that India recorded the highest tea export in more than 3 decades with 240.68 million kilograms. But the Indian tea brands are gradually losing the brand reputation in the global market after the other international tea brands are taking over global share such as Sri Lanka’s reputed brand Dilmah is already taking the global market.

The reason for the losing market share of Indian geographically indicated brands is inefficient marketing and promotion by Tea Board of Indian in the international market.

India has the second largest population in the market, therefore, the consumption is apparently high but only unorganized players that do not come under regulation cater the most of the rural population.

Hence, big brands should focus in the domestic segment marketing for more consumption of tea as India’s per capita consumption is least in the world recorded at below 30 cups while keeping the premium brand for export. China seems to be the largest importer of Indian tea.

Currently, China imports roughly 10 million kilograms of Indian tea which could go double within a half-decade if the Indian brands focus on this market segment.

Overall, the consumer preference towards healthier beverages coupled with differentiated range of product offering will create more demand for tea in India and the growth rate of more than 7% in Indian tea production and Kenya’s declining CTC tea export will give India a greater opportunity to be the largest exporter of tea in the international market.

Appendix

CTC: crush, tear and curl
CIS: Commonwealth of Independent States
CAGR: Cumulative Annual Growth Rate