CONTRIBUTION OF SMALLHOLDERS TO THE TEA SUB-SECTOR AND POLICIES REQUIRED TO ENHANCE

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CONTRIBUTION OF SMALLHOLDERS
TO THE TEA SUB-SECTOR AND
POLICIES REQUIRED TO ENHANCE
THEIR LIVELIHOOD
Colombo, Sri Lanka, 30 January – 1 February 2012
INTERGOVERNMENTAL GROUP ON TEA
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Introduction CCP: TE 12/4
• The emphasis on smallholder development is in line with
FAO's strategic objectives and an important millennium
development goal (MDG).
• The last comprehensive review of smallholder tea sector
was carried out by the Group at its 12th Session in 1997 in
Indonesia. At that review the analysis indicated that the
welfare of smallholder tea producers was much greater
than their counterparts in other agricultural enterprises in
the countries that the Secretariat surveyed, namely
Indonesia, Kenya, Sri Lanka, and Tanzania.
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Definition
• Smallholders play an important role in the tea sub-sector.
There are more than 400 000 smallholders in Sri Lanka
who account for 76 percent of tea production, produced in
64 percent of the area under tea.
• In Kenya, an estimated 560 000 smallholders account for
62 percent of total tea production, while in China and
Vietnam, tea production is essentially dominated by
smallholders.
• In Indonesia, smallholders account for 43 percent of the
area under tea and 23 percent of production.
• In India, an estimated 160 000 smallholders account for
over 26 percent of its production
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Major issues
• In countries and regions where smallholders do not have
collective ownership of factories and regulations and
institutions do not intervene, they are left to the vagaries of
an un-organized imperfect market for green leaves.
• Many Governments have attempted to regulate the system
of payments to smallholders by private processing
factories, against those that are collectively owned as in
Kenya. Examples of successful systems can be found in
Sri Lanka and Indonesia.
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Major issues
• In Sri Lanka the price sharing ratio between smallholder
and factory has evolved from the initial 75:25 to 68:32
• Implementation is through a system of “tea inspectors”
who closely monitor the tea factories purchasing green
leaves from smallholders and the price paid to them,
based on the actual realization for the tea sold in the
auctions.
• The Tea Board of India introduced in early 2004 a pricesharing formula based on the Sri Lankan model. The
price-sharing formula envisaged that the sale proceeds
was to be shared between the smallholder and the
manufacturer-processor in the ratio of 60:40
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Major issues
• There is a need to develop strong partnerships with quality
tea processing factories and with international buyers so
that the smallholder could also fit into a high-quality supply
chain with full traceability of his product.
• China, India, as well as other emerging international
markets in the Middle East and Eastern Europe are
moving towards higher quality standards that are prevalent
today in economically advanced regions. Smallholders, in
order to participate and compete in such markets have to
develop capacities ensuring internationally acceptable and
certified quality.
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De-estating
• The phenomenon of fragmentation of large estates (or
ownership change in favour of the workers) has taken
place historically in restructuring exercises by
Government policy, as a process of natural attrition due
to long spells of closure, or by corporate policy.
• In Sri Lanka, all private plantations were nationalized by
the Government in the 1970s. Following a policy change
in the 1990s, it was decided to parcel out gardens
belonging to two State corporations and hand them over
to private regional plantation companies under a profitsharing arrangement. In the process of sale and
allocation of shares, the Government ensured that the
workforce was also given a chance to hold shares
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De-estating - Cont
• The problem of large abandoned gardens is that
once the owners wash their hand off their
properties, there is a tendency among workers
to divide the lands among themselves in terms
of plucking green leaves and selling the same to
neighbouring estates and stand-alone factories.
In India, this informal arrangement sustained
several estates that were closed during the
period of severe recession from 2001 onwards
but the workers neither had the land titles nor is
this model worthy of emulation.
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De-estating - Cont
• At the other end, Tata Tea Limited decided to
concentrate only on its packet tea business as an explicit
corporate policy and proceeded to divest its majority
stake in its gardens in Munnar, South India, and passed
on the majority ownership (76 per cent) to the 12,000
workers. A new entity, Kanan Devan Hills Plantations
Company Private Limited (KDHP) succeeded Tata Tea
Limited on 1st April 2005.The property remained intact
and the management continued to be professional. The
company is today the largest in South India with 7
estates covering 24,000 hectares and with an annual
production of 21 million kilograms. The sense of
ownership led to a significant increase in productivity and
profits (and dividends to the worker-owners).
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De-estating - Cont
• There is an earlier example in India of a
successful workers’ cooperative in Durgabari in
Tripura, North East India where after the owners
abandoned the property, the workers took over
the management and formed a cooperative
society. While a good deal of State funding and
support has contributed to the success, strong
management has played a key role as well.
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De-estating - Cont
• What are the policy options where existing large
tea estates require to be restructured due to lack
of viability? If State intervention or Government
subsidy is to be least and the long-term business
viability is to be ensured, the Tata Tea
experiment can be suitably adopted.
Unfortunately, however, most restructuring has
to take place because the concerned estates are
financially sick and the field and factory assets in
poor condition.
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Conclusion and follow up
• Smallholders represent the major part of the tea subsector across producing countries with high growth in the
past decade, even in countries where the corporate
estates is still of significance.
• However, due to the small size of their average holding,
high level of transaction cost, limited opportunities for
capacity building and varying institutional support, coupled
with poor bargaining power in the green-leaf and input
markets, smallholders have not been able to reach full
realization of their true worth
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Conclusion and follow up
• Policies have to empower and not make smallholders
dependent on Government-sponsored institutions in the
long run. Smallholders need to be well-represented in all
institutions that are set up and/or are formed.
• In countries which still have a large corporate sector,
smallholders may be encouraged to set themselves up in
a complementary role and enter into mutually beneficial
partnerships. Similar partnerships with large international
buyers and organizations encouraging socially and
environmentally sustainable production of tea could also
ultimately benefit the sub-sector.
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Finally
• The Group is requested to guide the Secretariat in
prioritizing the areas that need to be analyzed to evaluate
the welfare of smallholders. In addition, suggest areas for
further research to improve the participation of
smallholders in the global tea economy and instruments to
be analyzed in support of enabling policies that may
enhance their welfare.
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Thank You
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