The Hindu Business Line : Not their cup of tea

ON THE HEELS of Tata Tea shedding ownership of its plantations, another integrated tea business, Hindustan Lever (HLL), plans to separate its factories and gardens from its mainstream. Two queries arise: Why, and why now? The immediate provocation obviously is the steady decline in recent years in profitability and the attractiveness of owning the raw material source, once considered a distinctly preferred strategy in many industries. In HLL's case there are deeper, internal reasons as well. It has already given up the traditional, agri-based, vanaspati. The tea move is long overdue, demonstrating the company's keenness to stick to what it knows best: Building powerful, mass consumer brands of everyday use. Also, generating the kind of rapid tonnage growth and profit margins that shareholders expect from HLL is tougher in tea. Indeed, but for the Brooke Bond acquisition, HLL may never have ventured into the highly uncertain, labour-intensive, commodity business of plantations. Tea production is a leisurely way of life and an agricultural vocation, with its own rhythm and vagaries. Still, this does not fully explain `why now'.

The highly contested Tea (Marketing) Control Order — TMCO — brought the brew to a boil. Yielding to the familiar licence raj habits, the TMCO laid down several restrictions on the established ways of this old industry, including allegedly repetitive registration and documentation, besides mandating the proportion of output to be brought to tea auctions, thus neutralising the marketer's benefit of owning tea gardens. One might as well buy at the auctions the particular blend one's brand demands, instead of consuming what one grows. As a classless, favourite family drink, tea has a massive following, especially in the populous northern States and is a natural focus of vote-bank politics. Both its availability and local price were sensitive issues. The TMCO was thus a lever to track and control domestic market supplies, exports, and domestic prices in the typical pre-1990s manner.

A third aspect is an inherent mismatch with organisational strategy. HLL has been on a portfolio clean-up drive, getting out of unprofitable, small brands and categories. And plantations are a natural target. As tea quality declines with the age of the bush, the old gardens demand periodic heavy outlays for complete renewal. Neither corporate boards nor shareholders would be willing to put up the money needed and wait for years to harvest the dividends. Given the compulsions of corporate quarterly scorecards, managers too find this necessarily long-term view unattractive, apart from the huge disparities in styles and cultures between marketing and production of tea.

Nonetheless,someone has to grow the tea and process it. How well plantation owners manage the trick of simultaneously handling issues of manpower and land productivity will determine the fortunes of tea as an industry. The big packet-tea players want no part of it directly however, though HLL has indicated its readiness to form joint ventures. Value-added beverages, marketed jointly with Pepsi, may well be more their cup of tea.

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