Financial Daily from THE HINDU group of publications
Tuesday, May 31, 2005

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Beyond the bailout brew

THE BAILOUT PACKAGE for coffee growers and a new scheme for tea sector modernisation recently cleared by the Cabinet Committee on Economic Affairs are sure to provide substantial financial relief to the beleaguered plantation sector. Unsteady production, falling prices, rising operating costs and interest burden as also low productivity and unfriendly export markets have all combined to hurt growers, especially the small ones, in recent years. Some cases of suicides by growers were also reported in the plantation areas due to financial difficulties. Taking cognisance of the difficulties of the plantation sector, the Finance Minister, in his last Budget, referred to the Government's attempt to improve the operation of the Price Stabilisation Fund that had proved largely ineffective, adding that a programme for massive re-plantation and rejuvenation of tea bushes can also be expected.

Coffee growers have been the worst hit the last five years or so following a slump in global market with output outstripping consumption. The accumulated financial burden was too heavy for the growers to bear (most of them small, with less 10 hectares under cultivation), the recent rebound in world prices notwithstanding. Measures to help the coffee sector include restructuring of the Special Coffee Term Loan (SCTL) taken fro commercial banks and interest subsidy to large and small growers on repayment of working capital loans taken from financial institutions. The approved coffee package would result in debt amelioration and possibly a reduction in the interest rate also during the remaining repayment period of SCTL.

A development-oriented package in the form of subsidy to encourage production of orthodox tea is a welcome measure that should go some way in meeting the market needs. Currently, orthodox tea (73 million kg) accounts for less than a tenth of the country's total tea production, while the industry is sanguine that the future lies in orthodox and not in CTC. One area deserving of keen attention is organic tea. The total production of organic tea in the country is just about 8 million kg with the bulk of it exported. The opportunity to exploit this niche should not be missed.

While the relief measures may save coffee and tea growers from a certain commercial demise, it would be foolhardy for policymakers, growers and industry players to believe that these would revitalise the plantation sector or make itcompetitive. Issues of low productivity, inferior quality, supply chain inefficiencies and domestic demand enhancement have to be addressed urgently. Players in the coffee and tea sector have long ignored the huge potential of the domestic market and chased ephemeral exports without attempting to build long-term global competitiveness. For instance, coffee consumption in the country has stagnated at around 60,000 tonnes while the production is nearly five times that. It is a pity that at a time when all big and small commodity-exporting nations are attracted to India's huge market size, domestic producers should continue to ignore the large mass of consumers.

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