Darjeeling tea is facing an existential crisis due to lack of funds

8 March, 2018


Darjeeling tea is facing an existential crisis for more reasons than one although it enjoys the coveted GI tag and is liked by tea connoisseurs across the world. It faced massive loss of production in 2017 due to a political lockdown for 104 days following the Gorkha agitation, tea planters are now gasping for funds before the critical new season, making the turnaround even more challenging.

A spate of rating downgrades for the celebrated planters has made matters even worse. The major lenders to the tea sectors such as State Bank of India, UCO Bank and United Bank of India have cut down exposure to the Darjeeling tea over the years and are learnt to have decided against renewing fresh limits.

Regrettably, banks have decided not to renew limits and downgrade the ratings of Darjeeling tea companies and last year Darjeeling tea industry underwent a severe financial crisis when Gorkha Janamurti Morcha had forced an indefinite strike from June 9 to September end. The trouble in the Himalayan foothills, which started with the announcement of making Bengali language compulsory in all West Bengal schools, snowballed into a major political crisis with 87 tea estates being completely shut for four months during the peak tea producing season. Darjeeling annually produces 8.7-9 million kgs of tea and mo most are exported.

Ratings of many Darjeeling tea companies have been downgraded to BBB from A which makes it difficult to get working capital loans from the banks and the government’s directive to lenders such as Allahabad Bank, UCO Bank and United Bank of India, which are under the Reserve Bank of India’s prompt corrective action framework for their high sticky assets ratio, not to lend to lower rated borrowers made the situation worse for tea growers.

The 87 tea estates in Darjeeling suffered nearly 67% loss in production. The stoppage of work at the estates for four months resulted in overgrowth tea bushes. “o when the gardens reopened in October, the planters could not produce tea because the tea bushes were out of shape. The total estimated loss that Darjeeling tea industry suffered in 2017 is to the tune of Rs 350 crore-Rs 400 crore.

The political unrest has severely disrupted the cash for the companies plus the loss of crop in Darjeeling is likely to have some adverse impact on overall revenues

Darjeeling tea known as the champagne of teas by connoisseur tea drinkers, is very popular among the royal families of Japan and Sweden. Europe is a major market for Darjeeling tea and buyers are ready to shell out astronomical prices for these finest teas. In 2014, Makaibari tea, an iconic Darjeeling tea brand, had created a record by booking orders at a price of $1,850 per kg (Rs 1.11lakh). The orders had come from tea importers in Japan, the UK and US. Trade sources said that first flush teas which are only exported fetch an average price of Rs 4,000-Rs 5,000 per kg.

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