After Kerala, Tata Tea may transfer ownership control of its tea estates to workers' cooperatives in West Bengal and Assam.
Tata Tea has 25 tea estates in the Northeast -- four in Dooars, West Bengal, and 21 in Assam -- spread over 15,000 hectares. Together, these estates produce 27.5 million kg of tea per annum.
After tasting success in Kerala -- the management control of tea estates in the state had been transferred to a workers' cooperative in which Tata Tea had a 20 per cent stake -- the company was likely to opt for the same model for its tea estates in the Northeast, sources told Business Standard.
In February 2005, Tata Tea transferred 17 tea estates in Kerala, including their assets, liabilities, the regional office and the concerned service department, to Kanan Devan Hills Plantations Company.
Almost 95 per cent of workers in the Kerala estates have opted for stakes in this company. Tata Tea continues to source tea from this new company, though it is one among several sources. Later, it sold six estates in Trichur and Coimbatore for Rs 55 crore (Rs 550 million) to Tata Coffee.
Analysts said Tata Tea might get a better valuation for transferring ownership control in the Northeast compared with what it got in southern India. The cost of production for a kg of southern Indian tea is about Rs 50, roughly Rs 2 higher than the realisation. In contrast, the price realisation in the Northeast is Rs 10, higher than the cost of production of Rs 52 a kg. In other words, while the company incurs a loss of Rs 2 per kg in the South, it rakes in Rs 10 per kg in the Northeast.
Tata Tea had announced last year that it would exit the plantation business in order to reduce costs as well as to develop and expand its brands at home and abroad.
According to industry estimates, employee costs account for nearly 60 per cent of a tea company's total cost. Thus, exiting labour-intensive plantations can help Tata Tea pare its costs. At the same time, the plantation business fetches 10 per cent of Tata Tea's revenue.
