Storm in a tea cup: The tea leaves are falling

Agriculture is inherently dependent on climate, and consequently changes in the climate affect agricultural output. Climate change impacts temperature and precipitation, frequency and intensity of drastic events like droughts or floods, and severity of soil erosion.[1] Lower agricultural productivity has grave economic effects, which are further amplified in a country like India where agriculture and allied industries contribute to 13.7% of the national GDP.[2] India accounts for 31% of the global production of tea.[3] Tea yield is significantly impacted by weather – droughts cause irreparable losses as irrigation is rarely used on tea farms, while unexpected heavy rains erode the top soil and wash away fertilizers and other chemicals.[4]

 

Bhumya Tea Company owns and runs a tea farm in the Assam region of India. Assam is the largest contiguous tea-growing region in the world, contributing to over 50% of India’s tea production and 17% of the world’s tea production.[5] Long periods of drought and higher temperatures have reduced tea production in Assam by 6% in the past year.[6] Bhumya has been directly hit by erratic weather conditions due to climate change – the harvest of tea leaves has deteriorated both in quantity and quality. Reduced rainfall leading to poor plant health has reduced tea production by over 10% in the last year.[7]

Poor harvest has serious economic consequences for Bhumya. The farm has a fixed number of laborers that need to be deployed despite reduced harvest and increased idle time, leading to high labor costs which cannot be cut down due to strong unions. The lowered supply of tea from the Assam region does lead to a slight increase in prices of tea, but this is not linear since the demand for tea is elastic and the consumer is price-sensitive. Further, the plant has fixed manufacturing costs as Bhumya lacks economies of scale and operates below capacity, so the cost per unit of tea rises consequently. Moreover, Assam tea can be substituted with tea from other regions (Darjeeling or Nilgiri in India, Sri Lanka, China, Kenya), further limiting the higher prices that Assam tea can command because of lower supplies and high demand. The unpredictable weather conditions further aggravate the problem by changing the nature of the leaf in each season, creating variability in the leaf structure and therefore in product quality. This fundamentally alters the product that the consumer wants, further reducing prices. The cumulative impact of decreased quantity and lower quality in the tea leaves is reflected in Bhumya’s financials that show declining revenues over the past few years. These declining revenues are further exacerbated by increasing costs: dry spells make the tea plants more prone to pests, resulting in higher use of pesticides and a further erosion of profit margins.[8]

To mitigate the impact of reduced rainfall and frequent droughts, Bhumya’s primary strategy is rain water harvesting – storing rain water from the monsoons to irrigate the farms when rains fail. A more recent mitigation plan involves the use of tubewells, a type of water well that taps into water in the underground aquifer. However, such tubewells are only a short-term solution to the problem of scarce rainfall. During peak times of use, they lead to a temporary depression in the water table. Over long periods of continuous use, tubewells can permanently lower the water table, adversely impacting water availability in the region.[9] In rural communities that rely on water from wells, a lower water table dries up these wells, resulting in damaging effects on the health and well-being of community members by cutting out their primary water source.

As a long-term strategy to deal with the increasing likelihood of reduced rainfall, Bhumya should consider diverting water from the nearest perennial river, the Brahmaputra. While this involves considerable investments in the short-term, it can solve a large part of the water shortage in the long-term without any unfavorable impacts on the environment or the community. To alleviate financial pressures, Bhumya can explore long-term contracts with buyers to assure revenues that can cover increased costs.

As a pre-emptive strategy, Bhumya should consider planting rehabilitation crops that prevent degradation of soil that occurs due to drought. In North-East India, the most common soil-binding grasses are Guatemala grass (Tripsacum laxum), Pusa Giant Hybrid Napier (Pennisetum purpureum) and Citronella grass (Cymbopogon wintarianus).[10] Moreover, the use of natural fertilizers (instead of chemical fertilizers) can improve absorption of water in the soil. As Bhumya plants new tea bushes over the next few decades (the average lifespan of a tea plant is 50 years), it should explore new plant varieties that are being bred to better tolerate effects of climate change. The Tea Research Association will soon release two new Assam tea clones that are drought and water-logging resistant without compromising Assam tea’s distinct bold flavor.[11]

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  1. Adams M.R, et al. Effects of Global Climate Change on Agriculture: An Interpretive Review. Climate Research, 11, 19-30, 1998.
  2. “Agriculture’s share in GDP declines to 13.7% in 2012-13,” The Economic Times, 30 August 2013. [http://articles.economictimes.indiatimes.com/2013-08-30/news/41618996_1_gdp-foodgrains-allied-sectors]. Accessed 3 November 2016.
  3. “Tea Industry in India.” [http://www.tea.in/industry]
  4. Wijeratne, M. A. Vulnerability of Sri Lanka Tea Production to Global Climate Change. Water, Air, and Soil Pollution, 92, 87-94, 1996.
  5. “Growing tea in Assam.” [https://teaclimate.com/growing-tea-in-assam/].
  6. “Tea production to decline in Assam this year,” The Economic Times, 1 November 2015 [http://economictimes.indiatimes.com/news/economy/agriculture/tea-production-to-decline-in-assam-this-year/articleshow/49617481.cms]. Accessed 3 November 2016.
  7. Interview with Director of Operations for the holding company for Bhumya. The company has requested that their name not be revealed.
  8. “Why climate change is bad news for India tea producers.” BBC, 27 March 2014. [http://www.bbc.com/news/science-environment-26754121]. Accessed 3 November 2016.
  9. Madan, G.R. “Economic Problems of Modern India: Problems of Development.” New Delhi: Allied Publishers, 1989.
  10. Tea Research Association. [http://www.tocklai.net/activities/tea-cultivation/soil-rehabilitation/]
  11. “Climate change – changing tea?” [http://www.teamuse.com/article_110601.htm

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3 thoughts on “Storm in a tea cup: The tea leaves are falling

  1. As an avid tea drinker I enjoyed reading your post! A few thoughts:
    1. While this post focuses on the reduced rainfall, it seems that climate change brought significant flooding this year that has also caused problems! As of August floods have affected 1.6 million people in the Assam Region (https://www.theguardian.com/world/2016/jul/27/flooding-in-india-affects-16m-people-and-submerges-national-park). Given incredible amounts of water the region has seen, it seems that tubewells may not make enough difference to help the tea crop achieve traditional harvesting levels.
    2. You note that: “Assam tea can be substituted with tea from other regions (Darjeeling or Nilgiri in India, Sri Lanka, China, Kenya).” Another strategy for Bhumya is to evaluate alternatives other than tea, is there another crop that grows even better in the Assam region than others that Bhumya can get a true competitive advantage of?
    3. I’m wondering if Indigo Agriculture is evaluating tea leaves as a potential next crop to consider?

  2. Thanks for sharing this! South Asia will definitely need to consider ways for many of its agricultural businesses to remain profitable given the immense adverse impact climate change will bring about in the region.

    I really liked your thoughts on how they can maintain a supply of water during drought season. My only concern with this is the costs they would need to incur to make this happen–already it seems as if their net income is suffering, and additional capex may continue to hurt the business. Instead, I think Bhumya should focus on identifying the cause of the problems and then utilizing stress tolerant tea leaves (as you mentioned). A number of agribusinesses are creating precision agriculture monitoring devices–even low cost versions or those that can be leased–and these can provide accurate data on the soil content. Having this data may make Bhumya’s decision processes easier since they will know exactly what areas are suffering from low moisture. Next, I really liked the idea of Bhumya partnering with the Tea Research Association and using their new stress tolerant varieties. Stress tolerant agricultural products are being used more and more in South Asia and these can yield huge benefits once pilot programs are tested — Bhumya should offer to lead a pilot program to ensure these varieties are brought to market quickly!

  3. Water is a main concern for all crops grown in every region in the world. You are exactly right that collecting water from monsoons, creating wells, or diverting water from a river to feed the crops is only scratching the surface and providing short term relief. This is a tough predicament for the agriculture to be in as the innovations in this industry have been stagnant for decades and the use of GMOs highly frowned upon. Companies need to begin looking at natural ways to improve crop yields under harsh weather conditions and unfortunately the answer they might end up finding is that crops can’t survive in harsh conditions. This is where the other rehabilitation crops that are planted can help reduce the carbon in the atmosphere, primarily CO2. As Bhumya begins looking into innovative ways to improve crop yields, they should also not loose sight of the greater benefit that they can provide, which is carbon neutral farming. By improving their farming techniques and operating with sustainability in mind, they can have a net zero impact on the environment while still producing their products.

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