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Aug 6, 2018

Businesses Can Do Good and Do Well Even in India

Tarini Mohan

tea worker exploitation in India

Tea worker exploitation in India

Tea plays a very significant role in the daily lives of Indians. After China, India is the largest producer and consumer of tea and employs 3.5 million workers. 


Even though more value for agricultural commodities, like tea, is added upstream, by the blenders, packagers, marketers, considerable value is also added by the downstream players, the tea plantation workers, or smallholders. These actors carry out labor-intensive work under the burning sun for hours and carefully pick the particular varieties of tea leaves required. Yet, a forthcoming Oxfam International study shows that the Indian tea plantation workers retain less than 3 per cent of the retail price of tea.


The share of value captured by the Indian tea blenders/brands, on the other hand, currently stands at 37 per cent, while that captured by the retailers is 45 per cent. This leads to the plantation workers not being able to afford a decent and dignified standard of living. Forthcoming research for Oxfam undertaken by the Bureau for the Appraisal of Social Impacts for Citizen Information (BASIC) shows that tea plantation workers make just 38 per cent of the living income benchmark developed by The Global Living Wage Coalition. In India, that number is likely even smaller. Since the retailers in India are not dominated by supermarkets, but by fragmented mom-and-pop stores, any change will have to come from the blendemars.


Hindustan Unilever (HUL) and Tata Global Beverages (TGB) are the blenders/marketers that dominate the tea industry with a combined market-share of 42%. It is important to note that while these multi-national tea companies no longer own tea plantations, they still source their ingredients from the plantations, though indirectly. Given the large share of the market that they control, these leading tea companies have the power to influence improvements in the supply chain.


Workers on plantation make up three quarters of tea growers in the country. They live in truly dismal conditions even though the plantation owners bear responsibility for their welfare by law (The Plantation Labor Act, 1951). The Accountability Counsel, in a 2016 report, found that a year after a BBC investigation that revealed the dire conditions of the tea plantation workers, these workers still had “long working hours, inadequate compensation, poor hygiene and health, coercion and pressure […], and a lack of freedom of association”. Any visitors, to the plantation need to be vetted by plantation management, policies seemingly designed to prevent public scrutiny and to prevent workers from airing their grievances. 


In addition to the poor working conditions on plantations, workers receive abysmally low wages. Take the situation in Assam, the state that produces half of the country’s output of tea, with a state mandated daily minimum wage of Rs. 280 (4.09 USD) specifically for skilled tea plantation workers. The tea companies claim that accounting for the additional benefits they allegedly provide to plantation workers, the daily wage they pay is equivalent to Rs. 280 (4.09 USD). Labor unions, such as the Sadau Assam Sangrami Cha Shramik Union, however, disagree with the costs used to calculate this figure, and maintain that even if the companies were providing the workers with all the benefits required by law, the total wage the workers receive is just Rs. 160 (2.33 USD). In 2017, the Accountability Counsel alleged that the wages paid were even lower at Rs 137 (2.00 USD). 


It is thus clear that the major tea companies have not gone out of their way to ensure the welfare of their growers. This is despite the fact that there is a growing body of evidence that shows a positive correlation between sustainable supply chain management, and a company’s return albeit with a lag of two years. In fact, it has been found that “companies with strong health, safety and environmental programs outperform the S&P 500.” Moreover, the Project ROI report, finds that over a 15-year period, business commitment to CSR activities has the potential to increase shareholder value by USD 1.28 billion, increase market value by 4-6%, increase valuation for companies with a strong stakeholder relationship by 40-80, and much more. The greater a company’s commitment to CSR, the greater the ROI.


How would ‘doing good’ lead to Indian tea companies ‘doing well’? This can take place through two levers. First, healthier and better compensated workers can lead to improved quality and quantity of supply. Second, greater commitment to CSR can result in improved consumer loyalty, particularly among socially conscious millennials. 


Looking first at supply of tea improving as a result of having healthy and better compensated workers - data shows that poor health and low living standards have an effect on worker productivity at plantations. Almost 90 per cent of plantation workers surveyed reported having been absent from work due to health concerns for the self or family. The low wages and poor living conditions also likely have an impact on worker retention. Any business that has to constantly on-board new workers cannot work at optimal efficiency. In addition, the costs plantations incur due to workers experiencing health issues at work is likely significant, although these costs are neither monitored nor reported. Given the dilapidated nature of health amenities provided to plantation workers, this cost is likely to be higher for tea companies than firms in other industries. If tea companies promote a healthier and better compensated workforce, they are likely to benefit from increased productivity of their workers and a better-quality product.


Moving to the importance of businesses responding to consumer preferences, Millenials’ emphasis on social responsibility is well documented in Deloitte’s recently released seventh annual Millennial survey. It finds that Millennials believe “success should be measured in terms of more than just financial performance.” Globally, only 48 per cent of Millennials believe that businesses operate ethically. In India, about 78 per cent of Millennials believe that businesses focus on profits rather than focusing on the society at large. The Deloitte survey further shows that corporations are out of step with Millennials’ priorities. With millennials increasingly representing companies’ investor base, private-sector companies at large and tea companies operating in India in particular, will benefit from re-designing their business strategies. Tea companies should view this as an opportunity to distinguish themselves from competitors and improve their standing in the eyes of the consumer. 


As shown, the tea companies need to do much more to ensure that the workers who pick the tea they purchase are paid living wages. There are a couple of approaches the industry leaders can take to improve the growers’ lives. 


Firstly, since the tea giants do not purchase tea directly from the farmers, they can start by disclosing their suppliers, as Coke did in 2013. 


Secondly, value can be re-distributed among the supply chain actors such that the plantation workers retain a fair share of the value created. Tea blenders, like Tata and Hindustan Unilever currently receive Rs. 56 of the price of tea, which is ~Rs. 150/kg. If blenders were to transfer Rs. 5 from their share to the plantation workers, the latter would see an improvement of as much as 50 per cent in their share of the pie! As described above, making this short-term transfer is likely to benefit the tea blenders in the longer term. A mechanism to enable the transfer could be via a fund created by the industry leaders. The fund must however, make sure to have tea plantation workers on its governing body in order to prevent the extortion of collected funds by powerful individuals with special interests like is happening with the District Mineral Fund. 


Lastly, ethical sourcing would not have been as big of a concern if not for the recent study from Britain’s Sheffield University highlighting certification schemes’, such as Fairtrade and Rainforest Alliance, failure to stop labor exploitation. The report found little difference in the living conditions of 600 certified farmers and non-certified farmers in Assam. Certified farmers also lived below the poverty line with wages and benefits withheld. It is clear that no one actor alone can work to ensure fair labor practices - the tea companies will need to work alongside the certification companies, the government as well as civil society. Tea companies can take the lead in this endeavor given the symbiotic nature of improving the growers’ lives and bettering the business.


It is time for the tea companies to match the words in their sustainability reports to on-the-ground action. Let us consumers not see any more damning reports on the plight of plantation workers. The tea companies have a choice to make: they can either do what they have the right to do or they can choose what is right to do.


Tarini Mohan is an MBA intern with the Private Sector Engagement unit of Oxfam India and is a student at the Yale School of Management.


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