chapter 3 performance of cooperative tea factories in...
TRANSCRIPT
Chapter 3
PERFORMANCE OF COOPERATIVE TEA FACTORIES IN
TAMILNADU
Introduction
The institutional dimension of tea industry has a bearing on its
development and modernization which involves a measure of input
and technology. The development of institutional infrastructure is
imperative for dispensation of inputs like credit, fertilizers and
pesticides and provision of services like marketing, processing,
storage, transportation, etc. Eventhough the technology scale is
neutral, the small-farmer-growers do experience serious constraints
and are left behind in the process of development. Institutional agency
set up for purposes of integrating local market into larger market,
disseminating economic information about product and factors and
reducing market imperfections1, will be of immense help to them.
Besides, the organisational framework is very vital for the
technological advancement, farm-guidance and extension activities. In
short, institutional set up plays a crucial role in providing the package
of technology within the easy reach of the small farmer. Though
numerous agencies are involved in the process of modernization of tea
industry, the role of the cooperative tea factories is unique as they
have been established to prevent the exploitation of private firms
and to market the farms produce at the best price.2 In other words, the
59
prime objective of cooperative tea factories are to promote the
economic interests of the small tea growers which include a fair price
to their produce, provision of inputs at a reasonable price including
credit and provision of such other services that would prevent the
exploitation.
The realization of these objectives by the cooperative tea
factories, their survival, continuance and growth largely depends on
their performance. Hence, an attempt has been made to assess the
performance of cooperative tea factories in Tamil Nadu with reference
to indicators such as age, membership, financial structure, acreage
covered, procurement of raw materials, production, sales and profit
position. The future prospectus of the tea factories are also analysed.
The purpose of presenting this chapter is to provide a backdrop for the
main theme of the study.
Genesis: Nilgiris being the largest tea track in South India
occupies an important place in the tea map of the country. There are a
number of big tea estates run on commercial basis by private
companies. Apart from these big estates, this district had the largest
conglomeration of about 50,000 small glowers who cultivate about
30,000 hectares out of the total area of 49,000 hectares of tea
cultivation in the district. The economy of the small growers of this
district revolves around the price fetched for their green leaf which
60
in turn is influenced by the price realization for the end-product
namely black tea. The preponderance of small growers has led to the
birth of a number of Bought Leaf Factories (BLFs).
The small and marginal tea growers totally depended upon the
private bought leaf factories (BLFs) to sell their green leaf production.
These small tea growers faced a lot of problems in selling green leaves
to the private bought leaf factories. They are: (i) they have to sell the
leaves at a distress price, (ii) there was no readymade and permanent
forum for them to sell their entire green leaf production, particularly
during rush seasons,(iii ) the value of the leaf was not given to them in
full and there was inordinate delay in payment. In short, the
bargaining power of these farmers was very weak on the scene of leaf
market.
In order to extricate the small tea growers from the clutches of
private bought leaf factories, the State Government set up the
Plantation Enquiry Committee in 1956 which undertook a study of
the small tea growers in the district and recommended to the
Government the organisation of cooperatives for the benefit of the
small fanners. The Government of Tamil Nadu implemented the
recommendation of this committee by setting up cooperative tea
factories in Nilgiris.
6]
The first cooperative tea factory was established at Kundah in
1958 and commenced its commercial processing in 1962. Till 1998,
17 such cooperative tea factories have been established in the district.
These 17 factories at present process about 60 million lakh kgs of
green leaf annually and produce about 15 million kgs of made tea.
This is about 17 per cent of total tea production in the district.These
cooperatives are managed by the elected board of directors and the
officials deputed from the Small Industries Department of the
Governm ent of Tamil nadu.
Age of the factories: Age of the cooperative tea factory is an
important indicator which reflects not only the period of their
continued existence but also the performance of the factories over the
years. Age of the factory is computed from the date of commencement
of their business till date.
Table 3.1Age of the cooperative tea factories
Age(years)
No. of Factories Percentage to Total
10-15 2 in n1.1. jj
15-20 2 13.33
20-25 1 6.67
25-30 1 6.67
30-35 7 46.67
Above 35 2 13.33
Total 15 100.00
62
Majority of the cooperative tea factories are in operation for
more than 3 decades; 2 factories have completed 20 to 30 years of
operation and the rest of them are in the age bracket of 10 to 20 years,
(See Table 3.1)The average age of the tea factory is 25 years. It may,
therefore, be inferred that a vast majority of the tea factories are old.
Membership: Membership plays a very significant role in the
cooperative tea factories for obvious reasons. (An adequate number of
members is quite essential for supplying required raw materials to the
factory for fuller utilization of the factory) Otherwise, it may result in
underutilization leading to low production and increased cost of
production. Membership also helps in augmenting the equity capital
base of the cooperative tea factories. An optimum equity capital base
helps in bringing down the cost capital.1 Growth in membership does
indicate the confidence and faith reposed by the members in their
organisation which is a sine-qua-non for the continued growth of the
organisation. Hence membership is considered as an indicator of
performance.
The data on membership for one decade reflects the positive
growth. The compound growth rate in membership works out to 5.48
per annum. The trend in membership shows a slow but a steady
increase over a period of ten years. Majority of the tea factories with a
membership of 500 to 1000 in 1987-88 have moved towards higher
63
mbership bracket of above 1000 in 1996-97. The total membership
the cooperative tea factories increased from 11351 in 1987-88 to
.53 in 1996-97( See table 3.2). The average membership rose from
in 1987-88 to 1290 in 1996-97.
88 J 7 4 1 15 1135! 873(7 .69) (53 .85) (30 .77) (7 .69) (100)
89 16 5 1 13 13936 1072(7 .69) (46 .15) (38 .46) (7 .69) (TOO)
yu 1 5 8 — 14 13368 955(7 .14) (35 .71) (57 .14) (100)
>1 1 3 10 - 14 14348 1025(7 .14) (21 .43) (71 .43) (100)
>2 1 4 10 15 16062 1071(6 .67) (26 .67) (66 .66) (100)
>3 1 4 7 3 15 17056 1137(6 .67) (26 .67) (46 ,66) (20 ,00) (100)
4 14 7 3 15 17850 1190(6 .67) (26 .67) (46 .66) (20 .00) (TOO)
5 14 7 3 15 18305 1220(6 .67) (26 .67) (46 .66) (20 .00) (100)
6 14 7 3 15 18380 1225(6 .67) (26 .67) (46 .66) (20 .00) (100)
7 13 7 4 15 19353 1290(6 .67) (20 .00) (46 .66) (26 .67) (100)
Compound growth rate : 5.48s- in parenthesis indicate percentage to nn v total.
Table 3.2 Members Slip
(Number of Factories)
Membersh ip
<500 500-1000 1000-1500 >1500 Tota l Total AverageNo. of members mcmber- faclories ship
The reasons that could be attributed for the growth of
membership are 1) efforts of the officials to bring more small tea
growers under cooperative fold; ii) awareness on the benefits
enjoyed by the fellow members in cooperative tea factories; iii) high
degree of exploitation of tea growers by the private tea factories; and
iv) faith of the members over the organisation.
Capital Structure
There are only two broad category of sources of funds for any
form of organisation . They are owned funds and borrowed funds.
The owned funds comprise of the equity capital contributed by the
owners and the reserves and surpluses generated by the business
organisation over a period of time from its business operations. The
borrowed funds, also referred to as debt capital, includes fixed
interest borrowings in the form of deposits from the public and
institutions and loans and advances from both term-lending
institutions and commercial banks. Both the owned funds and
borrowed funds involve costs and therefore a proper mix of these
sources is important in order to minimise the overall cost of capital.
Depending upon the specific cost of capital, the business organisation
decides the capital sources and thereby the capital structure .
65
Cooperatives being the organisation of members with small
means, they are naturally constrained in mobilising the equity capital.
The contribution to the owned funds in the form of reserves and
surplus is also limited as the motto of the cooperatives is service
and not profit. Service to members take precedence over the profit
as its operational objective. Therefore, the owned funds of the
cooperative organisations do not normally form a major source of
capital. However, their overall capital structure is decided based on
owned funds as the maximum borrowing power of the cooperatives
are fixed based on certain time of owned funds. The extent of times
depended upon the nature and types of cooperatives. It normally
ranges from eight to twenty times. It is, therefore, quite natural that
cooperatives rely mostly 011 borrowed funds both for its investment
and working capital purposes.
The total funds of the cooperative tea factories put together has
steadily increased from Rs.671.14 lakhs in 1987-88 to Rs. 1574.71
lakhs in 1996-97 - witnessing little less than three-fold increase over a
period of ten years.
The total share capital of the cooperative tea factories rose from
Rs.383.89 lakhs in 1987-88 to 821.42 lakhs in 1996-97. The increase
has been steady without any fluctuation in between two periods.
Reserves rose from Rs.49.72 lakhs in 1987-88 to Rs. 122.24 lakhs in
Table 3.3
Capital structure of cooperative tea factories
(Rs, in lakhs)
Owned funds Borrow ed funds
Year Sharecapital
Reserves Deposits Borrowings Total
J y.S7-SN 3,S3.,XV (57.20)
49.72 (7.41)
31.13(4.64)
206.40(30.75)
671.14(100)
1988-89 466,07(59.61)
87.46(11.19)
40.97(5.24)
187.33(23.96)
781.83(100)
1989-90 478.26(52.08)
102.59(11.17)
41.47(4.52)
295,96(32.23)
918.28(100)
1990-91 538.17(55.19)
112.60(11.55)
34.24(3.51)
290.18(29.76)
975.19(100)
1991-92 609.33(52.43)
102.35 ( 8.81)
44.86(3.86)
415.67(34.90)
1 162.21 (100)
1992-93 647.63(52.38)
1 10.57 < 8.94)
40.21(3.25)
438.06(35.43)
1236.47(100)
1993-94 701,32(51.85)
109.54(8.10)
41.43(3.06)
500.33(36.99)
1352.62(too)
1994-95 727.54(51.66)
1 13.02 (8.02)
47.56(3.38)
520.33(36.94)
1408.45(100)
1995-96 791.08(53.08)
117.76 (7.90)
47.92(3.22)
533.49(35.80)
1490.25(100)
1996-97 821.42(52.16)
122.24(7.76)
54.43(3.46)
576.62(36.62)
1574.71(100)
CGR 7.90 9.41 5.75 10.82 8.90
h'igures in parenthesis indicate percentage to row total
6 7
1996-97 with a mild fluctuation between the two periods. Deposits
registered an increase from Rs.31.13 lakhs to Rs.54.43 lakhs during
the same period. Borrowings too recorded a steep increase from
Rs.206.40 lakhs in 1987-88 to Rs.576.62 lakhs in 1996-97. The
compound growth rate was 8.9 per cent. The growth in different
components of capital show's that borrowings recorded a higher rate
(19.82 per cent) followed by reserves (9.41 per cent), share capital
(7.9 per cent) and deposit (5.75 per cent).
The composition of the capital structure reveals that share
capital constitutes around 50 to 60 per cent of the total capital. The
proportion of reserves was hovering between 7 to 11 per cent during
the period under review. The proportion of deposit was less than five
per cent except in the year 1988-89, The borrowings as percentage to
total capital ranged from 30 to 40 per cent except for the year 1988-89.
It could be concluded that proportion of equity capital was high in all
the years under review contributing 60 to 70 per cent of the total
capital ; whereas the percentage of borrowed capital varied between 30
to 40 per cent. This means that the cooperative tea factories relied less
on borrowed funds and more on owned funds (See table 3.3).
Factory wise analysis of the percentage of owned funds to total
funds and also to percentage of borrowed funds to total funds indicates
that majority of the factories had higher percentage of owned funds
and less proportion of borrowed funds to total funds (See Tables 3.4
and 3.5).
6 8
Table 3.4
Percentage of borrowed funds to total funds
Year
Percentage of Borrowed FundsTotal No.of TeaFactories
Industry Average in percents^
0 - 25 25 - 50 50 -75 Above■7C
/ J
I9X7-8X 3 8 1 - 12 35.39(25.00) (66,67) ( 8.33) (100)
I988-X9 0 7 1 - 14 29.20(42.86) (50.00) (7.14) (100)
1989-90 5 7 3 - 15 36.75/ -1 *1 -1 T v
(.I.V.U) (46.67) (20.00) (100)
1990-91 6 7 2 15 33.27(40.00) (46.67) (13.33) (100)
1991-92 3 10 2 - 15 38.76(20.00) (66.67) (13.33) (100)
1992-93 2 10 .■> _ 15 38.63(13.33) (66,67) (20.00) (100)
1993-94 1 12 2 _ 15 40.05( 6.67) (81).00) (13.33) (100)
1994-93 3 9 3 _ 15 40.32(20.00) (60.00) (20.00) (100)
1995-96 4 9 2 _ 15 39.01(26.67) (60.00) (13.33) (100)
1996-97 4 9 2 15 40.07(26.67) (60.00) (13.33) (100)
Figures in parenthesis indicate percentage to row total
Table 3.5
Percentage of owned funds to total funds
Percentage of Owned FundsTotal No.of TeaFactories
Industry Average
in percentageYear25 - 50 50 -75 Above
75
1 ‘JK7-SS 1( 8.33)
8(66 67)
3(25.00)
12(100)
64.61
1988-89 I(07.14)
7(50.00)
6(42.86)
14(100)
70.80
1989-90 1(20.00)
7(46,67)
5(33.33)
15(100)
52.19
1990-9! 2(13 33)
7(46.67)
6(40.00)
15(100)
66.73
1991-92 7(13.33)
10(66.67)
3(20.00)
15(100)
61.24
1992-93 3(20.00)
10(66.67)
2(13.33)
15(100)
61.32
1993-94 1< 6.67)
13(86.66)
1(6.67)
15(100)
59.95
1994-95 3(20.00)
9(60.00)
3(20.00)
15(100)
59.68
1995-96 2(13.33)
9(60.00)
4(26.67)
15(100)
60.99
1996-97 2(13.33)
9(60.00)
4(26.67)
15(100)
59.93
Figures in parenthesis indicate percentage to row total
70
Table 3.6
Year
Proportion of Share CapitalTotal No.of TeaFactories
70 - 80 80 -90 Above90
1987-88 1 2 7 12(25.00) (16.67) (58.33) (100)
1988-89 6 5 2 13(46.15) (38.46) (15.38) (100)
1989-90 8 4 3 15(53.33) (26.67) (20.00) (100)
1990-91 6 7 2 15(40.00) (46.67) (1.3.33) (100)
1991-92 5 7 .1 15(33.33) (46.67) (20.00) (100)
1992-93 6 6 3 15(40.00) (40.00) (20.00) (100)
1993-94 4 7 4 15(26.67) (46.67) (26.66) (100)
1994-95 5 5 5 15(33.33) / -> -> -» -t \ (.1.1..1.1) (.33.33) (100)
1995-96 3 8 4 15(20.00) (53.33) (26.67) (100)
1996-97 5 5 5 15/-> -> -i \ (.VI..1.1) (33.33) / -i -> -i (.1.1..1.1) (100)
Figures in parenthesis indicate percentage to row total
An analysis of the composition of owned funds reveals that the
proportion of share capital was more than 80 per cent in many of the
factories under review. It ranged between 70 to 80 per cent in a few
factories (See Table 3.6).
An interesting feature of the Indian cooperative movement is
state partnership. State Government is n member of cooperative
organisation. It subscribes share capital in all cooperative
organisations through Principal State Partnership Fund. State
partnership is good as long as it provides a strong financial base to the
cooperative organisations. But, on many occasions State partnership
undermines the cooperative characters like autonomy and democracy
especially when it takes over the management of cooperative
organisations. Hence, a cooperative at the nascent stage, may depend
on the state for share capital contribution as it may not have sufficient
share capital base. The reason is that members are poor and may not
be able to contribute much. But a cooperative as it continues its
operation may build up share capital and reserves and subsequently
may redeem the share capital of the state. This would help the
cooperative to retain the control over its affairs and also over its
management.
Table 3.7
Percentage of members contribution to share capital
Percentage of Members Contribution---------------------------------------------------------------- Total Industry
Year 0 - 25 25 - 50 50 -75 Above No.of Average75 Tea in percentage
Factories
1987-88 2(16.67)
2(16,67)
7(58,33)
1(X.33)
12(100)
54.32
1988-89 2(14.29)
4(28.57)
8(57.14)
- 14(100)
47.96
1989-90 1( 6.67)
7(46.67)
7(46.67)
- 15(100)
51.15
1990-91(53.33)
8(46.67)
7 - 15(100)
53.76
1991-92(33.33)
5(66.67)
10 - 15(TOO)
50.04
1992-93(26.67)
4(73.33)
11 - 15(100)
58.06
1993-94(33.33)
5(66.67)
10 - 15(100)
57.52
1994-95 1(6.67)
4(26.66)
10(66.67)
- 15(100)
53.49
1995-96(3.3.33)
5(66.67)
10 - 15(100)
53.16
1996-97 - 3(20.00)
12(80.00)
- 15(100)
54.34
Figures in parenthesis indicate percentage to row total
7 3
Table 3.8
Percentage of government contribution to share capital
Year
Percentage of Stale ContributionTotalNo.ofTeaFaclories
Industry Average
in percentage0 - 25 25 - 50 50 -75 Above
75
1987-88 1 7 2 2 12 45.68(8.33) (58,33) (16.67) (16.67) (100)
1988-89 - 8 4 1 13 52.04(61.54) (30.77) (7.69) (100)
1989-90 - 7 7 1 15 48.85(46.67) (46.67) (6.66) (100)
i 990-91 - 7 8 _ 15 46.24(46.67) (53.3.3) (100)
1991-92 - 8 7 15 49,96(53.33) (46.67) (100)
1992-93 - 10 5 15 41.94(66.67) (33.33) (100)
1993-94 - 9 6 _ 15 42.48(60.00) (40.00) (100)
1994-95 - 9 5 1 15 46.51(60.00) (33.33) (6.67) (100)
1995-96 - 9 6 _ 15 46.84(60.00) (40.00) (100)
1996-97 - 1 1 4 _ 15 45.66(73.33) (26.67) (100)
I'igures in parenthesis indicate percentage to row total
74
The position in the cooperative tea factories shows that
members share in the share capital ranged between 50 to 58 per cent
of the total paid up share capital excepting for the year 1988-89;
(See table 3.7), whereas the state contribution hovered around 42 to 50
per cent. This is a higher proportion. (See table 3.8). The cooperative
tea factories may take steps to bring down the proportion of state
share in the paid up share capital by redeeming share capital of the
state over a period of time.
The overall picture that emerges from the analysis of capital
structure is that the debt equity mix is quite favourable to cooperative
tea factories as it is around 1:2 in most of the years under review. A
higher proportion of equity is always advantageous for cooperatives.
Green Leaves Procured: On the operational side, procurement
of green tea leaves is the principal function on which the entire
manufacturing process depends. There are private tea factories, known
as bought leaf factories, posing a tough competition to the cooperative
tea factories in the area of purchase of green leaves from the small
growers. The intensity of competition faced by each cooperative tea
factory depends on the number of bought leaf factories operating in its
area of operation.
75
The cooperative tea factories in order to effectively combat the
competition had to pay competitive price to the growers of tea. This
would help the cooperative tea factories to procure the required
quantity of tea leaves which in turn would help the factories to fully
utilize their capacity .(But then, uniform price cannot be fixed for the
entire season as the quality of tea leaves differ. Elevation at which
the tea plants are grown, and the moisture content in the atmosphere
and the application of inputs largely decides the quality of tea leaves. )
The payment of procurement price varies from time to time*. It is
fixed on the basis of two factors viz i) prevailing market trend and ii)
sale of made tea.
The cooperative tea factories open collection centres in suitable
places within their jurisdiction to procure the green leaves harvested
from the estates of small tea growers. The tea factories while
procuring the green leaves from the member-producers, make an
advance payment. Balance, if any, is settled within 15 days from the
procurement date. Thus, the procurement of green tea leaves is
influenced by the existence of 'bought leaf factories', price fixed on
green tea leaves and the payment on the purchase. Procurement of
adequate green leaves is a determinant of capacity utilization. Hence,
it is considered as a performance indicator.
* Procurement price is fixed at a meeting convened at the office of the Joint Director of Industries ami Commerce along with Managing Director of cooperative tea factories and the Joint Director of Department of Industries and Commerce.
76
Table 3.9
(in lakh kgs)
Green Leav es Purchased
Year <20 20-40 40-60 >60 Total Total No. of green Tea leaf Factories purchased
Industryaverage
1987-88 2(15,38)
9(69.23)
2(15.38)
- 13(100)
379.83 29.22
1988-89 - 11(84.62)
2(15.38)
.. 13(100)
409.71+(7.29)
+31.52
1989-90 1(7.14)
10(71,42)
3(21.43)
- 14(100)
431.13+(4.97)
-30.80
1990-91 3(21.43)
8(57.14)
.'I(21.43)
- 14(100)
434.97+(0.88)
+31.07
1991-92 2(13.33)
10(66.67)
2(13.33)
1(6.66)
15(100)
508.47+(14.45)
+33.90
1992-93 2(13.33)
10(66.67)
3(20.00)
- 15(100)
-432.14-(17.66)
-28.81
1993-94 J)(20.00)
8(53.33)
3(20.00)
1(6.67)
15(100)
+497.81(13.19)
+33.19
1994-95 2(13.33)
9(60.00)
3(20.00)
1(6.67)
15(100)
-457.16 -(8.89)
-30.48
1995-96 1(6.67)
9(60.00)
4(26.67)
1(6.67)
15(100)
+502.09(8.95)
+33.47
1996-97 — 10(66.67)
3(20.00)
2(13.33)
15(100)
+563.71(10.93)
+37.58
Compound growth rate - 4.03
Figures in parenthesis indicate percentage to row total
77
The tea factories used to procure the entire green leaves
supplied by the members. The green leaves procured by the
cooperative tea factories show a fluctuating trend.-i The total green
leaves procured by the tea factories increased from 379.83 lakh kgs in
1987-88 to 508.47 lakh kgs in 1991-92. Subsequent three years
registered fluctuating trend and then it recorded a sharp increase.
Factory-wise analysis of the green leaf purchased shows that around
two-third of the tea factories in many of the years under review
procured 20 to 40 lakhs of green leaves. The industry average of tea
leaves procured indicates a cycle. In other words, the purchase of tea
leaves exhibit a pattern of two to three years of lower purchase
followed by one to two years of higher purchase. This confirms to the
business cycle that is normally found in any business organisation.
The cycle may be mainly attributed to fall and rise in green tea leaves
production and diversion of tea leaves to private factories. It must,
however, be admitted that the green leaves purchased has increased
over a period of time as the compound growth rate is 4.03 per cent
(See Table 3.9).
Average Rate Paid: The price of green leaves is decided from time to
time, taking into account the prevailing market trends. The
procurement prices of green leaves are fixed on the basis of the sale of
made tea, in the meeting of the Managing Directors with the Joint
Director at the office of the Joint Director of Industries and commerce.
78
One of the main objectives of cooperative tea factory is to offer a fair
price for the produce of its members with a view to safeguard their
interest.
Table 3.10
Average rate paid
Average rate paid per kg in Rs.
Year 0-3 3-6 >6 Total No. of Tea factories
Industryaverage
[987-88 4(30.77)
9(69,23)
13(100)
3.18
1988-89 5(38.46)
8(61,54)
13(100)
-3.11
1989-90 - 2(14,29)
12 14 (85.71) (100)
+6.72
1990-91 - 2(14.29)
12 14 (85.71) (100)
+6.77
1991-92 - 15(100.00)
15(100)
-4.36
1992-93 - 15( 100.00)
15(100)
+5.48
1993-94 - 1(6.67)
14 15 (93,33) (100)
+6.86
1994-95 - 15(100.00)
15(100)
-4.44
1995-96 - - 15 15 (100.00) (100)
+7.66
1996-97 -- 1(6.67)
14 15(93.33) (100)
-6.60
Compound grow th rale - 9.11Figures in parenthesis indicate percentage to row total
79
Majority of the tea factories (around 70 percent) in 1987-88
paid a price of Rs.3 to Rs.6 per kg of green tea leaves to the small tea
growers. The average price paid was Rs.3.18 per kg. The price paid
on green tea leaves was above Rs.6 in a vast majority of the factories
( 93 per cent) in 1996-97.The average price paid was Rs.6.60 per kg.
However, it could be noticed that the price paid on green leaves over
a period of ten years shows volatile trend. This also exhibits a cyclic
trend. In other words, the price paid on green tea leaves indicates one
to two years of higher price followed by one year of lower price( See
table 3.10). A comparison between total green leaves procured and
the price paid on green tea leaves indicates that the price paid was
low when the leaves procured was high and vice-versa.
Production Process of Made Tea: Tire cooperative tea factories
procured the green leaves plucked by the member-growers from the
tea gardens through the collection centres opened at .appropriate places
within the area of operation. The procured green leaves are collected
from the collection centres through the transport lorries maintained by
the tea factories.
The collected green leaves are evenly spread over the withering
racks of tats for about eight to eighteen hours, so that the leaves lose
some of the moisture contents. ^
80
The withered leaves are dumped into a box which has an
opening in the bottom through which they trickle onto a moving
platform. The platform rotates in the opposite direction to the
container which also revolves. The leaves are crushed and twisted
between the container and the table. When this happens the leaf cells
are broken open and the juice is spread over the pieces of the leaves.
At the same time the air starts to act upon the essential oils and other
substances which are spread over the leaves. They absorb oxygen
from the air and become hot. The colour of the pieces gradually
changes from green to orange and an unmistakable tea smell is
emanated from the leaves. This process is often called 'fermentation’*.
During the rolling, the leaf pieces are pressed into sticky balls.
When this first process is finished the trap door in the table is opened
and the leaf balls fall into baskets. These balls are broken up by a
machine called roll breaker so that the oxygen contained in the air can
act strongly upon the juice.
The larger leaf pieces are collected in baskets and put back into
the rolling machines for further crushing and twisting. After a second
shaking on the roll breaker, the tea is ready for the next stage of
manufacture. Such tea is spread on the smooth concrete flooring in the
fermenting room or oxidation room, and left them until it has been
oxidized enough, which can be judged by the change of colour and
flavour.
* Actually it is a cose of oxidization and not fermentation
The gathered tea from the fermenting slabs or polished steel
bowls are fed into a drying machine through a container-box type
regulator in the next room. These driers are large iron chambers inside
which trays travel slowly from top to bottom on a conveyer-belt. From
a furnace attached to the machine, a continuous blast of hot dry air is
forced into the chamber through which the trays of tea pass. This hot
air stops and further oxidization, which would spoil the tea, and it
dries up the moisture from the tea. When the tea comes out of the drier
it becomes 'made tea', in a perfect consumable form with pleasant and
inviting smell.
( The dry tea is poured into the sorting machine which shakes it
backwards and forwards and in this process the tea is sorted into
various grades*) each grade consisting leaves of uniform size. As each
grade of tea is separated by the sorting machine it is put into a large
wooden bin marked with its name. They are packed up in the plywood
chests and got ready for market, j
The two major types of tea production process prevalent among
the cooperative tea factories were: orthodox and C.T.C.** Due to the
modernization programme all these factories have switched over to the
production technology of C.T.C.
* The dhief leaf grades are: flowery, orange, pekoe, orange pekoe and pekoe souchong. !\
*'* Culling, twisting and curling
82
Table 3 . 1 1
Production of made tea(in lakh kgs)
Y car < 5
Quantity
5-10
Produced
10-15 15-20 Total No. of tea factories
Totalproduction
Industryaverage
1987-88 2(15.38)
9(69.24)
2(15.38)
- 13(100)
88.78 6.83
I9K8-K9 - I 1(84.62)
1(7.69)
1(7.69)
13(100)
101.76 7.83
1989-90 1(7.14)
10(71.43) (21.43)
- 14(100)
104.69 7.48
1990-91 2(14.28)
9(64.29)
->
(21.43)- 14
(100)109.76 7.84
1991-92 2(13.33)
10(66.67) (20,00)
- 15(100)
117.71 7.85
1992-93 2(13.33)
10(66.67) (20,00)
- 15(100)
109.95 7.33
1993-94 1(6.67)
9(60.00)
4(26.66)
1(6.67)
15(100)
127.44 8.50
1994-95 1(6.67)
10(66.67)
4(26.66)
- 15(100)
118.63 7.91
1995-96 1(6.67)
9(60.00)
4(26.66)
1(6.67)
15(100)
129.24 8.62
1996-97 10(66.67)
4(26.66)
1(6.67)
15(100)
142.98 9.53
Compound growth rate - 4.881‘igurcs in parenthesis indicate percentage to row total
The total production of made tea has increased from 88.78 lakh
kgs in 1987-88 to 142.98 lakh kgs in 1996-97 - the compound growth
rate being 4.88 per cent. The industry average shows that the
production per factory has increased from 6.83 lakh kgs in 1987-88 to
9.53 lakh kgs in 1996-97. The factory-wise analysis of the production
of made tea shows that there is no remarkable improvement in the
production of made tea. This is clear from the fact that majority of the
tea factories(69 per cent) had production figure of 5 lakh kgs to 10
lakh kgs in the year 1987-88. The same trend could be seen for all the
years barring 1988-89 and 1989-90. Production of made tea also
shows a cyclic pattern - one to two years of higher production
followed by one to two years of lower production( See table 3.11).
The total value of tea produced shows the business performance
of the selected cooperative tea factories. The aggregate value of tea
produced by all the factories has increased from Rs. 1521.70 lakhs in
1987-88 to Rs.5023.44 lakhs in 1996-97 registering an increase of
more than three fold within a period of one decade.The average value
of production per tea factory also rose from Rs 1 17.07 lakhs in 1987-
88 to Rs.334.90 lakhs in 1996-97. The average annual compound
growth in the value of tea produced works out to 13 per cent per
annum during the period under review ( See table 3.12).
84
Table 3 . 1 2
(Rs. in lakhs)
Year < 150
Value of Tea
150-300
Produced
300-450 >450 Total Total No.of value TeaFactories
Industryaverage
1987-88 1 1(84.62)
2(15.38)
- -- 13(100)
1521.90 117.07
1988-89 1 1(84.62)
2(15.38)
- - 13(100)
1631.32 125.49
1989-90 1(7.14)
10(71.43)
3(21.43)
.. 14(100)
3226.12 230,44
1990-91 1(7.14)
10(71.43)
2(14.29)
1(7.14)
14(100)
3483.00 248.79
1991-92 2(13.33)
12 (80.00)
1(6.67)
- 15(100)
2753.32 183.55
1992-93 2(13.33)
[ 1(73.34)
2(13.33)
-- 15(100)
3233.88 215.59
1993-94 1(6.67)
8(53.33)
5(33.33)
1(6,67)
15(100)
4304.87 286.99
1994-95 3(20.00)
11(73.33)
1(6.67)
- 15(100)
3005.17 200.34
1995-96 I(6.67)
6(40.00)
6(40.00)
2(13.33)
15(100)
4869.62 324.64
1996-97 -- 7(46.67)
5/ "'I -1 \ (.1.1. .1.1)
3(20.00)
15(100)
5023.44 334.90
Hgures in parenthesis indicate percentage to row totalCompound growth rate - 12.68
Sales: The tea industry of Nilgiris district in the past had two
marketing centres viz., Coonoor for internal marketing and Cochin for
export. Recently tea trading has been developed in Coimbatore also
and thus the cooperative tea factories had marketing facilities at
Coimbatore too.^The tea trade is conducted purely on auction basis.
The approved brokers alone could sell the made tea for which they
get commission from the factories. The brokers used to dominate the
field, because it is the 'buyers market1.) The Tamil Nadu Small Tea
Growers' Industrial lea Factories Federation Limited (popularly
knows as TNCOSERVE') established in 1965 intervenes in the market
and provides marketing forum to sell the tea produced by member
factories.As a result there was marked improvement in the quantity
and value of tea sold. /
Sale of tea is yet another performance indicator which reveals
the major activity of the factories and also decides the financial
performance or working results of the factories. Data regarding the
volume of tea sold by the factory over the years and average sale per
factory are analysed here. The volume of tea sold increased from
85.31 lakh kgs. in 1987-88 to 138.68 lakh kgs in 1996-97. The average
sale per factory increased from 6.56 lakh kgs in 1987-88 to 9.24 lakh
kgs. in 1996-97. The average annual compound growth rate of tea sold
is 5 per cent. The sales exhibit a cyclic trend as found in the
procurement of green leaves and the production of made tea ( See
table 3.13).
8 6
Table 3 . 1 3
Year < 5
Quantity
5-10
in lakh kgs
10-15 >15 Total No. of Tea Factories
Total quantity
; sold
Industryaverage
1987-88 *>
(23.08)8
(61.54)2
(15.38)- 13
(100)85.31 6.56
1988-89 - 11(84.62)
1(7.69)
1(7,69)
13(100)
106.63(19.99)
8.20
1989-90 1(7.14)
1 1(78.57)
2(14.29)
- 14(100)
101.71-(4,84)
7.27
1990-91 2(14.28)
9(64.29)
“i
(21.43)- 14
(100)108.41
(6.18)7.74
1991-92 2(13.33)
10(66.67)
3(20.00)
- 15 (100)
i 20.87 (10.31)
8.06
1992-93 2(13.33)
12(80.00)
1(6.67)
... 15(100)
106.55-(13.44)
7.10
1993-94 2(13.33)
8(53.33)
4(26.67)
1(6.67)
15(100)
125.54-(15.1.3)
8.37
1994-95 1(6.67)
10(66.66)
3(20.00)
1(6.67)
15(100)
122.13-(2.79)
8.14
1995-96 1(6.67)
9(60.00)
4(26.66)
1(6.67)
15(100)
135.46(9.84)
9.03
1996-97 - 10(66.67)
4(26.66)
1(6.67)
15(100)
138.68(2.32)
9.25
I'"inures in parenthesis indicate percentage to row tolal
Value of Tea Sold Rs. in lakhs
Year <100 100-200 200-300 300-400 400-500 >500 Total Total No. of Value Tea sold Factories
Industryaverage
1987-88 4(30.77)
7(53.85)
2(15.38)
- - 13(100)
1637.50 125.96
1988-89 1(7.69)
10(76.93)
1(7.69)
1(7.69)
- 13(100)
2005.92(18.37)
154.30
1989-90 - 5(35.71)
6(42.86)
1(7.14)
2(14.29)
14(100)
3451.10(41.88)
246.51
1990-91 - 4(2 H. 57)
7(50.00)
1(7.14)
2(14,29)
14(100)
3705.79(6.87)
246.70
1991-92 1(6.67)
8(53.33)
3(20.00)
3(20.00)
- 15(100)
3117.57-(18.87)
207.84
1992-93 1(6.67)
4(26.66)
6(40.00)
3(20.00)
1(6.67)
15(100)
3465.59(10.04)
231.04
1993-94 - 3(20.00)
6(40.00)
-i
(20,00)1
(6.67)2 15
(13.33) (100)4646.85-(25.42)
309.79
1994-95 1(6.67)
5 6(40.00)
2(13.3.3)
1(6.67)
15(100)
3406.34-(36,42)
227,09
1995-96 1(6.67)
- 4(26.67)
5(33.32)
4(26.67)
1 15 (6.67) (100)
5393.30(36.84)
359.55
1996-97 — -- 7(46,67)
4(26.67)
2(13.33)
2 15 (13.33) (100)
5236.49-(2.99)
349.10
Figures in parenthesis indicate percentage to row total
Table 3.14
Value of tea sold
8 8
The value of tea sold increased from Rs. 1637.50 lakhs in 1987-
88 to Rs.5236.49 lakhs in 1996-97 - registering more than three fold
increase over a period often years. The average sales per factory shot
up from Rs. 125.96 lakhs in 1987-88 to Rs.349.10 lakhs in 1996-97
registering little less than three fold increase( See table 3.14).
The mean of the sales per factory over a period of ten years
revealed that factories 1,2,3, have registered an average sales
turnover of less than 200 lakhs. These factories fall under the category
of factories with a registered area of less than 1500 acres under tea.
Factories five and seven also have an average sales turnover of less
than Rs. 200 lakhs, though these factories have high registered acreage
of tea. The mean of sales of other factories was more than Rs. 200
lakhs (see graph 3.1). However, it must be noticed that some of the
factories with higher acreage under tea have recorded less average
sales turnover. This is mainly due to fluctuations in procurement of
green tea leaves resulting in fluctuation in production.
Sale Average Realised: The selling price of tea (per kilo) is an
important indicator which reflects not only the efficiency of the
factories in value addition but also decides the profit of the factories.
A comparison of the trend in the sales price realised per kg. of tea with
the cost of production reveals that both of them increased more or less
89
at a similar rate. However, it must be remembered that the margin
between cost per kg and sales price per kg is very low ( See table
3.15 and 3.16).
Table 3.15
Sale average realised
(Factor ies in number)
Sale Average Realised per kg of tea
Year 15-20 20-25 25-30 30-35 35-40 40 < T otal Number of Tea Factories
Totalindustryaverage
1 987-88 12(92.31)
1(17.69)
- - - 13 17.00
1988-89 12(92.31)
1(7.69)
- - - 13 18.76
1989-90 - - 13(92.86)
1(7.14)
- 14 33.93
1990-91 - - 11(78.57)
3(21.43)
- 14 34.18
1991-92 - 6 9 (40.0) (60.0)
- - - 15 25.58
1992-93 - 1(6.67)
14(93.33)
- - 15 32.05
1993-94 - - 1(6.67)
14(93.33)
- 15 36.66
1994-95 - 1(6.67)
14(93.33)
- - 15 27,04
1995-96 - - - 8 7 15 39.82(53.33) (46.67)
1996-97 “ 14(93.33)
1(6.67)
15 37.54
Figures in parenthesis indicate percentage to row tolal
91
Table 3.16
Cost of production and selling price per kg of tea
(Industry average)(in Rs.)
Year C'osl of Production Sales Price Differencebetween sales price & cost of production
1987-88 17.14 17.00 -0.14
1988-89 16.03 18.76 +2.73
1989-90 30,82 33.93 +3.11
1990-91 31.73 34. 18 +2.45
1991-92 23.39 25.58 +2.19
1992-93 29.41 32.05 +2.64
1993-94 33.78 36.66 +2.88
1994-95 25.33 27.07 + 1,74
1995-96 37.68 39,82 +2.14
1996-97 35.13 37.54 +2.4 1
Profit: The working of the cooperative tea factories in terms of
profit/loss, not only decides the financial performance but also their
continued service to their member growers. The analysis reveals that
not less than sixty per cent of the factories throughout the years under
study have found to have incurred loss and the loss in the cumulative
terms exceeded in many cases Rs.20 lakhs. The factories which were
found running at profit on the other hand, found to have earned profit
of less than Rs.4 lakhs ( exception being one or two factories). The
number of factories running at profit has also come down from six in
the year 1988-89 to only two factories in the year 1996-97. All these
92
imply that the factories have not paid adequate attention to reduce the
overhead expenses which resulted in the decline of profitability of the
factories ( See table 3.17).
1987-88 6 5 1 12
(50 .00) (41 .67) (8 .33)
1988-89 7 5 1 - - 13
(53 .85) (38 .46) (7 .69)
1989-90 8 2 -I 1 - 14
(57 .14) (14 .29) (21 .43) (7 .14)
1990-91 10 “ i - - 1 14
(71 .43) (21 .43) (7 .14)
1991-92 .10 5 - - - 15
(66 .67) (33 .33)
1992-99 9 5 - 1 - 15
(60 .00) (33 .33) (6 .67)
1993-94 11 4 - - - 15
(73 .33) (26 ,67)
1994-95 11 4 - - - 15
(73 .33) (26 .67)
1995-96 11 3 1 - - 15
(73 .33) (20 .00) (6 .6 7 )
1996-97 13 2 - - - 15
(86 .67) / | ^ -» - i , ( l . v .u )
/•'i<>iires inparenthesis indicate percentage to row total
The mean of the operating profit per factory for a period of ten
years indicate that factories 2,3,5, and 7 have negative operating
profit. These factories fall under the category of factories with
registered area of less than 2,000 acres. The rest of the factories
namely 1,4,6,8,9,10,11,12,13,14, and 15 have positive operating
profit.(See graph 3.2). Many of these factories fall under the
categories of factories with a registered area of more than 2,000
acres. Thus it can be concluded that factories with high registered
area of tea leaves have the prospects of earning more profit.
Prospects of Cooperative Tea Factories
The profit position of the cooperative tea factory present a
dismal picture. If this trend continues many of the industrial
cooperative tea factories may become sick and defunct. We make an
attempt here to ascertain whether the industrial cooperative tea factory
would fail or succeed using an index called Z -score developed by
Edward I. Altman. The equation for predicting the failure or success
of the factory is as follows.
Z = X|+ X2+ X3+ X4+ X5
where
Z=Index
Xi=Working capital divided by total assets
X2= retained earnings divided by total assets
Mea
n of
ope
ratin
g pr
ofit
= pa
t+in
t
94
Graph 3.2
Mean of Operating Profit
FACTORY
95
X3= earning before interest and tax divided by total assets
X4= market value of equity and preferred stocks divided by total liabilities.
X5= Sales divided by total assets
Since cooperative shares are not traded in stock exchanges, the
shares of cooperatives do not have any market value. It also does not
issue preference shares. The share capital considered here is the
ordinary paid up share capital of the members and government. Each
ratio under Z- score has been calculated using three year average ol
variables. The factory wise score is presented in the table 3.18.
Table 3.18
The future of cooperative tea factories
Factories 'Z' Value (Altmann) Condition
Bikkalv 1.32 Sick
Karumbalani 1.28 Sick
Kinnakorai 1.17 Sick
Kil Kothagiri 2.04 Neither Healthy nor Sick
Kothagiri 1.42 Sick
Manjoor 1.98 Neither Healthy nor Sick
Mercunad 1.76 Sick
Kundah 1.73 Sick
Ithalar 1.96 Nei ther Healthy nor Sick
Kaikalty 2.47 Neither Healthy nor Sick
Frontier 2.09 Neither Healthy nor Sick
Mahalinga 2.13 Neither Healthy nor Sick
Pandalur 2.57 Neither Healthy nor Sick
Kattabettu 2.98 Neither Healthy nor Sick
Salisbury 2.55 Neither HeaiUiy nor Sick
96
As per the norm if the Z-score is below 1.81, the factory is
considered to be failing; and if it is above 2.99 it is considered healthy.
The Z-scores calculated for the 15 cooperative tea factories clearly
shows that six cooperative tea factories (40 per cent) are heading
towards bankruptcy while the rest have a score of more than 1.81 but
less than 2.99. Hence the remaining nine factories cannot be
considered as healthy. If they don't take adequate measures to improve
their Z-score they are likely to fall under failing category in course of
time.
Conclusion
Cooperative tea factories have been mainly promoted to protect
the interest of small tea growers which in turn depends on the effective
functioning of the factories. The cooperative tea factories have done a
commendable job in enlisting a large number of small growers under
their fold. They have also succeeded in maintaining favorable debt
equity mix over the period under review. Performance in terms of
procurement of tea leaves production and sales have been satisfactory
though they present a cyclic trend. However, a vast majority of the tea
factories suffered continuous loss which is not a welcome sign. The
continuous loss in many of the factories is slowly forcing them
towards bankruptcy. A few factories which have symptoms of
healthiness are likely to face the risk of nun if they don't pull up their
sleeves and work towards improving their profit.
9 7
Reference
I. Theodre W. Shultz, Transforming Traditional Agriculture, Ludhiana: Loyal Book Depot, 1964.p. 123.
2 Louis P. F. Smith, The Evolution of Agricultural Cooperation, Oxford: Basil Blackwell, 1961, pp.5-6.
3, Ivrishnaswamy,O.R. and Narayanasamy N., "Relationship between Capital Structure and Cost of Capital in Larger Cooperatives in Tamil Nadu", Finance India. Vol.IV, No.2, Jun. 1990, pp. 131-141.