BackThe chronicle of a crisis in the Dooars
Duncans is in a mess that was many years in the making, admits its chairman. And he doesn't have a quick fix
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Chalsa (West Bengal): Several times in the past couple of weeks, West Bengal chief minister Mamata Banerjee has warned tea garden owners in the state that her government will seize their plantations if they are unable to run them properly.
The warnings came in the wake of reports of at least 14 starvation deaths at Duncans Industries Ltd’s Bagracote tea garden from 1 September. Though she did not name names in public, her attack was quite clearly aimed at Duncans—one of the biggest producers of tea in the Dooars region.
Privately, in the recent past, she has told several industrialists in Kolkata that she is disappointed with Duncans’ management because the firm is behind on wage payments and had pushed its 11,500 plantation workers to the brink of starvation.
It was intended to convey her displeasure, said one of those who carried the message to Duncans chairman G.P. Goenka last month. This person asked not to be identified.
But will Banerjee walk the talk?
In a rare move, she has launched a probe by the state police into the affairs of Duncans to pile pressure on it to get its act together. But will the company survive the winter when its cash flow will dry up for at least three months?
_web.jpg "Graphic: Naveen Kumar Saini/Mint")
Duncans is in a mess that was many years in the making, admits Goenka. He doesn’t have a quick fix, and worse still, time is fast running out for him.
“If I can put this crisis behind me, I may hang up my boots," says Goenka, 75. At stake is his personal goodwill. For redemption, he must rescue Duncans from its worst crisis ever.
From the beginning of 2015, Duncans has been defaulting on wage payments and supply of foodgrains to its workers. This led to disruptions in harvesting and tea production at all its 13 estates in the Dooars in June-July.
The company has lost at least 12 million kg—or 80% of its production capacity in the current year—according to Goenka’s own estimates, and it may not immediately have the resources to pay its workers from December, when there will be no tea leaves left to harvest.
To stay afloat, Goenka has put one of his privately held tea gardens in the Dooars, Demdima, on the block. His advisors have told him that bargain hunters are circling his distressed properties, and it may be difficult to get a decent price at this juncture.
Still, Goenka is going ahead with the sale of Demdima because he doesn’t have too many options.
The crop loss this year has dealt a body blow to Duncans’ already stretched finances. As losses expanded, its liabilities (including provisions towards employee benefits) had shot up to an estimated ₹ 450 crore at the end of June.
The situation has only gone further south since, but it is not known to what extent because the company hasn’t yet made public its financial results for the September quarter.
If the sale of Demdima goes through, Goenka will be able to stump up enough cash to pay his workers through the winter months, but a long-term solution remains elusive. The key concern is the company’s organic cash flow may not be sufficient to pay off its dues.
The root of the crisis
The magnitude of the crisis can be best assessed by Duncans’ loss of control of its prized Birpara tea garden in the middle of October. While most gave up on Duncans and turned to other estates for employment much earlier, a handful of workers at Birpara got together and seized the crop in mid-October.
They started to harvest the rundown garden and sell leaves on their own to distribute the proceeds among workers who are still turning up for jobs at the estate. As the mercury drops, the yield is falling, and in about a couple of weeks, there will be no leaves left.
The management calls this harvesting illegal—theft, to put it bluntly—but there isn’t much sympathy for the company within the state administration. Duncans wasn’t paying its workers anyhow, so the workers had strong moral grounds to fend for themselves.
For Duncans, which is now fighting to regain control of the garden, the loss of Birpara is symbolic in many ways. It is one of Duncans’ high-yielding gardens, and the biggest in terms of area under cultivation—around 900 hectares.
But the garden is currently in ruins, overrun by weeds and overgrown tea bushes. Birpara’s tea-processing factory was shut in mid-July after the company failed to clear its accumulated electricity dues of around ₹ 35 lakh.
Goenka, however, says Duncans was forced to suspend harvesting in the key plucking season because workers deserted the company’s plantations to work at other estates.
He admits that there were irregularities in payment of wages and supply of rations from early 2015, but maintains that other producers in the Dooars took advantage of Duncans’ lack of liquidity for their long-term gains.
If only the workers had a little more patience, things could have been very different, says another key Duncan official, asking not to be identified.
But that argument does not wash because plantation workers receive only ₹ 122 a day, and even with regular supply of foodgrains from the company, they can just about make ends meet.
Still, the cost of production is said to be highest for tea companies in the Dooars. Social costs such as rations, healthcare and education facilities weigh heavily on companies such as Duncans.
The biggest blow to workers’ confidence came last month when the company paid only 60% of the Puja bonus that was agreed upon. The state government agreed to that arrangement, but the workers did not take kindly to it.
Amid the snowballing crisis, Goenka blames his senior management at the estates as well as at Duncans’ Kolkata head office for the company’s inability to align its cost structure with evolving realities in the tea trade.
To rationalize costs for the long term, he has lately laid off people to pare redundancies and cut perks of top managers.
If Duncans manages to survive this crisis, it will emerge a much stronger organization than it ever was in the past, Goenka says, accepting responsibility for the lack of internal controls, which, according to him, cost the company dearly.
But his top managers privately say it was Duncans’ flawed investment in the fertilizer business that is to blame for its current woes.
The investment went sour due to changes in government policy over fertilizer subsidy, says Goenka
Also, the plantations would have done better had there been periodic on-ground reviews of operations by the promoters themselves, managers say.
The company had acquired from paint maker, the erstwhile ICI India Ltd, a naphtha-based fertilizer plant in Kanpur in 1995. After posting substantial losses, the plant was mothballed in 2002 and eventually transferred to the Jaypee Group in 2010.
Because of losses in the fertilizer business, Duncans was forced to cut corners, depriving its plantations of nutrients and maintenance, whereas profitable companies invested to improve crop quality and to create irrigation facilities, say managers.
As a result, over the past 12-13 years, the average yield of Duncans’ gardens has declined from around 24 quintals per hectare per annum to around 18 quintals in 2014.
The fall in average yield is in line with most other gardens in the Dooars, which is partly due to climate change as well, but Duncans has lost its edge over others.
The legacy of a 140-year-old company cannot be wished away in a day, say managers. “With a 25% decline in yield, what was previously affordable is now flab and redundancy," said one of them, asking not to be named.
Cost structure
Tea garden managers used to have over a dozen servants at their bungalows, according to Goenka. Even in the factories, there were people who did nothing, he says. Such a cost structure became unviable when small growers started to flood the market from the mid-1990s.
According to data released by the Tea Board, the number of tea plantations in North India (which includes West Bengal, Assam and all the north-eastern states) jumped from 3,141 in 1994 to 36,836 in 1999. In the Dooars alone, this number jumped from 168 to 532 during this period.
Most of these new plantations were started by small-time growers on small tracts of land in their backyards. They do not have to comply with the plantation labour laws governing large companies such as Duncans—small growers pay their workers by the volume of leaves collected and do not have to provide any other facility.
These growers, with much leaner operations, now account for an estimated 40% of the leaf production in the sub-Himalayan region. This much cheaper supply, mostly consumed by stand-alone tea factories, undermines the pricing power of larger companies such as Duncans.
Even if these larger producers manage to sell their best grade tea (of CTC variety) for ₹ 170-180 a kg, they make only about ₹ 10-15 in profits on average in the best-case scenario, battling pressure on prices.
(Factories in the Dooars mostly produce tea of the CTC—or crush, tear and curl—variety, which is named after the process through which it is produced.)
Duncans produced around 13 million kg of tea in the year till September 2014, clocking ₹ 190 crore in revenue. The average realization was ₹ 144 a kg, according to Duncans’ annual report for 2014. But, at this price, it was unable to recover its operating costs and ended the year with a net loss of ₹ 30.7 crore.
The state’s chief minister may be bending over backwards to avert a humanitarian crisis at Duncans’ tea estates, but if she were familiar with the company’s financial realities, she might not have offered to take over the burden in the first place.
Taking over Duncans with all its liabilities isn’t an option at all, say government officials, asking not to be identified.
Goenka says he is looking to rationalize costs from around ₹ 150 a kg to less than ₹ 100—an ambitious target—but even if he achieves it, Duncans needs to get past the winter months with its head out of water.
For now, he is “walking a tightrope", Goenka says.
Not just Duncans, the state administration, too, has rebutted reports of starvation deaths at tea gardens. But there is growing concern within the administration about chronic malnutrition among plantation workers.
Alcoholism, too, is rampant in the coolie lines.
These manifest themselves in the form of rampant anaemia among women who work at tea estates, according Bhrigu Prasad, a physician at Duncans’ Nagaisuree tea garden.
Some recent dipstick surveys conducted by non-government organizations and trade unions have also shown low body mass index (BMI) among plantation workers.
At some estates (not run by Duncans), more than 40% of the workers were found to have a BMI of less than 18—“a sign of famine" by the standards of the World Health Organization—according to Abhijit Mazumdar, a trade union leader.
What next?
Clearly, the sale of Demdima alone will not be enough to rescue Duncans or Goenka’s goodwill. He needs to figure out a way to create new revenue streams from his gardens.
The model to follow is that of the Chandmoni tea estate, a terminally sick garden near Siliguri town, which was converted into a 350 acre township under a partnership between Luxmi Tea Co. Ltd and the state government in the early 2000s.
But even that development was stricken by political unrest and police firing. The precedent of Chandmoni will help Goenka secure approval from the state government, but mollifying trade unions will not be easy, warns Mazumdar.
If his plans materialize, Goenka says he will not uproot plantations or displace workers, but the key concern is he has to obtain the approval of the Board for Industrial and Financial Reconstruction for redevelopment.
That, typically, takes a lot of time, which at this moment Duncans cannot afford unless it can raise resources to tide over its immediate crisis.
The administration is in no mood to forgive any further delinquency with wage payment, said one of the government officials cited above. “He’d better hurry up," this person added, referring to Goenka.
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