Is there a role for co-operatives in the tea industry?

Is there a role for co-operatives in the tea industry?
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Following the TEA Talk, Are Tea Cooperatives Better for Human Rights? Stirling Smith explores the history and efficacy of cooperatives in improving conditions for tea farmers and former plantation workers.

There is a widespread recognition that the traditional tea plantation model is under great stress. An alternative being talked about in some quarters is a co-operative model of growing tea. At first glance, the idea might be attractive. Co-operatives sound nice and cuddly. But the idea needs unpacking. There are perhaps three scenarios in which a tea co-operative might be established.

Firstly, existing smallholder tea growers could come together to form a co-operative. There are some examples of this which will be discussed later. Secondly, an existing tea plantation might go through the process of being “de-estated”. In this model, the company hands over the land to the existing workforce, and the workers become small tea growers. Finally, in cases where the management has abandoned the plantation, the workers taken over and try to grow, pluck and market the tea as a co-operative.

Before we look at these three scenarios in more detail, we need to answer a fundamental question.

What is a co-operative?

Co-operatives became established in the middle of the 19th century in several European countries but have spread throughout the world and are now estimated to have perhaps one billion members. The definition of a co-operative agreed in 1995 by the International Co-operative Alliance (ICA) is: an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise.

For small tea farmers, that “common need” would be to get the best price for their green leaf tea. It might also include getting help to grow tea with inputs like fertilisers, or tea seedlings for planting at reasonable cost. On their own, a small farmer can struggle to get credit for these. It is cheaper to bulk buy these inputs. They also find it difficult to process, add value to and market their produce. Globally, agricultural co-operatives provide inputs and support with marketing to hundreds of millions of farmers.

Credit is particularly important. If you are growing tea, you need to sell it very quickly. Processing tea requires substantial investment in a factory and machinery. Many small tea growers find themselves in a position of being distressed sellers, or price takers. They are compelled to take whatever price they are offered by a middleman. The situation is a bit different from, say, coffee. The initial coffee processing is not very high-tech and can be done locally. Dried coffee beans can be stored for some time.

What a co-operative is not

A co-operative is an enterprise; it is not an NGO; it is not a trade union. Co-operatives are businesses, and they are also membership-based organisations. Instead of shareholders they have members. Normally, each member the co-operative has equal voting rights and an equal share in the business.

Profits are good.

As an enterprise, the co-operative must make a profit. It is up to the members to decide how the profit is distributed. The normal model in a co-operative is to distribute profit to members in proportion to the trade or business that they have done with the co-operative. So, in a situation where a co-operative has made a profit and can declare a 5% dividend, a member who has sold £100 of leaf tea to the co-operative in a year would receive a dividend of £5. A member who had sold only £50 would receive a dividend of £2.50.

Not all profit has to be distributed as dividend, the members can choose to retain it for investment, or distribute some of it to a good cause. The point is that the members must decide democratically how the profit should be applied. The real point of the co-operative is not to make a profit for itself, but to increase the profits of members.

Collective entrepreneurship

A co-operative is an exercise in collective entrepreneurship. Each farmer remains an independent entrepreneur. A successful co-operative is no guarantee that every member will be a successful entrepreneur.

What about the workers?

A small tea grower can employ workers. The fact that they are members of a co-operative does not necessarily mean that they are going to treat the workers properly, pay a decent wage, or allow them to join trade unions.

Last year, this writer constructed a wages ladder for the tea industry in north-east India; the latter has 27 “rungs”. The wages paid by small tea growers in West Bengal are the second lowest rung on that ladder! The small tea growers are paying wages to their workers much lower than those paid by the traditional large plantation estates.

The co-operative can also be an employer; in this situation, one would hope that it will pay the workers a decent wage and engage in collective bargaining. But there is a danger that it does not.

A particular problem can be the establishment of bogus co-operatives, set up essentially for the purpose of undermining workers’ pay and conditions. The International Labour Organisation, which has responsibility in the United Nations system for co-operatives, as recognise this as a problem. The ILO standard on co-operatives stresses that, as employers, co-operatives should recognise fundamental rights at work.

Let us now return to those three scenarios and go into a bit more detail.

Smallholder tea growers

There are certainly some successful examples of where this has worked. Over 11,000 small scale tea farmers in Kericho, in the highlands of Kenya, grow tea as their major cash crop, and were living below the poverty line. Previously, they were not organised and often sold through middlemen, getting lower prices.

These farmers are operating adjacent to a large plantation operated by James Finlay Limited which was a supplier for the Co-operative Group in the UK. Finlay’s, in partnership with the Co-operative Colleges of Kenya and the UK, and an NGO, came together to help the farmers to organise themselves into co-operatives and gain Fairtrade certification. An important component of the project was training about what was involved in being part of a co-operative.

The tea smallholders receive a better price because they have cut out the middleman. But it is important to note in this example that the co-operative does not operate a factory and does not process the tea. The success depends upon a friendly large plantation company willing to buy the tea from the co-operative.

If you talk to small tea growers who aspire to set up a co-operative, part of their plan is always to establish their own factory. But if they take on the entire responsibility for the supply chain, then they could be waiting a long time to get payment for their tea. What if they have to wait until their tea reaches the auction.

Established companies have got working capital and lines of credit. This can be difficult for a new smallholder tea co-operative.

From plantation worker to tea smallholder

The idea of “de-estating” in existing plantation has been talked about for some years, but a lot of detail is missing. Who would take over responsibility for the housing, health, and education? Would this be a new co-operative, with the former workers as members? If each worker was given a parcel of land and become an independent tea grower, who will be the members of the co-operative? In most of the countries where this would take place, we can almost guarantee that the title to the land will be given to a man, even if a woman were to do all the work.

The model seems to envisage that the company retains the factory and will buy the tea. So it looks like this is a way of shifting all the risk onto uneducated workers through co-operatives that may not in fact be delivering on empowerment and decent incomes. The workers will not gain any agency, or any real improvement in their lives.

Abandoned tea estates.

There have been several instances, especially in the Dooars region of West Bengal where companies have essentially walked away from tea estates, just given up. In desperation, workers have taken over and try to grow, pluck and market the tea as a co-operative.

A group of workers will not have the working capital to take over and run a factory, so they have had to find a buyer for the green leaf tea. The danger here is that they become price takers, not price setters.

The difference is that the workers collectively try to run the estate. So it is a different kind of co-operative: a workers’ co-operative. The workers are not individual small tea growers, but they collectively pick tea and maintain the estate as far as they can. These situations are quite precarious as the company maintains the legal rights to the land.

There is no reason why such a model could not work, if a workers’ co-operative could become the legal entity, and is given sufficient support and working capital to run the estate. Mineral Springs in Darjeeling, who featured in THIRST’s Building Tea Back Better Roundtable meeting in 2020 is a successful example of such a co-operative.

But In a situation where the previous owners have abandoned the estate, it is likely that there will have been a lack of investment in replanting bushes and in the infrastructure. Overcoming that legacy would be difficult for any business.

 

Conclusion

Clearly, selling a co-operative is not a simple one size fits all solution to problems facing the traditional tea plantation sector. Finding a buyer for production, capital, and training to provide an understanding not just of running the business, but of what a co-operative really means – all these are essential.