Unilever & Tata Tea: pruning workers, reaping profits

As India’s Transnational Tea Companies Enjoy Windfall Gains, Workers Are Cast Aside

For decades India has been one of the world’s largest tea markets – in fact, more tea is produced and consumed in India than anywhere else in the world. Moreover, India is the base of operations of two of the world’s largest transnational corporation (TNCs) associated with tea: Tata Tea and Hindustan Unilever Limited, HUL (before 2007 known as Hindustan Lever Limited, or HLL).

Tata Tea is part of the Tata Group, a transnational corporation owned by one of the wealthiest families in India which, besides tea, has interests in engineering, hotels, communications, automobiles, steel and chemicals. In 2005-6 the Tata Group recorded US$22 billion in revenue (equivalent to 2.8% of India’s gross domestic product) and claimed to employ 246,000 workers. The Group has operations in more than 80 countries. Tata Tea is the world’s second largest tea company. Tata Tea recorded US$258 million in sales in 2005-06.

Hindustan Unilever Limited is the Indian subsidiary of Unilever, the Anglo-Dutch TNC and one of the world’s largest food and personal products companies. In 2006 Unilever had global sales of US$55 billion (equivalent to 7% of India’s gross domestic product) and employed 179,000 workers in almost 100 countries. Unilever is owner of the world’s highest selling tea brand, Lipton, with US$4.1 billion in sales. The company purchases 12% of total global black tea production, making it the world’s largest buyer of tea. HUL, producing everything from ice creams, shampoos, soaps, chemicals and tea products had sales of US$3.26 billion in India in 2006. In terms of tea products, HUL recorded US$352 million in sales in 2006.

These two giants of the tea industry in India dominate the market, with a 60% share of branded tea sales in 2005. For decades they were significant employers in the sector, owning plantations with thousands of workers in the key tea producing areas such as Assam, West Bengal, Kerala and Tamil Nadu.

However, this has all changed, with 2007 and 2008 marking the final phase in these companies exit from plantations. In 2006, HUL shed itself of its last plantation worker. Tata Tea has rid itself of most of its directly-employed plantation workers in southern India, and is looking to do the same in north-eastern India.

This restructuring process is built upon both companies’ change in orientation: away from producing tea and towards being sellers of tea products. That is, no longer are the companies interested in growing tea in India, they are only interested in purchasing tea.
To put it another way, both companies realised that their levels of profits could be greatly increased by selling branded and processed tea products, rather than owning plantations. So, plantations workers, who had contributed to building the profits of these companies over the years, were no longer needed and were to be divested and demerged.

HUL has moved the furthest in this process. In April 2005 the company, at the time called Hindustan Lever (HLL), announced that 6,100 permanent workers, 3,100 hectares of plantations and three processing factories in Assam would be parcelled off into a demerged company called Doom Dooma Tea Company. By December 2005 HLL announced the transfer and sale of Doom Dooma to McLeod Russel India.

With the same April 2005 announcement, HLL parcelled together its holdings in Tamil Nadu, encompassing 6,300 permanent workers, 3,700 hectares of plantations and six processing plants, into a demerged company called “Tea Estates India Limited”. On 1 March 2006 HLL announced the completion of the sale and transfer of Tea Estates to the Woodbriar Group.

Thus, between 2005 and 2006 Hindustan Unilever managed to divest itself of the responsibility of more than 12,000 permanent workers (see depiction above). Of course, the total number of workers affected by this decision would have been much higher as the number does not include contract or day workers, nor is the number of family members part of the equation.

In 2006, Hindustan Unilever showed after tax profits of US$464 million, an increase of 32% compared to 2005.

Tata Tea has been somewhat slower to divest itself of its plantations, although, like Hindustan Unilever, it has made clear its exit plans.

The evidence of that restructuring is clear when looking at the Tata Tea accounts from 2001 to 2006. In those five years, Tata Tea has decreased its total wage payments by 12.5% (cuts of approximately US$2.75 million), reduced its provident fund payments to workers by 43% (approximately US$3.13 million) and decreased welfare payments by 40% (approximately US$4.1 million). Whereas in 2001, 21% of Tata Tea’s total spending was in the form of payments to workers (approximately US$40 million), as of 2006 this was reduced to 15% of total spending (approximately US$30 million). In 2001, Tata Tea reported employing 58,888 workers, by 2006 this had dropped to 34,596.

Such restructuring was built on the basis of divesting itself of the bulk of its plantations in southern India. The biggest divestment was in 2005 when Tata Tea transferred 17 plantations to the company Kannan Devan Hills Plantation Limited, of which Tata Tea retained a 19% share. Significantly, Tata Tea kept the brand name “Kannan Devan”. This restructuring transferred 75% ownership of the company to workers and local management, yet the reality of the transfer was workers were taking on an enormous risk burden and were being shifted from a highly profitable company to a company with much less capacity.

In north-east India, Tata Tea has initiated plans to demerge its 24 plantations in West Bengal and Assam into Amalgamated Plantations Private Ltd. This will affect more than 30,000 workers radically reducing the company’s direct work force (see table above). In order to fund this plan the company has sought a handsome subsidy from the World Bank.

Tata plans to retain no more than 35% of the new company. The World Bank’s International Finance Corporation (IFC), through a US$7.8 million investment, will retain 19%. Workers will hold 15 to 20% through a scheme where Tata Tea will loan money to workers. The remainder will be held by private institutional investors.

Tata Tea’s plan in the north-east has been controversial (see box). As of August 2007, the IFC does not seem to have granted final approval for the investment. Furthermore, workers and unions have not reached a final agreement with the company over the plan.

Little wonder that workers are wary when considering what the impact on their livelihoods might be. None of the workers who were ealier hived off into other companies have any possibility in sharing in the windfall profits now accruing to Tata Tea. Between 2001 and 2006 Tata Tea’s after tax profits increased 87%, from US$25 million to US$46.7 million.

Tata Tea’s capacity for profit making will be most likely even higher in 2007. In May, the company announced the sale of health-drink firm Glaceau to Coca-Cola. Tata Tea had acquired the US company in August 2006, buying a controlling share for US$677 million. Just nine months later Coca-Cola bought the company for US$1.2 billion – Tata Tea’s profit was US$523 million, the equivalent of 17 years of its annual wage bill to workers in 2006.

HUL and Tata Tea’s restructuring programs come at a time when tea workers in India have felt the greatest decline in their conditions in decades (Asian Food Worker has reported extensively on this). The collapse of tea plantations across the industry and the illegal abandonment of workers by employers has brought ruination and death. In this context, the two largest tea companies have chosen a path of unbridled profit-seeking based on the claim that the plantation business is no longer “suitable” to their business model. They have legally abandoned plantation workers so as to take advantage of the dramatic falls in the price of tea.

In May 2007, Unilever’s global CEO, Patrick Cescau, announced that the company would henceforth source all its tea sustainably: “because we believe it is the right thing to do for the people who drink our tea, the people along the entire length of our supply chain and for our business” (Unilever Press Release, 25/05/2007). Of course, the “right thing to do” does not apply to tea workers in India, as Unilever cut their jobs 18 months previously. Tata Tea, when applying for US$7.8 million of World Bank funding implied its generous nature as it built schools and hospitals for plantation workers. However, under the Plantation Labour Act companies are required to do this. There is nothing generous in a company obeying the law.

Ultimately, it is hard to view these companies’ statements as anything but hypocritical. Workers are treated only as a means to profit, to be bought and sold with the fluctuations of the market.


Worker Reaction to Tata Tea Restructuring Plan

According to newspaper reports in India, during the months of March and April 2007 significant discontent was expressed by workers over the Tata Tea restructuring plan in north-east India. In March, more than 1,000 workers from 20 Tata Tea estates in Assam rallied outside the head office of ACMS, a trade union of tea workers. Workers noted that as they had recieved no adequate explanation of the restructuring plans they were in opposition. (The Telegraph, 13 March 2007). In April, Montu Bose, general secretary of the CBMU, which represents tea workers at Tata Tea’s West Bengal plantations, delclared, “we are against the entire recast and are also opposed, in-principle, to employees picking up shares.” (The Hindu, 7 April 2007)

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