Chapter 3 PERFORMANCE OF COOPERATIVE TEA FACTORIES IN TAMILNADU. The institutional dimension of tea industry has a bearing on its

Transcription

1 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 imperfections, 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

2 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

3 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 956 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.

4 6] The first cooperative tea factory was established at Kundah in 958 and commenced its commercial processing in 962. Till 998, 7 such cooperative tea factories have been established in the district. These 7 factories at present process about 60 million lakh kgs of green leaf annually and produce about 5 million kgs of made tea. This is about 7 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. Age of the cooperative tea factories Age (years) No. of Factories Percentage to Total in n.. jj Above Total

5 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 0 to 20 years, (See Table 3.)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. 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 000 in have moved towards higher

6 63 mbership bracket of above 000 in The total membership the cooperative tea factories increased from 35 in to.53 in ( See table 3.2). The average membership rose from in to 290 in Table 3.2 Members Slip (Number of Factories) Membership < >500 Total Total Average No. of members mcmberfaclories ship 88 J ! 873 (7.69) (53.85) (30.77) (7.69) (7.69) (46.5) (38.46) (7.69) (TOO) yu (7.4) (35.7) (57.4) > (7.4) (2.43) (7.43) > (26.67) (66.66) > (26.67) (46,66) (20,00) (26.67) (46.66) (20.00) (TOO) (26.67) (46.66) (20.00) (26.67) (46.66) (20.00) (20.00) (46.66) (26.67) s - in parenthesis indicate percentage to nn v total. Compound growth rate : 5.48

7 The reasons that could be attributed for the growth of membership are ) 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.

8 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 0 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.67.4 lakhs in to Rs lakhs in 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 lakhs in to lakhs in The increase has been steady without any fluctuation in between two periods. Reserves rose from Rs lakhs in to Rs lakhs in

9 Table 3.3 Capital structure of cooperative tea factories (Rs, in lakhs) Owned funds Borrow ed funds Year Share capital Reserves Deposits Borrowings Total J y.s7-sn 3,S3.,XV (57.20) (7.4) 3.3 (4.64) (30.75) ,07 (59.6) (.9) (5.24) (23.96) (52.08) (.7) 4.47 (4.52) 295,96 (32.23) (55.9) 2.60 (.55) (3.5) (29.76) (52.43) ( 8.8) (3.86) (34.90) (52.38) 0.57 < 8.94) 40.2 (3.25) (35.43) ,32 (5.85) (8.0) 4.43 (3.06) (36.99) (too) (5.66) 3.02 (8.02) (3.38) (36.94) (53.08) 7.76 (7.90) (3.22) (35.80) (52.6) (7.76) (3.46) (36.62) CGR h'igures in parenthesis indicate percentage to row total

10 with a mild fluctuation between the two periods. Deposits registered an increase from Rs.3.3 lakhs to Rs lakhs during the same period. Borrowings too recorded a steep increase from Rs lakhs in to Rs lakhs in The compound growth rate was 8.9 per cent. The growth in different components of capital show's that borrowings recorded a higher rate (9.82 per cent) followed by reserves (9.4 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 per cent during the period under review. The proportion of deposit was less than five per cent except in the year , The borrowings as percentage to total capital ranged from 30 to 40 per cent except for the year 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).

11 68 Table 3.4 Percentage of borrowed funds to total funds Year Percentage of Borrowed Funds Above 7C / J Total No.of Tea Factories Industry Average in percents^ I9X7-8X (25.00) (66,67) ( 8.33) I988-X (42.86) (50.00) (7.4) / - * - T v (.I.V.U) (46.67) (20.00) (40.00) (46.67) (3.33) (20.00) (66.67) (3.33) > _ (3.33) (66,67) (20.00) _ ( 6.67) (8).00) (3.33) _ (20.00) (60.00) (20.00) _ (26.67) (60.00) (3.33) (26.67) (60.00) (3.33) Figures in parenthesis indicate percentage to row total

12 Table 3.5 Percentage of owned funds to total funds Year Percentage of Owned Funds Above 75 Total No.of Tea Factories Industry Average in percentage JK7-SS ( 8.33) 8 (66 67) 3 (25.00) I (07.4) 7 (50.00) 6 (42.86) (20.00) 7 (46,67) 5 (33.33) ! 2 (3 33) 7 (46.67) 6 (40.00) (3.33) 0 (66.67) 3 (20.00) (20.00) 0 (66.67) 2 (3.33) < 6.67) 3 (86.66) (20.00) 9 (60.00) 3 (20.00) (3.33) 9 (60.00) 4 (26.67) (3.33) 9 (60.00) 4 (26.67) Figures in parenthesis indicate percentage to row total

13 70 Table 3.6 Year Proportion of Share Capital Above 90 Total No.of Tea Factories (25.00) (6.67) (58.33) (46.5) (38.46) (5.38) (53.33) (26.67) (20.00) (40.00) (46.67) (.3.33) (33.33) (46.67) (20.00) (40.00) (40.00) (20.00) (26.67) (46.67) (26.66) (33.33) / -> -> -» -t \ (...) (.33.33) (20.00) (53.33) (26.67) /-> -> -i \ (.VI...) / -i -> -i (33.33) (...) Figures in parenthesis indicate percentage to row total

14 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.

15 Table 3.7 Percentage of members contribution to share capital Percentage of Members Contribution Total Industry Year Above No.of Average 75 Tea in percentage Factories (6.67) 2 (6,67) 7 (58,33) (X.33) (4.29) 4 (28.57) 8 (57.4) ( 6.67) 7 (46.67) 7 (46.67) (53.33) 8 (46.67) (33.33) 5 (66.67) 0-5 (TOO) (26.67) 4 (73.33) (33.33) 5 (66.67) (26.66) 0 (66.67) (3.3.33) 5 (66.67) (20.00) 2 (80.00) Figures in parenthesis indicate percentage to row total

16 73 Table 3.8 Percentage of government contribution to share capital Year Percentage of Stale Contribution Above 75 Total No.of Tea Faclories Industry Average in percentage (8.33) (58,33) (6.67) (6.67) (6.54) (30.77) (7.69) (46.67) (46.67) (6.66) i _ (46.67) (53.3.3) ,96 (53.33) (46.67) (66.67) (33.33) _ (60.00) (40.00) (60.00) (33.33) _ (60.00) (40.00) _ (73.33) (26.67) I'igures in parenthesis indicate percentage to row total

17 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 ; (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 :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.

18 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 5 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.

19 76 Table 3.9 (in lakh kgs) Green Leav es Purchased Year < >60 Total Total No. of green Tea leaf Factories purchased Industry average (5,38) 9 (69.23) 2 (5.38) (84.62) 2 (5.38) (7.29) (7.4) 0 (7,42) 3 (2.43) (4.97) (2.43) 8 (57.4).'I (2.43) (0.88) (3.33) 0 (66.67) 2 (3.33) (6.66) (4.45) (3.33) 0 (66.67) 3 (20.00) (7.66) J) (20.00) 8 (53.33) 3 (20.00) (3.9) (3.33) 9 (60.00) 3 (20.00) (8.89) (60.00) 4 (26.67) (8.95) (66.67) 3 (20.00) 2 (3.33) (0.93) Compound growth rate Figures in parenthesis indicate percentage to row total

20 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 lakh kgs in to lakh kgs in 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.

21 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 3.0 Average rate paid Average rate paid per kg in Rs. Year >6 Total No. of Tea factories Industry average [ (30.77) 9 (69,23) (38.46) 8 (6,54) (4,29) 2 4 (85.7) (4.29) 2 4 (85.7) (00.00) ( 00.00) (93,33) (00.00) (00.00) (93.33) Figures in parenthesis indicate percentage to row total Compound grow th rale - 9.

22 79 Majority of the tea factories (around 70 percent) in 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.3.8 per kg. The price paid on green tea leaves was above Rs.6 in a vast majority of the factories ( 93 per cent) in 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 3.0). 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. ^

23 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

24 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

25 82 Table 3. Production of made tea (in lakh kgs) Quantity Produced Y car < Total No. of tea factories Total production Industry average (5.38) 9 (69.24) 2 (5.38) I9K8-K9 - I (84.62) (7.69) (7.69) (7.4) 0 (7.43) (2.43) (4.28) 9 (64.29) -> (2.43) (3.33) 0 (66.67) (20,00) (3.33) 0 (66.67) (20,00) (60.00) 4 (26.66) (66.67) 4 (26.66) (60.00) 4 (26.66) (66.67) 4 (26.66) igurcs in parenthesis indicate percentage to row total Compound growth rate

26 The total production of made tea has increased from lakh kgs in to lakh kgs in 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 to 9.53 lakh kgs in 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 0 lakh kgs in the year The same trend could be seen for all the years barring and 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.). 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 lakhs in to Rs lakhs in 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 7.07 lakhs in to Rs lakhs in The average annual compound growth in the value of tea produced works out to 3 per cent per annum during the period under review ( See table 3.2).

27 84 Table 3.2 (Rs. in lakhs) Value of Tea Produced Year < >450 Total Total No.of value Tea Factories Industry average (84.62) 2 (5.38) (84.62) 2 (5.38) (7.4) 0 (7.43) 3 (2.43) , (7.4) 0 (7.43) 2 (4.29) (7.4) (3.33) 2 (80.00) (3.33) [ (73.34) 2 (3.33) (53.33) 5 (33.33) (6,67) (20.00) (73.33) I 6 (40.00) 6 (40.00) 2 (3.33) (46.67) 5 / "'I - \ (.....) 3 (20.00) Hgures in parenthesis indicate percentage to row total Compound growth rate

28 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 market.) The Tamil Nadu Small Tea Growers' Industrial lea Factories Federation Limited (popularly knows as TNCOSERVE') established in 965 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 85.3 lakh kgs. in to lakh kgs in The average sale per factory increased from 6.56 lakh kgs in to 9.24 lakh kgs. in 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 3.3).

29 86 Table 3.3 Quantity in lakh kgs Year < >5 Total No. of Total quantity Tea Factories; sold Industry average *> (23.08) 8 (6.54) 2 (5.38) (84.62) (7.69) (7,69) (9.99) (7.4) (78.57) 2 (4.29) (4,84) (4.28) 9 (64.29) i (2.43) (6.8) (3.33) 0 (66.67) 3 (20.00) - 5 i (0.3) (3.33) 2 (80.00) (3.44) (3.33) 8 (53.33) 4 (26.67) (5..3) (66.66) 3 (20.00) (2.79) (60.00) 4 (26.66) (9.84) (66.67) 4 (26.66) (2.32) 9.25 I'"inures in parenthesis indicate percentage to row tolal

30 Table 3.4 Value of tea sold Value of Tea Sold Rs. in lakhs Year < >500 Total Total No. of Value Tea sold Factories Industry average (30.77) 7 (53.85) 2 (5.38) (7.69) 0 (76.93) (7.69) (7.69) (8.37) (35.7) 6 (42.86) (7.4) 2 (4.29) (4.88) (2 H. 57) 7 (50.00) (7.4) 2 (4,29) (6.87) (53.33) 3 (20.00) 3 (20.00) (8.87) (26.66) 6 (40.00) 3 (20.00) (0.04) (20.00) 6 (40.00) -i (20,00) 2 5 (3.33) (25.42) (40.00) 2 (3.3.3) (36,42) 227, (26.67) 5 (33.32) 4 (26.67) (36.84) (46,67) 4 (26.67) 2 (3.33) 2 5 (3.33) (2.99) Figures in parenthesis indicate percentage to row total

31 88 The value of tea sold increased from Rs lakhs in to Rs lakhs in registering more than three fold increase over a period often years. The average sales per factory shot up from Rs lakhs in to Rs lakhs in registering little less than three fold increase( See table 3.4). The mean of the sales per factory over a period of ten years revealed that factories,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 500 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.). 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

32 89

33 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 3.5 and 3.6). Table 3.5 Sale average realised Sale Average Realised per kg of tea (Factories in number) Year < T otal Number of Tea Factories Total industry average (92.3) (7.69) (92.3) (7.69) (92.86) (7.4) (78.57) (2.43) (40.0) (60.0) (93.33) (93.33) ,04 (93.33) (53.33) (46.67) (93.33) Figures in parenthesis indicate percentage to row tolal

34 9 Table 3.6 Cost of production and selling price per kg of tea (Industry average) (in Rs.) Year C'osl of Production Sales Price Difference between sales price & cost of production , , , 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 to only two factories in the year All these

35 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 3.7) (50.00) (4.67) (8.33) (53.85) (38.46) (7.69) I (57.4) (4.29) (2.43) (7.4) i (7.43) (2.43) (7.4) (66.67) (33.33) (60.00) (33.33) (73.33) (26,67) (73.33) (26.67) (73.33) (20.00) (6.6 7) (86.67) / ^ -» -i, (l.v.u) / 'i<>iires inparenthesis indicate percentage to row total

36 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,4,6,8,9,0,,2,3,4, and 5 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 X 2 = retained earnings divided by total assets

37 94 Graph 3.2 Mean of Operating Profit Mean of operating profit = pat+int FACTORY

38 95 X 3 = earning before interest and tax divided by total assets X 4 = market value of equity and preferred stocks divided by total liabilities. X 5 = 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 3.8. Table 3.8 The future of cooperative tea factories Factories 'Z' Value (Altmann) Condition Bikkalv.32 Sick Karumbalani.28 Sick Kinnakorai.7 Sick Kil Kothagiri 2.04 Neither Healthy nor Sick Kothagiri.42 Sick Manjoor.98 Neither Healthy nor Sick Mercunad.76 Sick Kundah.73 Sick Ithalar.96 Nei ther Healthy nor Sick Kaikalty 2.47 Neither Healthy nor Sick Frontier 2.09 Neither Healthy nor Sick Mahalinga 2.3 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

39 96 As per the norm if the Z-score is below.8, the factory is considered to be failing; and if it is above 2.99 it is considered healthy. The Z-scores calculated for the 5 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.8 but less than 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.

40 97 Reference I. Theodre W. Shultz, Transforming Traditional Agriculture, Ludhiana: Loyal Book Depot, 964.p Louis P. F. Smith, The Evolution of Agricultural Cooperation, Oxford: Basil Blackwell, 96, pp , 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. 990, pp. 3-4.