Australia's largest tea producer will stop production at its Far North Queensland plantation, citing rising costs and a drop in demand for black tea on supermarket shelves.

Nerada Tea will send its 360-hectare estate on the Atherton Tablelands, west of Cairns, into "hibernation" from the end of next month while it tries to transition into producing higher-value products such as tea extracts and aromas.

"All of us are very sad it's come to this; there's no doubt about that," company director John Russell said.

Mr Russell said Nerada was enduring a similar struggle to many other Australian manufacturing businesses, with inflationary pressures and rising fuel and fertiliser costs forcing its hand.

About 19 staff based at the Malanda plantation and factory, including nine permanent employees, were told about the shutdown last week.

Busy lives and coffee

Nerada's struggles began with a drought five years ago.

They have been compounded by fewer people drinking black tea.

Mr Russell said demand for the product on supermarket shelves was declining about 10 per cent each year.

He said there was a "pick-up" in consumption "when people were locked down" during the pandemic but "busy lives have resumed again".

It comes six months after Nerada closed its tea rooms in Malanda, partly due to reduced international visitation.

Nerada Malanda farm operations manager Tony Poyner said tea's decline coincided with the rise of another hot beverage in Australian culture.

"You know, coffee, coffee, coffee is the buzzword," he said.

"Due to that, and rising costs in manufacturing, we've had to make a tough decision to pause, rethink."

Company seeks rescue funds

Mr Russell said the company was talking to the state government and potential investors about a potential "rescue".

"But as of today, that rescue is not in place so out of fairness to the employees we've provided them with advance notice of what's going to happen," he said.

The plantation and factory produce more than 6 million kilograms of fresh tea leaves each year, but Nerada will likely need substantial research and development funding to revive the operation.

Mr Poyner said the company's mechanisation and know-how was "world class" and expected production would resume in the coming two years.

Nerada Tea will still be available to buy in shops in the meantime, as the company has stockpiled some tea it previously exported.

"We actually have a good supply of Australian tea that will keep us going for a year or more," Mr Russell said.

"If we're able to find a solution to this problem then we'll be able to continue, but at the moment there's considerable uncertainty about that."