The Hindu Business Line : Declining inventory may warm up tea prices

Highly placed industry sources told Business Line that tea production having touched an all time high of 874 million kg (mkg) in 1998, has since than been fluctuating, with a tendency towards lower production. Domestic production since 1998 has been hovering between 826 mkg and 856 mkg annually. For instance, in 1999, annual production was 826 mkg while in 2000, it was 846 mkg; domestic production for 2001 was around 853 mkg and for 2002, it stood at around 826 mkg. It is estimated that production for 2003 should be around 856-857 mkg.

Given this, the industry does not expect any significant changes in production, particularly keeping in mind the price levels of last four to five years, both in India and globally. "The trend towards lower production is largely on account of the declining price trend across the country. Due to high costs of production and low prices (lower than cost), units across the country have incurred losses. This has resulted in setback in maintenance of gardens and other development work," senior industry sources said.

Commenting on the higher inventory levels in the pipeline in 2003, which impacted tea prices adversely, sources said this was largely on account of poor exports. "The year 2003 was exceptional in the sense that exports were abysmally lower. In fact, year-end figures should be around 155-160 mkg. Stocks would have declined if exports had been good. This was the biggest stumbling block in recouping prices," sources said.

The silver lining, however, was that tea imports for 2003 were around seven mkg as compared with 22 mkg during 2002. "This was one factor that helped bring down stock levels during the year, as imports were but one third of what it was in 2002," a highly-placed tea industry official said.

Yet, while there is expectation that lower stocks should benefit prices this year, it will only be possible if exports rebound to reasonable levels, say around the traditional 200 mkg per annum.

However, officials were quick to clarify that boosting exports does not mean unbridled tea cultivation. "What we need to do is improve yields so as to bring down costs. It does not mean increasing production through new planting areas. Our quality image is what needs to be refurbished. Currently, we sell by price not by image," industry sources said.

As regards domestic consumption, officials are confident that it is on the rise. "There is no denying that domestic consumption is on the rise. But it is still not enough. The industry should do more to promote tea as a refreshment drink and health drink. If we start today you will feel the impact by next year. Such an effort would help sustain prices," officials said.