The Hindu Business Line : Rise in tea prices to continue on strong demand

Future trend
No significant increase in availability, by way of either increased production or imports, is foreseen
Total production could increase at best by an additional five million kg to reach the level of 945 million kg or so.
Domestic demand is estimated to grow at 3- 3.5 per cent annually to touch the level of about 825 million kg in 2007.

Kolkata , Jan. 8

Domestic tea prices, which jumped by an average Rs 8-9 per kg in 2006, will continue to maintain the rising trend in 2007, according to industry sources.

This will happen largely due to the strong domestic demand. Also, no significant increase in the availability, by way of either increased production or imports, is foreseen during the year, the sources said. The December 2006 /January 2007 price was on an average up by Rs 5 per kg as compared to the November 2006 price, it is pointed out.

production estimate

The total tea production in 2006, it is estimated, was around 940 million kg, as compared to 928 m kg in 2005. The increased production was almost entirely contributed by the Dooars gardens.

"Frankly, there has been a virtual stagnancy in production in 2006 vis-à-vis 2005," sources observe explaining that the three-week long strained industrial relations in the Dooars gardens in 2005 caused a production loss of about 10/12 million kg. In 2006, there was no such loss.

In 2007, total production could hope to increase at best by an additional five million kg to reach the level of 945 million kg or so.

Domestic demand

At the same time, however, the domestic demand is estimated to grow at three to 3.5 per cent annually to touch the level of about 825 million kg in 2007. Even if the country's net exports during the year remain unchanged at the 2006 level of 170 million kg or so, the total requirement of tea during the year will be 995 million kg, thus leaving a demand-supply gap of about 50 million kg. In 2006, the shortfall was 30 million kg but there was a carry forward stock of about 23 million kg in the beginning of the year. The stock is believed to have depleted largely during the course of the year.

In 2006, tea imports were to the tune of 25 million kg, used entirely for re-exports after blending. Since tea import for domestic consumption attracts 100 per cent duty (no duty is levied on import for re-exports), any shortfall in domestic availability is unlikely to be covered by imports. More important, the availability of tea in the world market too will not be easy.

There was a shortfall of about 40 million kg in the international market largely due to the crop failures in several countries such as Kenya, Sri Lanka, Indonesia and Bangladesh. The sources, however, indicate that the exports of Indian tea to the countries in the West Asia and also to Pakistan will rise in the coming years. "The indications in this regard are very strong," the sources add.