Tea prices have declined about 8 per cent in last one month even as the cost of production is on the rise. BTVI spoke to Kamal Baheti, CFO at McLeod Russel India, about its impact on the tea industry. Excerpts:

Tea prices are seeing a down-trend while costs have increased. What kind of impact is this having on your business?

In July, there had been a drop in crop mainly because there had been a lot of rain in Assam and flooding in some areas, thus affecting the overall crop. In a fixed-cost industry, if you lose crop, your cost keeps on going up. Plus, there is also a normal increase in the input cost. The prices in July had been a little subdued compared with last year.

But if you look at the current situation, the weather has improved and we expect to recover the crop, which we lost in July, in August and September. Going forward, once the consumption returns because of the very good monsoon, I think the prices should also start looking up. For the month of July, we not only lost crop which had an impact on the cost, but the prices also did not go up much.

We understand that Bangladesh tea has been rising for four straight weeks. Could you give a sense of the other exporting nations, too? Is your export-realisation looking better or worse at this stage?

Tea prices are little subdued in July and August mainly because the exports have been lower compared with last year. Again, there was a record crop production in Kenya. They was good weather in February, March and April. Those moths were very good cropping months for Kenya.

Current Kenyan crop is similar to last year or maybe little lower. As we go along, once the Kenyan prices start picking up, which we believe will happen from the next month, we will see that the price pick-up also happens out of India. But yes, because of the very good crop in Kenya, the quantity of exports from India had been a little subdued.

Export prices are holding out. They are similar to last year.

There has been a shift as far as demand for the lower category of tea is concerned, but a clear drop in price for the higher category. Could this have some impact on your margins going forward?

Fortunately, in McLeod Russel, we have got various categories of tea. We are not only in the top-end; a few of our gardens are in the mid segment, which has not seen any kind of drop in prices.

The top segment has dropped. Last year, we did not see much increase in the mid and lower segments and we had seen a very good increase in price in the top segment. So there are some corrections. The disparity that got created is getting narrowed down.

As we go along, demand will start picking up at all levels with all categories. I see no reason why prices won’t start picking up sometime from September-October. Otherwise, it will be a difficult year for tea.

Looking at the overall consumption, it normally starts picking up from the festival season. The last two years had been drought years and the consumption had dropped. This year we expect a very good jump in consumption.

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