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Reshma Krishnan

SO, WHAT is the solution for tea? Consumption has to increase, of course. But this requires a long-term strategy. The Tea Board is looking at marketing tea as a health drink and, thereby, enhance its profile. The tea industry has attempted to do its bit to prop up prices. It cut back production in December 2001, leading to early closure of tea gardens in Assam, Tripura and north West Bengal. The prices did move up, touching a high of Rs 69 per kg for CTC. But, as expected, the price trend could not be sustained. Any attempt to cartelise is, at best, a short-term solution. Though the average all-India price rose by almost Rs 5 a kg, the December prices were still 23.8 per cent lower than a year ago.

The Indian Tea Association scaled down the export target a second time, from 205 million kg to 190 million kg — the first downward revision was from 215 million kg to 205 million kg. This again does not augur well for the prices.

Producing more orthodox teas, which have higher demand in key high-value markets, could be a way out. Orthodox teas have stronger liqueur and, therefore, command a higher price. In the South, they sell at Rs 53 a kg compared with Rs 44 for CTC. Orthodox teas, however, require more expensive processing.

The Industry Ministry is approving a 5 per cent subsidy to tea production under the Tea Factory Upgradation Programme.

This is aimed at improving the quality of the Indian tea and will cover all factories registered with the Tea Board. This will largely benefit the bought-leaf factories in the South — the main producers of lower-quality tea. The only sustainable and feasible way to stimulate growth in the industry seems to be through value addition — packaged tea, for instance.

Packaged tea, the saviour?

Even against the depressing background of low prices and high production, the prices of branded tea still rule high. The price of HLL's Lipton Green, for instance, has actually gone up. The organised players cater to a 245 million-kg packaged tea market. So, should not companies that are into packaged tea be looking at stronger margins? Yes and no. Except HLL, bulk tea still forms a large chunk of the business for many of the tea companies and, therefore, any gains in the packaged segment are usually offset by losses in the bulk segment.

Nevertheless, packaged tea is the future of the industry. Tata Tea has stirred the market by launching Agni Sholay and Temptations — premium orthodox tea. The company set the ball rolling when it acquired the world-renowned Tetley — for two years though, it seemed the acquisition would be a white elephant. In 2001, Tata Tea launched Tetley in the premium segment, competing against such brands as Society and Taj Mahal.

Tata Tea is targeting consumers across the market and competing with HLL at every level, especially in the crucial economy category, which seems poised for a complete makeover. The economy section comprises loose and packaged tea made by the unorganised players.

Of late, the unorganised players have been weaning customers away from loose tea, and local packaged-tea is posing a stiff competition for HLL and Tata Tea. Therefore, though the margins are high, the organised sector will have to incur substantial advertisement costs to grapple with the competition.

The current trend should see tea being transformed from a commodity to a fast moving consumer good (FMCG). This will not only raise the profile of the product but also the market perception of the tea companies.

Investment outlook

From an investment perspective, the tea industry appears a poor bet. It will take a while before exports pick up and auction prices climb.

Smaller companies such as Jayshree Tea and Assam Company will have to start building their brands to stay in the race.

Companies such as Tata Tea will see a change in customer perception as they move into the FMCG segment.

However, rising costs and competition might be the stumbling blocks. Until then, investors would be advised to hold on to their investments in companies such as Tata Tea but cut their exposures in the industry as a whole.

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Tea — pale and watery

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