Tea sector in high spirits on export demand

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C.J. Punnathara
M.R. Subramani

Kochi/Chennai, Feb. 16

IF Mr B.M. Khaitan, Chairman, McLeod Russel, is to be believed, the tea industry could be in for a party over the next 3-4 years.

For now, at least, a rising trend in tea prices is confirming his assessment. For example, at the Kochi tea auctions, the average price for the CTC (crushed, tear and curl) teas has increased by Rs 13 a kg in the last four weeks. Another indication is that tea prices at Malawi auctions, which is the benchmark for African teas, have hit a seven-year high this week at $1.84 a kg (Rs 81.50).

The reason for the cheer is export demand. Suddenly, Pakistan seems to hold promise for the Indian tea sector. And the industry is also looking to make inroads in some other markets in West Asia, especially Egypt.

What has led to a surge in demand is the Kenyan crop being affected by drought. "A 80-85 million kg drop is likely in Kenyan tea crop due to a major drought. Already in January, there has been a 25 million kg shortfall," says Mr Ulhas Menon, Secretary-General, United Planters' Association of Southern India (Upasi).

Kenya is the largest supplier of CTC tea to Pakistan, which buys 140 million kg (mkg) annually. Of this, Kenya supplies 80 mkg. The industry is of the view that a shortfall of 80 mkg is too big to make up.

On the other hand, there are not much carryover stocks globally to make up for this. "There are no stocks, at least at the growers' level," says Mr Menon.

"Due to the drought situation in Kenya, exporters have entered the market in a big way and demand has suddenly shot up," says Mr P.T. Thomas, Chairman, Cochin Tea Traders' Association.

"In the last two weeks especially, there has been a major mismatch between demand and supply for South Indian tea, particularly in the CTC varieties. Prices have begun to firm up," he says.

Last week's auctions in the three centres of South - Coonoor, Coimbatore and Kochi - saw buyers for importing countries supporting the market.

Buyers for the Pakistan market were active at all the three centres pushing up the average prices by Rs 3-4 a kg. In fact, even Kenya was actively buying to cover up its needs for other markets.

The support comes even as frost is reported to have affected production in South India and arrivals in the North are yet to pick up.

Tea production in 2005 is estimated at 928 mkg with exports accounting for 187.6 mkg and domestic consumption the rest.

However, the industry has been quick off the blocks to take advantage of the situation. "We have invited a delegation from Pakistan to visit us. Then, a representative each of the North and South tea sector will accompany a team to that will Pakistan in March with the Commerce Secretary, Mr S.N. Menon, heading it," says Mr Menon.

Already, India has been able to make some headway in the Pakistan market with exports to Islamabad doubling in the last couple of years.

Making the tea sector confident about export prospects is the fact that Pakistan is a big consumer of CTC tea and only Kenya and India can supply huge volumes.

Asked if Sri Lanka isn't a threat with the island nation producing a record crop in 2005, Mr Menon says: "Sri Lanka produces mainly orthodox and that's why we now enjoy an advantage in the CTC market."

Besides, efforts are being made to make inroads into Egypt, which is another big consumer of Kenyan tea.

Related Stories:
Tea stocks see revival of interest
Pak keeps Coonoor teas up
Firm prices at Coonoor sale spell good times for tea sector

(This article was published in the Business Line print edition dated February 17, 2006)
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