With drought in Kenya likely to drag tea the African nation's output from a record 444.8 million kilogram (mkg) last year, tea exporters in India – the world’s fourth-largest exporter – are looking forward to a better fiscal despite the Centre’s decision to reduce export incentives under the new Foreign Trade Policy.

Under the Vishesh Krishi Gram Udyog Yojana, exporters received a benefit of 5 per cent subsidy for bulk and value-added tea. However, it was reduced to 3 per cent for bulk teas, which make up most of the exports under the Merchandise Exports from India Scheme.

“It’s unfortunate and might see Indian teas lose their competitive edge. The incentive was needed to face competition from Kenya and Sri Lanka. That said, it should be a better year since the world market is at a turnaround stage and there’s likely to be normal cropping year in Assam,” said Azam Monem, Director, McLeod Russell India.

“Kenya will also experience a prolonged dry spell around July which is when Assam gets its second flush, the best quality tea which is popular in the UK, which will benefit exporters,” he added.

Things looking up According to Tea Board data, exports fell to 180.05 mkg between April and February last fiscal from 205.12 mkg. Average unit prices had come down to ₹196.3/kg earlier this year from ₹202.6 the year before. It will now rise after factoring in costs like the 2 per cent incentive loss, said industry sources.

“Kenyan teas have a similar character to some of the good quality tea from here. With the drought, prices for the former will rise and the demand will shift to competing Assam CTC,” said Sumit Shah, Executive Director, Madhu Jayanti International (Jay Tea), who expects a 7-10 per cent bump in returns.

The CTC (crush, tear, curl) variety, which accounts for 90 per cent of domestic production but a fraction of exports, competes with Kenyan tea. Domestic orthodox varieties, which compete with Sri Lankan produce, are mostly exported.

Russian market A weaker rouble is more likely to hurt Sri Lankan exporters, who were selling to Russia at a higher price than Indian exporters, said Monem, although the ones exporting lower-end South Indian varieties will face some difficulty.

Russia imported 34.8 mkg between April and February but prices offered had been lower, said sources, at about $2.4/kg from $2.8 a year earlier. Prices for Sri Lankan consignments fell from $4/kg to between $2 and $2.5.

“The weak rouble might hurt profitability a little but we have been saying that Russian importers will have to take price increases for the tea they want, particularly orthodox, to match the price of Iranian importers who buy similar tea,” he said.

There should be more clarity on numbers by mid-May when orders start gathering pace but sources said that domestic production should be higher than the 1,185 mkg registered last year.

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