The drop in tea prices on a year-on-year basis and the increased cost of production on the back of higher wages is likely to exert pressure on margins of bulk tea manufacturers during the current fiscal.

According to Kaushik Das, Vice-President and Co-Group Head, Corporate Sector Ratings, ICRA, notwithstanding the likely moderation in financial performance of key bulk tea producers in 2021-22, it would still be substantially better than what they posted in 2020-21.

Lower decline

Moreover, players who are focussed on producing quality teas are likely to witness a much lower decline this year, as average auction prices of teas manufactured from own garden leaves of the top 50 estates of Assam and Dooars have declined only nine per cent against around 25 per cent for the overall auction average during the first half of 2021-22.

Tea prices started declining post June this year as production witnessed some recovery from the lows of last year. This has led to easing in the tightness in the supply-demand scenario, which had supported prices during calendar year 2020.

As per Tea Board data, average prices of CTC leaf and dust at the auction in Kolkata in early November was down by seven per cent at ₹209.17 a kg against ₹223.97 a kg same period last year. The average prices of tea in Guwahati auction centre was down by three per cent at ₹186.43 a kg (₹191.65 a kg).

Wage rates for Assam and West Bengal-based tea gardens have increased considerably during the current calendar year thus increasing cost of production. It is to be noted that wages account for nearly 70 per cent of the total cost of the tea industry. Apart from wages energy costs have also witnessed a rise.

Dual impact

ICRA said in its note on the bulk tea sector that the dual impact of declining prices and increasing costs is likely to lead to a moderation, on a y-o-y basis, in the financial performance of the North India bulk tea industry in the current fiscal.

Domestic tea prices witnessed a considerable uptick in 2020-21 due to a significant supply-demand mismatch. While tea prices remained strong in 2021-22 first quarter as well, it started sliding with the onset of the peak production months of the current year.

“Average prices at North Indian auction centres, during H1FY-22, were down by nearly ₹60 a kg (~23 per cent) on a Y-o-Y basis. The price decline has, however, been most in the bought leaf segment, which was down by around ₹77 a kg (~33 per cent). For teas produced from own estates, the decline was close to 20 per cent, with realisations of the top 50 CTC gardens declining by only 8.5 per cent in this period. While the overall price decline during H1FY-22 appears steep, largely due to the base effect, ICRA expects the decline to be moderate for the rest of the financial year,” the report said.

Also, though tea production in NI has recovered from the lows of last year during the first nine months of this calendar year, it still remains around 80 million kg lower than the corresponding period of last year (CY2019) and around 50 mkg lower than that for CY2018.

comment COMMENT NOW