Agri Business

Cash flow issues pull down tea price in North

Shobha Roy Kolkata | Updated on December 25, 2020

The near 14 per cent drop in tea production in North India (including gardens in Assam and West Bengal), notwithstanding, tea prices have witnessed a steady correction over the last two months following tight liquidity conditions among the buyer community.

Tea prices were up by nearly ₹120-130 a kg on a year-on-year basis since the beginning of this season in April-May till September. However, prices witnessed a sharp correction of about ₹100 a kg across various categories from end September-early October onwards.

Kaushik Das, Vice-President and Sector Head, Corporate Sector Ratings, ICRA, said that some of the regional and small players are tight on liquidity which impacted prices.

“The price correction has happened from very high levels which was not really sustainable. The rate and pace of price rise was not going to sustain,” Das told BusinessLine.

According to data available on Tea Board of India website, the crop in North India is down by nearly 153 million kg (mkg) up to October this year at around 852 mkg. The drop in production is estimated to be the tune of 160 mkg by December this year. The North Indian tea industry had produced close to 1171.09 mkg in 2019.

North Indian tea estates lost nearly 65 per cent of the first flush crop as the plucking activities had come to a standstill between March 25 and April 13 on account of the country-wide lockdown. Consequently, estates had to go for skiffing (light pruning of tea bush to limit the top growth) in April. That, coupled with the unfavourable weather conditions, led to a slower growth of the bush impacting production of the second flush in subsequent months.

Tea production in North India accounted for nearly 84 per cent of the country’s total production, which stood at around 1390.08 mkg in 2019. Hence, any drop in production in the region adversely affects the supply of tea in the system.

“The crop is down by around 13-15 per cent from garden to garden, the gardens in upper Assam lost more crop, as compared to the north banks of Assam and Dooars. Till September, prices were doing well but from October there has been a freefall and the reason was the buying community ran out of cash flow because of the prices being so high (since the beginning of this season),” said Vikram Singh Gulia, MD and CEO, Amalgamated Plantations Private Ltd (APPL).

He added, “By September-October, the amount they would invest got exhausted. So that is how most people got into longer credit buying and that impacted the demand. So while there was demand, people could not buy due to cash flow issues.”

Prices to remain firm

The average prices of tea is ruling around ₹20-30 a kg higher at auctions this year as compared to same period last year.

Vivek Goenka, Chairman, Indian Tea Association (ITA), sid tht overall there is very little tea left in the system. Though prices have been witnessing a correction over the last two months, however, it has fairly stabilised in the last few sales.

“Prices which were falling, have stabilised, and for quality tea it has increased. We expect markets to remain strong because of the shortage of tea. The opening to next year should be on a strong note,” Goenka said.

The prices had crashed in December 2019-January 2020, however, this year there should be an upward bias on prices.

“Prices should open on a stronger footing and should remain firm till about June-July when the average consumption is usually higher than the production,” Das said.

Published on December 25, 2020

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