Agri Business

Higher output drives premium tea prices down

Shobha Roy Kolkata | Updated on July 12, 2019

Tea production in North India is up by nearly 15 per cent at around 247.3 million kg during January-May 2019

The near 15 per cent rise in production of tea in North India has sent CTC prices on a downward spiral. The price decline is more pronounced in high quality Assam tea, compared with the low to medium categories of tea.

As per information available on the Tea Board of India website, for the week ending July 6, the average prices of CTC leaf and dust was down by nearly 2 per cent at auction centre in Kolkata.

Tea production in North India is up by nearly 15 per cent at around 247.3 million kg (mkg) during January-May 2019, as compared with a production of around 215.7 mkg same period last year. A majority of this increased production comes from small tea growers.

As per the Tea Board data, production from small grower sector increased by more than 50 per cent in June this year. The overall production from the small grower sector remains at 48 per cent.

Tepid prices

According to a quarterly update by ICRA, during April and May this year, the average auction prices of tea produced in Dooars and Terai regions (mostly producing low to medium categories of teas) have been up by nearly ₹4 a kg. However, the auction prices of Assam tea, considered to be of high quality, witnessed a decline of around ₹12-16 a kg, reflecting better demand for low category tea in the current year till date.

This is primarily on account of the different supply-demand dynamics across the various price points in the bulk tea industry, it noted.

“Good quality CTC is down by nearly ₹25-30 a kg; while the average variety grown in Cachar and Dooars is down by around ₹10-15 a kg this year compared to last year,” DP Maheshwari, MD, Jay Shree Tea, told BusinessLine.

The higher production has led to a huge surplus in the pipeline and so the country needs to consume more tea domestically and also push for higher exports so as to balance the situation, said Sujit Patra, Secretary, Indian Tea Association.

On the other hand, South Indian tea prices remained firm during the first quarter of FY20 and increased by around ₹10 a kg during the period.

Lower cropping patterns and healthy realisations of orthodox teas, which account for a higher proportion in the total production of South India teas compared to that in North India, have driven the overall price movement at auction centres in South India, ICRA said in its report.

“Given the continuous correction in CTC prices from end of April 2019, the overall North India tea prices are unlikely to improve significantly in the current year,” said Kaushik Das, Vice President and Sector Head, Corporate Ratings, ICRA.

Orthodox prices firm

While the CTC prices were negatively impacted, orthodox tea prices witnessed significant improvement and remained firm, backed by healthy export demand, particularly from Iran, and overall healthy export volume in the current year.

According to Tea Board data, India exported close to 27.09 mkg of tea valued at around ₹730.40 crore to Iran during January-May this year, as against 10.65 mkg valued at around ₹250.71 crore same period last year. The average unit price of tea was up by nearly 14 per cent at ₹269.62 a kg this year, as compared with ₹235.41 a kg last year.

Going forward, despite the uncertainty regarding exports to Iran, orthodox export volumes are unlikely to be materially impacted in the current year, given the large volumes already exported, ICRA said.

While in volume terms, total tea exports during January-May this year grew by only around 2 per cent to 100.39 mkg (98.69 mkg), in value terms it increased by nearly 18 per cent to ₹2,240.98 crore (₹1,900.88 crore). Apart from Iran, exports to Russia, UAE, Egypt and China have also shown a good increase.

Though the orthodox prices have firmed up but it will provide only marginal support to overall tea prices, given the limited volumes of orthodox teas in total North India tea production. It is to be noted that nearly 92-93 per cent of teas produced are CTC, while the remaining comprises of orthodox and green tea.

Published on July 12, 2019

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