Agri Business

Higher prices brew trouble for Indian tea exports

Shobha Roy Kolkata | Updated on June 19, 2020 Published on June 19, 2020

Shipments down by 19% to 51.65 million kg during Jan-March: Tea Board

India’s tea exports is likely to witness a decline on the back of lower supply of the crop and high prices. Exports are likely to be lower by 15-20 per cent at around 200-220 million kg (mkg) this year as compared with close to 248.29 mkg in 2019.

According to Anshuman Kanoria, Chairman of Indian Tea Exporters’ Association (ITEA), exports of Indian CTC is likely to be impacted by the higher crop and lower prices in Africa. The estimated decline in production of orthodox tea and the firm prices are likely to affect the demand for Indian orthodox teas in the global markets.

Output hit

Tea production in north India is estimated to be lower by around 140-150 mkg this year. Nearly 65 per cent of the first flush crop was lost as the plucking activities had come to a standstill between March 25 and April 13 on account of the Covid-induced lockdown. As a result, 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 second flush in May.

Higher prices

“There has been a decline in exports in the past 2-3 months because of lower availability of tea, the lockdown and logistics issue. Iran is buying orthodox tea and the market price is at a high level. A lot of demand that we get from other countries are actually not fructifying due to the high prices,” Kanoria told BusinessLine.

The price of orthodox tea in auction centres have witnessed a 8-10 per cent increase over same period last year backed by a steady demand and lower supplies. Infact, some of the Indian orthodox tea at present levels is comparatively more expensive than similar Sri Lankan tea.

When asked about the impact of the border tension with China on tea exports, Arun Kumar Ray, Deputy Chairman, Tea Board of India, said tea exports to China accounted for less than 5 per cent of the industry’s total export basket. “We export across the world so we do not expect this to be of any consequence as we have a ready market across the global. Moreover, because of Covid the whole world is in a volatile stage so where our businessmen will move and where they will find advantage in export and import is something that has to be decided by the business at the direction of government.”

Lower volumes, Higher realisations

Per data available on the Tea Board website, the country’s tea exports dropped by around 19 per cent to 51.65 mkg during the January-March 2020 period as compared to 63.66 mkg in the same period last year. The average price realisation in terms of unit price also witnessed a 3 per cent drop to ₹215.34 a kg (₹222.86).

“The January-March teas are end season teas and they do not reflect the market in anyway. The actual rise in price realisation will be visible during the July-September quarter when the export demand peaks,” Ray said.

This could well be music to the ears of the Indian tea industry, which has been reeling under the pressure of high costs outstripping realisation for past couple of years.

According to a senior industry official, even this current increase in prices might not be good enough to offset for the drop in production given that the fixed costs in terms of labour and other expenses continues to remain the same despite suffering loss in production. Labour accounts for nearly 60-65 per cent of the industry’s total cost.

However, despite the massive crop loss and potential drop in exports, the surge in prices and firm market expectation till August would help ensure that on an average most tea companies in India would be able to generate surplus revenue this year, an industry expert opined.

     
     
Published on June 19, 2020
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