Agri Business

Tea prices to rule firm on lower crop, steady demand

Shobha Roy Kolkata | Updated on October 28, 2021

Production may dip by 75 million kg in Assam valley; auction prices up

 

Consumers are likely to pay higher for their cuppa as tea prices are expected to remain firm on the back of a lower than normal crop for the second year in a row.

The average auction price of tea is up by nearly 25-36 per cent this year compared with 2019.

Prices are not comparable with last year because of the steep decline in production due to Covid-induced lockdowns.

According to industry estimates, production in North India (including estates of Assam and West Bengal), has been projected to be down by 60-70 million kg (mkg) so far this year (April-October) against same period in 2019. Production during April-October 2019 was close to 940.08 mkg.

‘Aberration year’

The industry considers 2020 as more of an “aberration year” due to the steep decline in production and sharp spike in prices.

Production (April-October) was down by nearly 13 per cent at 820.58 mkg and average prices were up by ₹65 a kg last year.

The average price of all teas including CTC leaf and dust as well as orthodox was up by 26 per cent at ₹220.10 a kg in sale 39 and by 21 per cent at ₹217.03 a kg in sale 40, both of which concluded just before Pujas this year.

Prices during the same period in 2019 stood at ₹174.34 a kg for sale 39 and ₹179.31 a kg for sale 40, as per Calcutta Tea Traders Association data.

Prices further firmed up by 28 per cent to ₹217.22 in sale 42 conducted just after Pujas. Prices during the same period in 2019 were at ₹170.26.

However, year-on-year, the average auction prices are down anywhere between 18 and 20 per cent compared with the same period in 2020.

 

Unfavourable weather

According to Vikram Singh Gulia, MD & CEO, Amalgamated Plantations Private Ltd (APPL), September has been an unprecedented month in the Assam valley due to severe drought affecting both the output and quality of crop.

The industry, which usually produces close to 170 mkg of tea in September in the region, is expected to witness 14-15 per cent drop this year.

“During the first fortnight of October also, we have lost crop to the tune of 30-35 per cent in upper Assam. So the drought in April-May and then again in September and the expectation of an early onset of winter is expected to drag down production by around 75-80 mkg this year. The quality teas have been affected badly due to such poor weather conditions,” Gulia told BusinessLine.

The shortfall is expected to lead to a firm price trend moving forward, said Kaushik Das, Vice-President and Sector Head, Corporate Sector Ratings, ICRA.

“Tea is driven largely by sentiments. The shortfall is expected to lead to firmer prices and this might continue for the next few months,” he said.

Production cost

However, the tea industry feels that the price rise has not kept pace with the rising production costs.

According to Vivek Goenka, Chairman of Indian Tea Association, tea prices over the last decade have grown at a CAGR of four per cent, while costs of vital inputs such as coal, gas, MOP (muriate of potash), sulphur, etc have increased at a CAGR of 9-15 per cent during the same period.

Workers’ wages, which constitute a significant part of the cost of production, has increased between 50 and 52 per cent for Assam and West Bengal during the last five years.

“Declining prices along with crop loss due to adverse weather conditions have increased the financial stress of tea estates. Most tea companies are facing acute cash flow problems as availability of working capital has dried up in the absence of adequate bank finance.

“Majority of tea estates are operating in losses over the years,” he said.

     
     
     
     
     
Published on October 27, 2021

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