Indian tea industry grappled with sluggish domestic consumption, low export demand in 2023

The Indian tea industry faced the double whammy of sluggish domestic consumption and low export demand in 2023, which dampened the overall price realisation. And what’s more, subdued prices and increase in costs led to significant pressure on profit margins for tea manufacturers.

For this calendar year, India’s tea production is likely to remain the same as that of last year with minor variations, according to industry experts. In 2022, the country’s total tea output stood at 1,366 million kgs (mkg).

Slack consumption

The industry is, however, deeply concerned about poor domestic consumption growth. “On the domestic front, what we have been witnessing is although tea consumption has been growing with the population growth, the per capita consumption is still around 800 gm a year, remaining below 1 kg per person which is what the per capita consumption in most tea consuming countries. So, we have excess production in the domestic market,” Azam Monem, former chairman, Indian Tea Association (ITA), told businessline.

According toformer Indian Tea Association (ITA) secretary Sujit Patra, domestic consumption of the brew appears highly inflated. “Growth rate, per head consumption, etc are all estimated on the basis of assumptions and guesstimates. A large chunk of the population is not considered in the process of estimation. So wrong inflated consumption figures give wrong connotation to importers whether India will be able to sustain its minimum level of exports. This needs unbiased correction,” Patra pointed out.

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Exports down

The country’s tea export is likely to be down this year compared to last year, mainly due to a significant decline in export to Iran which is purchasing a lesser amount of the brew. Exports to Russia and the UAE also witnessed a decline.

India’s tea exports stood at 231.08 mkg in 2022 calendar year.

Prices crash

A decline in overall export demand and a sluggish consumption impacted tea prices at auction centres

“The all-India auction prices of orthodox (ODX) tea in 10MCY2023 (October 2023) witnessed a significant decline of ₹51/ kg (~21 per cent) on a YoY basis. The same was primarily driven by a sharp drop in the North India tea prices by ₹70/kg during 10MCY2023 on a YoY basis. The price fall witnessed in South India ODX tea was, however, limited to ₹7/kg (~5 per cent) during the same period. The slump in ODX tea realisation was due to lower export demand, primarily from Iran,” rating agency ICRA said in a recent report. The all-India cumulative auction average of CTC tea also witnessed a decline.

According to Monem, a surplus in the global markets has led to an international price crash. And, India is affected significantly because its export has been languishing.

“Tea prices have been subdued both globally and domestically. In the global context, Kenya has surplus tea for the last three-four years running. Since Kenya has a total export market, that tea has not been absorbed readily within three major countries — Russia, Pakistan and Egypt. Therefore, there has been a surplus in the global markets, which led to an international price crash,” Monem said.

Patra observed that there has been no concerted initiative from India to stand on its own export policy. “On exports, India always looks at competitors’ disadvantages - when their price is high, when they face any problem. Then there is always complaint from exporters about availability of clean, quality-compliant teas. How can exporters take risk and go whole-hog if there is always complaint about Indian tea on these fronts. It took over three years for FSSAI to gazette a draft notification. Still lot of MRLs (maximum residue levels) are unrealistic and needed to bring to realistic levels,” he said, adding that the time has come for all stakeholders, including the Tea Board, to sit together for a well-structured export plan.

Margins to be hit

ICRA expects the margin for tea estates based out of North India to be significantly impacted in FY24 due to increase in cost of production, following the wage rate hikes in West Bengal and Assam, and the drop in realisation due to lower export and subdued demand.

“Wage rates in West Bengal and Assam were raised in June and October, respectively. This would result in an increase in the cost of manpower by around ₹5/kg for the full year of FY2024. This, along with the decline in tea realisations, is likely to result in a slide in the operating margin of North India-based bulk tea players of the ICRA sample set by ~280 basis points to ~2.1 per cent in FY2024,” the rating agency said in its note.

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