Tea prices drop despite a decline in production and steady demand

Shobha Roy Kolkata | Updated on November 20, 2020


But prices are likely to stabilise as the industry enters the new year with a deficit, say industry experts

Tea prices in North India (which includes gardens in Assam and West Bengal) have witnessed a sharp correction of about ₹100-125 a kg across various categories over the last three months.

According to statistics available on the website of Tea Board of India, average prices of CTC leaf and dust sold at the auction centre in Kolkata was ruling at around ₹216.65 a kg in early November, almost 31 per cent down as compared to ₹313.58 a kg in early August.

However, on a year-on-year basis, prices are higher by about 40 per cent as compared to ₹154.48 a kg in the same sale last year, according to Tea Board data.

Also read: Indian tea prices rise 31% in three quarters

“The arrivals have been good and there is more tea on offer now,” J Kalyansundaram, Secretary, Calcutta Tea Traders’ Association (CTTA) told BusinessLine.

Drop in production

The price drop is despite a significant decline in production this year and a steady demand and consumption of tea. The North Indian tea industry is anticipating a 14- 15 per cent drop in production at around 996 - 1011 million kg (mkg) during this calendar year as against a total crop of around 1,171.09 mkg in 2019.

As per the provisional estimate available on Tea Board website, production during the January-August 2020 period is down by around 150.97 mkg at 533.48 mkg, as compared to 684.45 mkg same period last year. For the month of September again, production is estimated to be lower by around 6 mkg at 163.82 mkg (168.90 mkg).

In October also the crop is estimated to be marginally lower. In November last year the North Indian gardens had produced a record crop of around 117 mkg. It is difficult to have this kind of crop this year so the production in November will either be at par or marginally lower than last year. So overall the crop is expected to be lower by 160 mkg this year, Vivek Goenka, Chairman, Indian Tea Association (ITA) said.

Also read: Tea exports expected to drop 28% in FY21

“Looking at the huge drop in production markets should have been firmer but prices have crashed in the last six-to-eight weeks by nearly ₹125-150 a kg depending on categories. Teas which were selling at around ₹350 a kg are now selling at around ₹225 a kg. It is a very worrying trend,” he said.

The drop in prices is despite the steady demand and the recent pick up in out of home consumption.

While prices usually witness a correction towards the end of a year, however, it drops by only around ₹10-15 a kg. This time the correction has been too sharp, he pointed out.

It is to be noted that 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.

Prices to remain firm

The tea estates in North India have to stop plucking and manufacturing tea by the second week of November following the Tea Board directive for early closure. Exercising the Tea Marketing Control Order, it has directed all factories to stop manufacture of the beverage starting early December in order to stop production of inferior quality of teas.

This would further drain out about 25 mkg of poor quality teas from the system.

According to Atul Asthana, MD & CEO, Goodricke Group, tea prices are likely to remain steady at current levels in the non production months of January, February and March next year.

“Last year we entered the new year with a surplus of around 50 mkg, this year we are likely to start the new year with a deficit of around 20-25 mkg. This should keep prices steady,” he said.

Published on November 20, 2020

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