Commodity Analysis

Reading the tea leaves

Aarati Krishnan | Updated on January 20, 2018 Published on May 15, 2016


Both wholesale and retail prices of tea are likely to head higher over the medium term

Wholesale tea prices in India, which were in a slump last year, have perked up in the first four months of 2016. Average auction prices compiled by the Tea Board showed all-India prices averaging ₹116/kg between January and April 2016, 13 per cent higher than the ₹103/kg recorded during the same period last year.

Bubbly South

It is South India which has experienced the sharper spurt, with auction prices in the first four months a good 25 per cent higher than 2015 levels. As against ₹81-86 a kg last year, auctions at Kochi, Coonoor and Coimbatore have fetched ₹100-110 a kg this year.

The revival in South Indian tea prices, after last year’s severe declines, can be attributed to both seasonal and structural factors.

For one, an extended dry spell in South Indian tea growing regions during the peak production months of April/May has cast doubts on the current year’s output. With tea production in the first three months of 2016 down by about 7 per cent, the trade is forecasting that South India could end the year with a 10 per cent production shortfall compared to last year. Two, the last couple of years have seen recurring labour unrest across plantations in this region, with workers in this labour-intensive industry demanding higher daily wages. As the resulting wage settlements set a higher floor on production costs, both wholesale and retail prices of tea are likely to head higher over the medium term. Three, strong export offtake in the last one year has also lifted tea prices in the South. Though South India produces just a fifth of the country’s total tea output, nearly half of its teas are shipped out into the export markets.

Sedate North

Tea prices in North India have displayed more muted increases this year, with average auction prices of about ₹121/kg in the first four months, just 9 per cent higher than last year. But as January to April represent the lean months for tea output in the North, these trends cannot be taken to be really representative of the year ahead. While South India records higher output in the first half of the calendar year, with peak production months in May and June, the peak season for North India is back-ended with 70 per cent of its annual output recorded in the five months from June to October.

While the tea trade began 2016 with expectations that it would be a bumper year in North India (with good rains, output in March was well above last year’s levels), unseasonal rains and floods in Assam in April and a dry spell in the growing areas of West Bengal during the same month have toned down expectations in the last couple of months. It is, however, early days yet and weather conditions over May/June could be the deciding factor on annual output.

By a current reading of fundamentals, therefore, Indian tea output may be marginally lower than last year’s 1213 million kg. If demand growth sustains at past rates of 2-3 per cent, firmer prices could hold up.

Exports, the wild card

A key wild card factor to this outlook will lie in the global prices and export performance of Indian tea. In this context, 2015-16 saw reasonably good export performance, with India recording an 11 per cent increase in export shipments in volume terms, to 220.8 million kg. While markets such as the US, Europe and the UK saw lower offtake of Indian teas, this was more than made up by demand from our Asian neighbours — Bangladesh and Pakistan as well as West Asian countries like Iran.

But one key challenge in the year ahead arises from the lifting of economic sanctions on Iran, now the second largest importer from India. During the era of sanctions, Indian tea exports to Iran enjoyed special status under a Rupee-Rial exchange agreement, but there are concerns that Iran will be free to look for other trading partners as sanctions are lifted. However, with the emergence of good demand from alternate markets like China, Malaysia and Indonesia, such risks could be offset. While volumes may hold up, export realisations may continue to be pressured by falling global tea prices.

Kenyan auction prices have dipped by nearly 30 per cent in the last six months on the prospect of global oversupply. For now, therefore, it is domestic markets that Indian tea producers are looking to for a cup that cheers.

Published on May 15, 2016

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.