For the first time in a decade or more, average auction price for orthodox tea has fallen below the CTC variety. Orthodox tea, which always maintained a difference of R15-25 over the CTC variety, has failed to attract buyers at the recent auctions in Kolkata.
According to industry insiders, a drop in exports to Iran and a sharp dip in demand from Russia have caused average auction prices for tea to touch a historic low. To add to the woes of the industry, orthodox production in 2012 is likely to be lower after prices took a hit this year. During the last sale (sale-46), CTC was sold at an average of R124.54 at the Kolkata auction. Orthodox tea was sold at R118.83 during the same sale. CTC was sold at an average of R127.75 during the sale, while orthodox was sold at R124.31.
A closer look at similar sales last year shows how the prices have come down. During sale-46 last year, CTC was sold at an average of R131.80 while orthodox was sold at R163.68. During the sale-45 in 2010, average auction price for CTC was at R132.63 while orthodox prices were at R157.65.CS Bedi, chairman of the Indian Tea association, said, ?Prices have been going down since the last six-seven sales but have spiralled sharply downwards since the last four sales. What is worse is that in each auction 50% teas are unsold leading to higher transaction costs and cash flow problems.?
Azam Monem, director of McLeod Russell, said, ?Average auction price for orthodox has traditionally been R15-25 higher than the CTC variety. The problem with orthodox prices coming down seems to be a temporary phenomenon and is mainly a fallout of the Iran payment crisis.?
After the payments were held up for shipments to Iran, exports to the orthodox consuming country came down sharply. India exported 13.4 m kg tea to Iran last year. ?The merchant exporters have not received payments for teas already exported. The situation is grim all round and 2012 is likely to see a lower production of orthodox,? Bedi said.
Meanwhile Russia, one of the major tea destinations for Indian exporters, has also started showing lukewarm response to orthodox imports. ?It seems that they are waiting for prices to come down more,? Monem said. Last year total export to CIS countries was around 50 m kg. Exporters feel that a perceived flaw in the electronic auction has resulted in such a depressed pricing for orthodox tea. ?Producers are not sending prime quality tea to the electronic auction due to a poor price discovery,? said an exporter.