Indian tea is back in business and looks robust. After staying low for many years, the tea industry is smiling as increasing domestic demand and global shortage firms up the market, even as production increases for the first half of the year by 10 million kg. According to tea industry experts, the average auction price has moved up by Rs 4-5 or 10% in the last six months, when compared to the auction averages of the previous season. Interestingly, in the past one month, auction prices are seen higher by 20-30% from last year’s average.
According to figures of the Tea Board, Indian tea production has increased to 119 million kg during the first six months of 2008. Compared to H1 of 2007, the production is up by 10.97 million kg, with both south and north India contributing positively. South has been the major contributor, by producing 10.3 million kg more tea, while north Indian estates contributed 0.62 million kg more to the market.
The production increase has been absorbed quickly by the growing demand, which is reported to grow at 3-4% per annum. Reports suggest that India consumes about 23% of total tea production in the world, and over 75-80% of its own production. “With the economy growing at 8-10% for the past few years it would not be surprising if the domestic demand has surpassed the rate to 5-6%, given the income elasticity of tea,” a commodity expert told FE.
Export figures are also looking good for H1 of 2008. Tea exports are up by 13.5% during the six months when compared to H1 of 2007. Unit realisation of exports has moved up by Rs 1.5 per kg during the period.
Paulose Joseph of Forbes Ewarts and Figgis says that the turnaround for tea has come after ten long years. He sees the market stabilising further with both export and domestic demand looking good. “Shortfall in Kenya works to our advantage and CTC consuming markets would open up more in the coming days,” he added. Tea exports to Afghanistan and Egypt are on the increase and volumes to Pakistan may pick up in the coming days.
Traders see a bigger impact in the resumption of exports to Iraq, as the country is a volume player.