Tea prices seen rising as frost, dry weather drive shortage

Written by Bloomberg | Updated: Apr 5 2012, 06:53am hrs
Global tea prices may advance as much as 12% this year as dry weather and frost pare output from Sri Lanka to Kenya, widening a shortage, according to McLeod Russel India, the worlds biggest grower.

High-quality tea prices may rally from an average $3 per kg last year, managing director Aditya Khaitan said in an interview in Kolkata. Prices in India, the second- biggest producer, may rise about 10% from an average R120($2.4) per kg in 2011, he said.

A rally may boost profits at producers McLeod and Jayshree Tea & Industries, while raising costs for Unilever and other companies buying leaves from India. Prices will remain firm this year on strong demand for black tea, the Food and Agriculture Organisation of the United Nations said in February.

There will be a strong mismatch in the demand-supply transition, and prices worldwide would be much higher than last year, Khaitan said. A producers costs, including increase in wages and input costs, have gone up significantly. The margins going forward can be maintained only if the prices remain high.

Production in Kenya, the worlds biggest exporter of black tea, fell 31% to 18.41 million kg in February from a year earlier, the Tea Board of Kenya said on April 2. An early onset of winter last year and inadequate rainfall have hurt production in India since November, Khaitan said.

The South Asian nation started the crop year from April with a deficit of 130 million kg, about 8.3% more than a year earlier, he said.