Focus on quality tea likely to provide support for tea producers amid sharp wage hikes: Report

By: |
November 16, 2021 5:20 PM

This year after June, bulk tea prices have declined as production has witnessed some recovery from the lows of last year. It has resulted in easing of supply-demand scenario, which had supported prices in calendar year 2020, rating agency Icra said in a report.

"Notwithstanding the likely moderation in financial performance of key bulk tea producers in FY22, it would still be substantially better than what they posted in FY20."Notwithstanding the likely moderation in financial performance of key bulk tea producers in FY22, it would still be substantially better than what they posted in FY20.

Firm prices of quality tea are likely to provide support for tea producers amid production expenses going up mainly due to a considerable hike in wage rates, according to a report.

This year after June, bulk tea prices have declined as production has witnessed some recovery from the lows of last year. It has resulted in easing of supply-demand scenario, which had supported prices in calendar year 2020, rating agency Icra said in a report.

Apart from declining prices, cost of production for bulk tea producers out of North India (NI) has increased substantially in the current year due to a sharp rise in wage rates and increasing energy costs.

In a recent note on the bulk tea sector, Icra highlighted that the dual impact of declining prices and increasing costs is likely to lead to a moderation, on a year-on-year basis, in the financial performance of the NI bulk tea industry this fiscal.

“Notwithstanding the likely moderation in financial performance of key bulk tea producers in FY22, it would still be substantially better than what they posted in FY20.

“Moreover, players who are focused on producing quality teas are likely to witness a much lower decline this year as average auction prices of teas manufactured from own garden leaves of the top 50 estates of Assam and Dooars have witnessed a decline of only 8.5 per cent against 25 per cent for the overall auction average during H1 FY22,”

Icra Vice President and Co-Group Head, Corporate Sector Ratings, Kaushik Das said. Last fiscal, domestic tea prices had witnessed a considerable uptick due to a significant supply-demand mismatch. Prices remained strong in the first quarter of FY22 and then started sliding with the onset of the peak production months.

In the first half of the current fiscal, average prices at NI auction centres were down by Rs 60 per kilogram or 23 per cent on a year-on-year basis. However, the decline in prices has been the most in the bought leaf segment, which was down by Rs 77 per kg or 33 per cent.

Icra said that it expects the decline in prices to be moderate for the rest of the financial year. The report noted tea production in NI has recovered from the lows of last year during the first nine months of 2021. However, it still remains 80 million kg lower than the corresponding period of 2019 and 50 million kg lower than that for 2018.

Consequently, two consecutive years (CY2020 and CY2021) of lower production is expected to support prices going forward, it said. In South India (SI), production of tea during the first nine months of this year was 23 million kg higher on a y-o-y basis.

As a result, two consecutive years of elevated production has taken a toll on prices of SI teas, which were down by 20 per cent in H1 FY22 on a y-o-y basis. The soft trend in SI tea prices also had an impact on NI bought leaf teas, since the two are similar in quality, the report said.

On the global front, aggregate tea production witnessed a 13 per cent increase in the first six months of 2021, primarily due to a crop recovery in India and Sri Lanka.

During that period, in India, tea production increased by 28 per cent but was lower compared to the pre-COVID levels owing to unfavourable weather conditions in NI.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Data monitor: 3-P players have an edge in logistics sector
2Smart Factory: Smart solution for smart businesses
3HR & ANALYTICS: Revitalising HR function with analytics