Tea prices remain flat for nearly 7 years

By: |
Published: August 28, 2019 12:41:00 AM

There was a record production of 1,328 million kilograms of Assam and Dooars tea in 2018 and despite a production shortfall for the rains there wouldn’t be any short supply in the market this year.

Bringing more and more small tea growers under the export chain could help in developing a market but that was not an easy task to do, said Vivek Goenka, chairman Indian Tea Association.

As the retail tea market becomes price-sensitive, there are no signs of healthy returns at the gates of tea gardens, gradually losing its lustre for want of cash. Tea prices in real terms have dropped in the last five years with the rupee allowed for a free fall. The gardens have seen a spree of closures leaving workers helpless.

In the last seven years, between 2013 and 2019, prices of tea moved up by an average of Rs 11 per kilogram with average realisation ranging between Rs 136 and Rs 147 a kilogram.

Whereas input costs nearly doubled with more than 85% of the cost in the form of labour charges and energy charges being fixed.
Amid heavy rains in the current season, crop loss at around an average 15% in Assam has triggered a price rice on a quarter-on-quarter basis. But when it comes to year-on-year basis, the increase of CTC tea is only `1 per kilogram, Azam Monem of the Indian Tea

Association said. In July, some gardens in Assam saw production loss of 5%, in some it was 20%, while in others, it was as much as 25%. While price of Assam CTC at the auction centres for the week stood at `178 per kilogram against `172 per kilogram during the same week last fiscal, Dooars tea for the week at auction centres were priced at `150 a kilogram against `148 a kilogram during the same week last fiscal. However, by no means it has recovered the loss because production loss means it has washed away the entire input cost, Monem said.

According to a Crisil research, the profit margins of Indian tea plantations are likely to contract between 140 and 150 basis points in 2019 while the average price movement for both the north Indian and south Indian tea remained between the range of `135 and `147 per kilogram.

Tea production has grown at a CAGR of 3.2% between 2012 and 2017 but the demand in the domestic market didn’t see much of a growth so as to absorb the excess capacity. Share of export remained stagnant between 18% and 20% with export realisation dropping at a CAGR of 2% between 2012 and 2017.

There was a record production of 1,328 million kilograms of Assam and Dooars tea in 2018 and despite a production shortfall for the rains there wouldn’t be any short supply in the market this year.

The tea board has been carrying 50 million kilograms of excess production since 2017 and above that there has been 90 million kilograms of excess production in 2018, for which the Tea Board was forced to stop auction during November-December last year, Tea Board of India chairman Prabhat Bezburuah earlier said at a conference.

Bringing more and more small tea growers under the export chain could help in developing a market but that was not an easy task to do, said Vivek Goenka, chairman Indian Tea Association. India accounted for 23% of the global production but the share of exports is only 13%.

However, according to a member of the Confederation of Small Tea Growers Association, if certain practices like cartel formation of bought leaf factories (BLF), who are the major buyers and processors of green leaf and force tea garden owners to distress sale, are not stopped, there cannot be improvement in the tea industry.

The Tea Board auctions only a small part of the production but the BLFs often procure tea at Rs 6-7 per kg from the farm gate.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, 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.