While the output cost has increased 8-10%, prices did not rise accordingly
Tea firms expect removal of duties on imported cured leaves
As the date for presentation of the Union budget for 2017-18 is drawing closer, expectations of different sectors and industry verticals have started rising. For instance, it’s expected that the Centre would continue to exempt necessary food items like milk, grains, vegetables from the goods and services tax (GST) and would not add to burden to the consumer. For tea, with GST rate being seen at 5 per cent on the basis recommendations of the GST council, the overall impact could be neutral compared with the current taxes. But when it comes to tea packaging industry, there are other expectations too.
The tea packaging industry is eagerly looking forward to elimination of all duties on imported teas in this budget, which will allow it access to better and more competitive raw materials from around the world. This will allow the industry to offer higher standards of products to the Indian consumers at a more affordable price. Given that India is predominantly a tea-drinking nation (market size of Rs 10,000 crore), such a move will be highly welcomed. At least that’s what Sumit Shah, executive director, Madhu Jayanti International, feels.
These expectations and demands have come at a time when industry officials predicted domestic production in 2016 to rise to around 1,230 million kg from 1,209 million kg in 2015. In fact the just released November production data of Tea Board of India showed an impressive gain of 14.73 per cent with North India posting an increase of 14.60 per cent and South India 15.48 per cent. The cumulative production in the 11 months increased to 1,176.41 million kg from 1,151.31 million kg. This increase of 25.04 million kg marked a gain of 2.17 per cent.
India’s cumulative tea production in 2016 (calendar year), which trailed 2015 till August, became equal by September and marginally increased by October. All these will have to be seen with the fact that global tea production has been more in 2016 with Kenya coming up with its highest output. Kenya recorded a 19 per cent jump in output in 2016 and is eating significantly into India’s market share in Pakistan, Egypt, the UK and Russia.
The destocking by pac­k­et tea players after demonetisation also left an impact on the offtake. An­other factor that has been adversely affecting the tea industry is the rising output cost. It’s, therefore, feared that the bottomline of Indian tea companies will be affected in FY17.
And not just with higher output, according to industry officials, Indian teas are being offered at $3.07 a kg for the same quality tea that Kenya sells for $2.29 a kg. Thus Kenyan tea is 34 per cent cheaper and has emerged more attractive in global markets.
According to tea producers, while the cost of production has gone up 8-10 per cent, prices did not rise commensurately. It is expected to hit their profits and profitability at least in the next one year. Interestingly, while prices of cheaper grade tea have risen, rates for quality tea have fallen.
Ritwik Mukherjee