Tea output falls, but lower exports keep prices stable

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Weaker global growth, high prices curtail demand from west

Tea output falls, but lower exports keep prices stable
With the nip in the air, stakeholders of the Indian tea industry can look forward to a cuppa that can cheer. Normally, tea consumption rises during the winter season, whereas tea plucking goes up during July and October. And this year, there are indications that the demand for tea in the domestic market is going up and would continue to grow.

Prices of crush-tear-curl (CTC) grade tea in the country are already heading northward. Driven by strong demand, prices of CTC tea went up during last week’s auction, while higher supplies to some extent pulled down prices of dust grade tea. The price of CTC tea went up 2.4 per cent to Rs 152.07 per kg, while the dust variety eased 1.07 per cent to Rs 150.92 per kg.

An office bearer at Calcutta Tea Traders’ Association said, “So far demand has been steady from the local buyers.”

Taking a cue from that, an analyst said: “We expect the prices to remain stable in the coming weeks, as winter season demand has already started to pick up.”

This has to be seen in the context of India’s tea production in the first nine months of the year, which has fallen 1.3 per cent on year-on-year basis to 772.5 million kg. And this can be attributed to the dry weather in Assam, which adversely affected plucking earlier in the year. According to estimates, India’s overall tea output this year is expected to fall by 1.5 per cent to 973 million kg from a record 988.3 million kg in 2011. While production in north India fell 12.2 per cent, production in south India was down 10.2 per cent. In North India, prolonged winter in 2011-12 has badly affected production. In south India, production was adversely affected because of prolonged dry spell in Tamil Nadu and Kerala.

India is one of the major producers and exporters of tea in the world market. India mostly exports CTC tea to countries like Egypt, Pakistan and the UK, and the premium orthodox variety to Iraq, Iran and Russia.

According to a recent industry study conducted by IMaCS, a weaker global growth outlook, continuing high prices of tea and the recent sharp decline in coffee prices are likely to result in marginal decline in India’s tea exports from 193 million kg to 180 million kg in 2012. Factors leading to decline in tea export include faster-growing coffee market adversely affecting tea consumption in Europe and by weak economic growth. India’s exports to Iran, a major consumer of Indian tea, could also decline because of the recent EU and the US sanctions. Tea exporters to Iran may face payment and settlement problems, as the sanctions will curtail Iranian banks accessing international banking systems. The fall in tea exports could also be attributed to the expected decline in domestic production during 2012 and an increase in domestic consumption, the report said.

What can possibly balance out these negative factors is growing exports to Pakistan and China, the two countries India may not be enjoying the best diplomatic relations with.

The export of tea produced in West Bengal’s Darjeeling district alone to Pakistan has reached an all-time high, cheering traders, who are increasingly looking to utilise third country platforms to cement their position. Tea traders have already welcomed the memorandum of understanding (MoU) signed between India and Pakistan, under which about 50 million kg of tea would be exported to Pakistan over the next three years.

Similarly some of the Kolkata-based companies including Chamong Tea have started exporting black tea to China, with high hopes. Chamong tea, for one, expects to ship 0.5 million kg of the beverage this year itself. India is the leading producer of black tea, with an annual output of 985 million kg, while China’s annual production of green leaf tea is much higher at 1,500 million kg. Tea exporters from India expect to sell up to 10 million kg of black tea this year in China, where the demand is estimated to rise rapidly to 100 million kg by 2015.

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