Tea production to rise a bit

India is the second largest producer of tea in the world and contributes 26 per cent to the global production

Despite a lower rainfall last year, tea yields were higher in West Bengal and Assam, which kept domestic tea production in 2018 stable. According to a recent Crisil study, tea production in the country is estimated to have reached 1,328 million kg and is expected to rise to 1,339 million kg in 2019.

According to Tea Board data, tea production for January-October stood at 1,117.6 million kg against 1,127.2 million kg in the year-ago period. Tea output in south India in 10 months of 2018 stood at 187.6 million kg against 197.3 million kg in 2017. Tea production in north India for the same period was 929.98 million kg against 929.85 million kg in 2017.

India is the second largest producer of tea in the world and contributes 26 per cent to the global production. Tea production in India logged 3.2 per cent CAGR over 2012-17. But consumption ran up only at 1.7 per cent CAGR. The domestic market is saturated, with penetration as high as 99 per cent among the tea-drinking population. This has limited the growth potential and has increased the companies’ dependence on exports to maintain the overall demand-supply balance in the domestic market and thereby prices.

When it comes to exports, export realisations of Indian tea producers dropp?ed at 2 per cent CAGR over 2012-17. In 2018, growth in realisations is expected to have remained muted, though 2019 could see a marginal increase of 1-2 per cent. Significantly, international tea prices are driven by Kenyan and Sri Lankan rates, which are largely dependent on the production trends in these countries. With a revival in Kenyan production and healthy output in India and Sri Lanka, global tea production is expected to be higher in 2018 against 2017, leading to a correction in international prices, analysts said. The rupee’s depreciation against the dollar is expected to provide (or may have provided) as some relief to Indian tea producers.

Some analysts said Indian tea, in all likelihood, would gain from the wage hike in Sri Lankan plantations and residue (pesticide) problems in Vietnam. Movement of tea was also bit erratic due to the US sanction on Iran and prices were low. But, tea prices headed northward the moment there was the realisation that India could export to Iran.

But wage hike across plantations is a big concern for the organised tea sector. For the record, wages form 60-65 per cent of the total production cost for organised tea players. Tea in India is sold through auction at various centres. The buyers are either private stockiest, who sell loose tea or large players who further process it and sell as branded packaged tea.

The latest Crisil research expects tea prices at various auctions across the country to close 2018 at Rs 145-146 per kg on an average, 3-4 per cent higher on year compared with a compound annual growth rate (CAGR) of 1.4 per cent logged over 2012 to 2017. The average auction price in January to November 2018 was Rs 138.20 per kg against Rs132.79 per kg in 2017.