The Hindu Business Line : Tea prices continue to gain, up Rs 10-15 a kg

Heady brew
The tea industry is bullish as it feels that there will be no respite from the price increase due to the demand-supply mismatch.
The crop in March this year was lower compared with the prices a year ago.

Santanu Sanyal

Kolkata, April 16

It is about a couple of weeks since the new season for North Indian tea started, but with an average auction price increase of Rs 10-15 a kg compared with the corresponding period last year. This is more or less in keeping with the trend that persisted in the last quarter of 2007.

Drop in exports

One reason for this is the absence of carryover stock, largely due to high domestic consumption. The domestic consumption in 2007 was so high that even the drop in exports during the year compared to 2006 did not improve the domestic availability to leave with some stocks.

Also, the crop in March this year was lower compared to that in March last year, the shortfall being estimated at 40 per cent. The April crop, of course, is better but together with the March crop, the overall shortfall, it is estimated, will be about 20 per cent.

Industry bullish

The North Indian tea industry is bullish because it feels that there will be no respite from the price increase this year, largely due to the demand-supply mismatch. The domestic consumption has been growing at three to 3.5 per cent annually. Which means, every year the additional domestic demand will be up by around 30 million kg (mkg). But where is the tea to meet this burgeoning demand?

The production cannot be increased substantially within a short period. More important, the domestic availability of tea will not improve due to some other reasons also. With the Kenyan crop having failed and the world tea prices having risen by around 30 per cent, exports appear to be an attractive proposition. There being an accent on larger production of the orthodox variety fetching higher prices in the international market, any increase in orthodox production will entail drop in the CTC production to that extent. In 2007, the orthodox production was up by about 15 mkg.

Export demand

The export demand, it is felt, will also be fuelled by the probable increase in demand for Indian tea – the CTC variety from countries such as Pakistan and Egypt.

With the prospect of payment crisis in Iraq getting resolved soon, there might be additional demand for CTC tea from that country. Iran is likely to emerge as a major buyer of Indian orthodox tea, it is felt.

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