The Hindu Business Line : Brewing: Costlier coffee and tea

An increase in the price of sugar alone has increased the production cost by 40 paise a cup. Add to this, the increase in price of milk, and coffee aficionados may well have to pay 5-10 per cent more for a cup.

A spokesperson for Lavazza-owned Fresh & Honest Café Ltd (FHCL), supplier of coffee vending machines and ingredients, said, “With the demand for coffee being price elastic, we can’t pass on the burden of increasing input prices to consumers. By doing so we would risk losing consumers.

“Having said that, if prices keep increasing like they are, we would be left with no option but to pass on the burden and increase prices.”

In such a situation, the company is looking for greater sales volumes to offset input prices.

“We believe increased sales volumes can counter the high input prices. So at present we are focusing on generating more sales,” said Mr R. Shivashankar, CEO, FHCL.

Packaged tea prices seem to have peaked now.

The Executive Director of Tata Tea Ltd, Ms Sangeeta Talwar, on Tuesday told reporters that prices for packaged tea have been increased earlier this year and are not likely to go up further.

“The shortfall in both African and Indian tea production led to an increase in auction tea prices. However, the 25 per cent price increase by tea makers a couple of months ago has offset the increase. Prices are not likely to go up further,” said Ms Talwar at the launch of Tata Tea’s new marketing campaign.

Shortfall in production in domestic markets and increasing prices worldwide meant that prices at Indian tea auctions stood at Rs 108.8 a kg in July compared with Rs 88 a kg in July 2008.

Tata Tea is one of “largest tea buyers of Indian tea,” according to Ms Talwar.

Despite the high auction tea prices in India, Ms Talwar added that the company is not facing any pressure to maintain its margins as a result of the hike in prices a couple of months ago.