Tea output set to fall by 120 m kg this year

KOLKATA: The Indian tea industry is heading towards a shortfall of 120 million kg this year. Lower domestic production, coupled with a drop in Kenyan output of 37 million kg, has already pushed up tea prices in India.

Global prices have also appreciated in the last four months. All these factors have pushed up the profitability of tea companies in the first quarter of the current fiscal year.

Tea producers say the deficit in the domestic market will be 120 million kg this year. This is despite the fact that the weather condition is generally good this year.

India had produced 960 million kg of tea last year and there was a production shortfall of nearly 30 million kg. The carryover deficit in 2010 was 60 million. In all, the deficit in 2010 was 90 million kg.

"With consumption growing at a rate of 3-3.5%, there is a need for an additional 30 million kg of tea this year to meet this demand. This means that there will be an overall deficit of 120 million kg this year," explained Aditya Khaitan, managing director of McLeod Russel India.

"Tea companies are expecting that FY12 will be a good year performance-wise. Tea prices are already on a firm note. The shortfall in Kenya by 37 million kg is also pushing up global tea prices and Indian tea exporters are leveraging this," said CS Bedi, managing director of Rossell India.

For instance, McLeod Russel's teas are being sold at a premium in India as well as in Mombasa auctions which have jacked up its net profit by 98% to Rs 37.33 crore in the first quarter of FY12 from Rs 18.85 crore in the first quarter of financial year 2011. "Our teas are fetching Rs 15 -16 more per kg compared to previous year. Teas grown in our Ugandan and Rwandan estates are fecthing 50-60 cents more per kg at the Mombasa auctions," said Khaitan.

AN Singh, managing director & chief executive officer of Goodricke Group, said: "The market sentiment is strong and teas are expected to fetch better prices. This will have an imp- act on the profitability of tea firms. However, one has to see whether the cost of production does not go up in the coming mo-nths. Export enquries are strong and tea companies are hoping to have better forex earnings."

The Economic Tmes