Kochi: Tea prices are set to rise significantly on the back of a shortfall of 80 million kg in the first six months of this calendar year.
Given the present dry weather conditions in Kenya, India and Sri Lanka, the decline would be as much as about 100 million kg by the end of 2009, said D. Maheswari, president of United Planters Association of Southern India and senior vice-president of Kolkata-headquartered Tea Association of India.
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These three tea-producing countries, accounting for 80% of the global production of 2,000 million kg of black tea, are seeing lower production. Black tea is made by fermenting the leaves before drying them. Green tea, produced mainly in China, is made by steaming and drying the leaves without first fermenting them.
In the past eight years, there has been a steady rise in tea production at a time when Kenya, which produces roughly 350-360 million kg, saw its production drop to 310 million kg after a drought in 2006.
Even a slight fall in global production can have a big impact on prices, Maheswari said.
Indian tea exports till June fetched an average of Rs132 a kg and its price was around Rs10 lower than that of competing countries, which would give India an edge in the days ahead as demand for tea goes up, he added.
The Kenyan Tea Board early this week announced that prolonged dry spells had led to tea production declining by 11% to around 140 million kg till June this year.
India recovered some ground in June, pushing the total production to nearly 334 million kg and bringing down the deficit to 11.8 million kg. Till May, the deficit was 24 million kg. However, low rainfall is likely to adversely affect tea production in the months ahead, Maheswari said.
According to Bryan Baptist, managing director of the Ceylon Tea Brokers Ltd, an association of tea producers and brokers, the Sri Lankan situation continues to be bad and the shortfall is more than 42 million kg. Production at the end of June stood around 130 million kg.
There are at least 400,000 small tea growers with land less than 2 acres in Sri Lanka. But a price fall in the last quarter of 2008 after crude oil prices crashed and led to Russian and West Asian markets buying cheaper teas, tending of the gardens was affected in the island nation.
Sri Lanka has also been experiencing an unprecedented drought and indications are that rains may fail, worsening the situation.
Demand for tea from West Asian countries is expected to go up from August, prior to the festival season of Ramazan around September. These nations depend heavily on teas from India and Sri Lanka and are expected to book orders from this month, Maheswari and Baptist said.
Indian exports at 74.5 million kg were down by 16.2 million kg during the first half of this year, but fetched nearly Rs984 crore, up by at least Rs51 crore compared with the same period last year, on a higher unit price.
Photograph by Indranil Bhoumik and graphic by Ahmed Raza Khan / Mint