Food inflation may have brought tears to the eyes of consumers, but producers have prospered. Indian tea planters are among them, having benefited from higher tea prices, as a slump in global output drove prices in 2009.
Initial signs are pointing to better weather in 2010, signalling a possible change in the price trend. Even if prices do not retrace too much, producers may have to live with subdued prices during the year.
In 2009, global tea production fell by 2.4% to 1.86 billion kg, according to the Indian Tea Association (ITA). Two major producers, Kenya and Sri Lanka, suffered a 9% decline in output due to poor weather. These countries contributed 33% of the global production in 2009. India, which contributes more than half of the global production, also saw a decline in production due to poor monsoon rains. Overall production in the year was down by 0.2%, chiefly due to a 1.1% drop in southern India while harvest in northern India was flat.
The effect on prices was visible. Average Kenyan auction prices rose by 41% while Sri Lankan tea prices rose by 56%, according to ITA. Average all-India auction prices rose by 21% during 2009, which came after a 30% rise in prices in 2008. While Kenyan tea prices rose higher in the beginning of 2010, too, the past few weeks have seen an easing in prices.
Graphic: Yogesh Kumar / Mint
Weather reports are indicating a normal season ahead for tea-growing regions. If so, output will increase. Sri Lanka’s tea production in February rose by 82% to 23.5 million kg due to lower output in the year-ago period.
The Sri Lanka Tea Board expects tea prices to ease in the second half of 2010 as the global shortfall decreases. Higher prices have also prompted higher output from other countries, especially in Africa.
India’s tea production had picked up in the last quarter of 2009, and in January, output was estimated to be up by 25%. India’s weather forecast will come out next month, and by the middle of the year, there will be more clarity on its effect in the tea producing regions.
Shares of major tea producers such as McLeod Russel India Ltd and Jay Shree Tea and Industries Ltd are down from their 52-week highs reached in January. Once estimates for 2010 are firmed up, more clarity will emerge. But it does appear that the two-year run of rising tea prices is losing steam.