Kochi: An appreciating rupee has affected Indian tea exports in the first half of the 2007 calendar year. Since export earnings are reported in dollars, tea firms are not willing to export more because their earnings in rupee terms have gone down with the strengthening Indian unit.
The rupee has appreciated around 9% against the greenback since the beginning of the year. It would have appreciated even more, but for the Reserve Bank of India’s decision to restrict external commercial borrowings by Indian firms. As a result, the value of the rupee against the dollar has declined over the past one week.
Tea shipments have fallen by nearly 12 million kg in the January-June period, compared with the corresponding period a year ago.
According to statistics from the government trade promotion body, the Tea Board of India, tea shipments from the country fell to 75.73 million kg—worth Rs724.98 crore—in January-June, compared with 87.47 million kg—worth Rs734.11 crore—in the first six months of 2006.
Imports, too, fell to 4.89 million kg until May from 8.43 million kg in the January-May period in 2006. This is in tune with the slowdown in tea exports since imported tea is re-exported after value-addition. However, tea manufacturers say the situation has changed since June when the industry started importing aggressively, taking advantage of the lower dollar value against the rupee. With the rupee strengthening against the dollar, importers need to pay less for imports.
Brewing trouble: Imports fell to 4.89 million kg until May from 8.43 million kg in the January-May period in 2006. This is in tune with the slowdown in tea exports as imported tea is re-exported after value addition. PTI photo
J.K. Thomas, president of the planters’ body, United Planters Association of South India (Upasi), and vice-chairman of the Tea Board of India, says the import figures will change in June and July.
He also says there is need to have incentives for exporters to cushion the impact of the rupee appreciation. The local currency, which hit a nine-year high of 40.26 to a dollar in May, traded at 40.56 to the greenback on Monday. Foreign exchange dealers say in the near term, the rupee may fall against the dollar and settle at around 41 to a dollar, but by the year-end they see it rising again as foreign capital flows are likely to continue.
A drastic fall in shipments from Vietnam to 0.45 million kg in January-May—down from around 5 million kg in the comparable period last year—cut tea imports by almost 50%. With the cheaper and low-priced Vietnamese tea not coming in, the impact of low volume of imports is not showing on the cost that has come down by 10%—from Rs40.5 crore to Rs36.74 crore. Globally, tea prices have been on the rise for more than a year and this was evident from the fact that the unit price of imported tea has risen to Rs75.11 per kg from Rs48.05.
A top exporter from the Nilgiris in South India, on condition of anonymity, says the strict quality norms on imports imposed by the Tea Board has helped check the inflow of cheap Vietnamese tea. The three-month period fixed for re-exporting imported tea might not make shipments very attractive unless the dollar appreciates against the rupee, he adds.
In the first six months of 2007, tea production across India rose by 1.42 million kg to reach 334.71 million kg. This is on account of 4.88 million kg increase in output in the North-East and Bengal regions. However, in the South, output fell by 3.46 million kg in the absence of pre-monsoon rains and the heavy downpour during the south-west monsoon. Upasi’s Thomas says tea production may fall further.