After having enjoyed a year of buoyant tea prices, it seems that planters are set for an encore. Tea production in northern India peaks between June and October, but picking of leaves starts from March. Trends so far suggest that production will be considerably lower than the previous year.
In March, tea production in northern India—accounting for 75% of local production in 2008—fell by 12% year-on-year, while in April the fall was 29%. Cumulatively, production has fallen by 23% in northern India and 18% across the country.
Yet, according to a note by the Centre for Monitoring Indian Economy, production is expected to recover from May. It expects production in 2009 to rise by a meagre 0.6% to 986.9 million kg.
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Much of India’s production is consumed internally and with domestic consumption rising by 3-3.5% a year, a flat trend in production would mean higher prices. Exports have also risen in the recent past, contributing to higher prices locally. Dry weather has hit production even in other large tea-producing nations, such as Kenya and Sri Lanka, and tea prices have surged across the globe.
Tea stocks, meanwhile, have risen by 140-180% from their lows in March, in anticipation of higher prices and because of the rise in the broad markets.
Last year, prices had risen by around 50% across India. This year the rise may be much less.
Still, tea companies are making better profits even at current prices and any increase would only add to that. McLeod Russel (India) Ltd, for instance, reported a profit before tax, and before other income, of about Rs100 crore in the fiscal till 31 March, compared with an average profit of Rs6 crore in the preceding three years.
On the other hand, high tea auction prices are bad news for large buyers of bulk tea, such as Tata Tea Ltd. The company recently reported that profitability fell in the year to March, mainly owing to high auction prices. Firm prices for a second straight year could pressure the company’s profitability again this year.
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