Mumbai: A global tea shortage may increase by 10% next year as droughts in Kenya, Sri Lanka and India, the top exporters, damage crops and propel prices to a record, the world’s biggest tea plantation company said.

Growing shortage: Workers at a tea garden in Darjeeling district of West Bengal. India’s tea production in the seven months to July dropped 3.3% to 461 million kg after the weakest monsoon in at least seven years. Indranil Bhoumik / Mint

Reduced supplies will increase costs for tea marketing companies including Tata Tea Ltd, owner of Tetley brands, and Unilever Plc, while boosting earnings at producers McLeod, Goodricke Group Ltd and Jay Shree Tea and Industries Ltd. African tea prices rose to a record at auctions on 29 August, while Indian prices have gained an average 25% this year.

“I don’t see any relief for tea consumers for the next one year," said Harsh Gupta, an analyst at SMC Global Securities Ltd. “The global shortage isn’t likely to be overcome anytime soon as prices will firm up further."

Stagnant prices for almost a decade since 1999 caused some tea estates to close and forced plantation companies to cut investment in replanting old bushes and adding new machines, McLeod Russel’s Khaitan said by phone from Kolkata on Monday.

“Tea is playing a catch-up with other agriculture commodities, which have shot up in the past couple of years," he said. “The tea deficit is here to stay and the prices will continue to rise."

India, Kenya and Sri Lanka together account for more than 50% of global tea exports. India’s tea output this year may drop 20 million kg from last year’s 980.8 million kg, Khaitan said.

India’s tea production in the seven months to July dropped 3.3% to 461 million kg after the weakest monsoon in at least seven years caused a drought in 278 of India’s 626 districts this year. That may create a deficit of 50 million kg next year, Khaitan said.

“Drought is only one reason for prices to take off," he said. “Years of neglect because of stagnant prices took a toll on production over the years."

The record prices may help companies resume investment in developing plantations and raising output, Khaitan said.

The harvest in Sri Lanka, the world’s fourth biggest producer, declined 32% in the six months to June to 130.5 million kg, according to Sri Lanka Tea Board data.

Kenya’s crop this year is about 161 million kg, 21% lower than a year earlier, Africa Tea Brokers Ltd said in a report on 4 September. The Kenya Tea Development Agency, the country’s biggest grower and exporter, said on 14 August that a serious drought will cut production heavily.

India, the world’s largest tea consumer, won’t boost exports to benefit from record global prices as local demand has increased 1% on average over the past few years, Khaitan said. Shipments in the January-July period totalled 94 million kg, 14% less than the 109.3 million kg a year earlier, according to the state-run Tea Board of India.