Home >Market >Mark-to-market >Higher output could keep tea prices in check

The outlook for tea prices does not appear bright in 2014 unless the weather takes a turn for the worse and affects the crop. Last year ended with a substantial increase in the crop in key growing countries. That is likely to have resulted in 2014 opening with a decent-sized surplus. In 2013, India’s tea output rose by 6.5% while plantations in the northern part saw an 8% increase in output. Kenya, another major grower, saw its tea output rise by 17.1%.

If the current year’s output was lower, the market would have been more balanced and supported prices. January’s data has been released by only a few countries so far. Sri Lanka’s output rose by 9.5% with the other countries being much smaller tea growing nations Bangladesh and Malawi, according to data from Africa Tea Brokers Ltd. But crop conditions appear to be favourable, giving rise to speculation that output in African countries will show a healthy trend. That is likely to put pressure on prices.

In 2013, on an average, realizations were flat for Indian tea producers and the current year too has seen a dip in prices. That is visible in the data put out by the Tea Board of India. The World Bank’s commodity database too shows a dip in prices in India and Kenya. A better picture on the domestic price front will become available after a few months, after the current season’s output trend becomes available.

The current price behaviour in the market, both in India and abroad, appears to reflect fears that output growth could be robust. Subdued tea prices could affect the performance of tea plantation companies. They may benefit from higher sales volumes though lower tea prices may put pressure on profitability.

Tea marketers may find that their procurement costs have declined but they may also face stiff competition from smaller firms who are able to pass on changes in prices much faster than the more established companies.

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