 "Brexit impact: Falling Pound may hurt tea exporters next year")
Even as Indian tea companies remain shielded for the time being from the fall of British Pound post-Brexit, concerns are primarily around what will happen next year.
While many tea companies had converted their dealings with their UK-based clients from the British Pound to the US Dollar two years ago, several contracts are due for renewal next year. There are two key concerns that have been thrown up because of this -- the first is about the underlying currency and the second is the prospect of UK importers shifting to Kenyan tea, which is cheaper.
Furthermore, while the retail prices of tea in UK have so far not been raised to offset the rising cost of procurement, UK packeteers as well as the Indian exporters are adopting a wait-and-watch policy in the coming months.
"The coming months, especially the winter and the spring, will be crucial. So far, the prices have not been raised," Azam Monem, director at McLeod Russel told Business Standard. Monem is also the chairman of the Indian Tea Association.
Of the 40-45 million kg (mkg) tea McLeod exported to UK during 2015-16, it had contracted about 80 per cent in US Dollars.
So far, UK importers have borne the brunt of currency fluctuations, spending a larger sum for their purchases, while prices for Indian exporters have remained buoyant.
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"UK buyers understand the situation and have absorbed a portion of the increased price, while a smaller share has been borne by Indian exporters," Monem added.
However, Raj Barooah, chairman of Aideobari Tea Estates in Assam feels that in case the higher costs are not passed on to the consumer, the trade will feel a strain next year, when supply contracts go for renewal. This concern is shared by Monem.
"There are some stocks in UK for the time being which can help packeteers ward off currency volatility at this stage", he said.
Nevertheless, if retail prices do not rise, the trade will run into stress next year as margins will shrink.
From January to August this year, Indian teas fetched an average price of $2.93 a kg as against $3.12 a kg in the same period last year.
Sheo Shankar Bagaria, president of the Darjeeling Tea Association said that since people in the UK are accustomes to the taste of Darjeeling and other CTC variants, there may not be a sudden disruption in trade and packeteers are unlikely to risk changing the blend.
"People are accustomed to its taste and price fluctuations will not disrupt trade," Bagaria told this newspaper.
On a previous occasion, A N Singh, managing director and chief executive of the Goodricke Group, had said that while dollar-demominated trade will not feel the heat, trade in British Pound will take an immediate hit, by 7-8 per cent. The group exports 100,000 kg of tea a year to the UK.
Specialty tea company Darjeeling Impex, which owns the famed Namring Tea Estate in Darjeeling, has also played it safe by converting the entire Darjeeling trade into US Dollar while 20 per cent of its dealings with bulk operators takes place in British Pound. For companies like it, the impact will also be minimal in the coming months, but next year, there can be concerns.
"Our boutique teas, which sell between Rs 8,000-10,000 a kilo has been converted into US Dollar", Prateek Poddar of Darjeeling Impex told Business Standard. By doing so, Poddar has secured his bottomline against currency volatility.
On June 23, this year, in a historic decision, the UK decided to pull out of the EU which resulted in the British Pound declining by 8.7 per cent in a single day against the Dollar. From that day till now, the Pound has declined by over 18 per cent, hitting a 30-year low, putting export-import trade in a state of uncertainty.