Strong rupee dents tea exporters' income

Even as India’s forex income from tea exports surged by 6.3 per cent, tea producers and exporters continue to reel under stress as the average price realisation of tea exports fell marginally this year. This was primarily due to the strong Indian rupee against the US dollar, Euro and lower price realisations from orthodox tea exports. 

Industry officials opined that on a year-on-year basis, the US dollar and the Euro fell between 3.2-3.4 per cent in the current fiscal year between April-August, which affected price realisations when converted from the US dollar to Indian rupee.

The reason for higher forex income stems from the fact that Indian exports surged by four per cent at 143.28 million kg (mkg) this calendar year which naturally pushed up the total forex income at $ 429.60 million. However, the average price realisation per kilo of exports during January-August this year marginalised by 0.5 per cent at Rs 195.91 a kilo against Rs 196.99 in the year-ago period.

“Indian currency has remained strong against the Euro, British pound and the US dollar in the global trade and this is the reason why the price realisations fell particularly between April-August,” Azam Monem, chairman of the Indian Tea Association (ITA) told Business Standard.

As much as 55 per cent of the entire tea trade is conducted in US dollar and another 35 per cent is dealt in Euro both of which remained weak against the rupee this fiscal year.

Prices fell particularly in the UK, Ireland, Netherlands, Germany, UAE and Australia besides other countries whereas it gained by over four per cent in Russian and other CIS countries at Rs 159.89 a kilo. Overall prices rose for just 16 per cent of the total tea exports while it went down for the remaining 120.20 mkg.

Exporters and producers from India were expecting the export market to pick up well this year owing to the crop shortage in Kenya, which is India’s closest competitor in its key markets.

A second reason for the fall in prices is on account of fall in orthodox tea prices in the global market by five per cent this year. 

A N Singh, managing director and CEO at the Goodricke Group opined that one of the reasons for this may be increased competition between the orthodox tea producers in the international market. Depending on the season, exports of the orthodox tea variant comprised of around 20-35 per cent of the total international sales.

The developed tea markets like UK, Germany, Russia, China, USA, Canada, UAE, Egypt, Iran and several others are moving towards either ready-to-drink beverage or orthodox tea which is limiting the uptake of the traditional black and crush, tear, curl (CTC) leaves.

Micro-small scale blenders of orthodox tea - who comprise 15 per cent of the total export market - have been cutting down on tea uptake of this variant and substituting the same by CTC. Although the blend is changed as a result of this, the replacement doesn’t change the brewed flavour and colour of the tea.

Sugato Dutta, who is a director at tea export firm, Subodh Brothers told Business Standard, that one of his clients, who used to mix 15 per cent CTC with orthodox leaves, has asked him to ship a blend comprising lower percentage of orthodox leaves and higher CTC leaves to keep the price same.

On the other hand, after a sharp decline of around 10 per cent in CTC prices last year, prices have rebounded in the segment this year which has helped cushion the fall in orthodox tea prices.