Brexit impact: Indian tea export realisation from UK to fall 7-8%

In case EU imposes curbs on trade with UK, Indian tea trade may suffer further German blend will reduce

The Indian tea industry will feel the short-run effects of currency volatility following Britain’s vote on exiting the EU although the demand-supply situation is steady.

Indian tea exporters to the UK like McLeod Russel and Goodricke have converted at least 50 per cent of their trade to the dollar, yet an immediate impact of 7-8 per cent on price realisation is likely.

“The trade in pounds will take an immediate hit,” said AN Singh, managing director and chief executive of the Goodricke Group. The group exports 100,000 kg of tea annually to the UK.

On Friday, the pound declined to a 30-year low of 1.39 against the dollar, while the rupee fell to 69.95 against the dollar.

The Indian Tea Association said the forex implications would be temporary and contracts between British buyers and Indian tea sellers would not be affected. The ones coming up for renewal would see a rise in prices, it added.

Indian tea exports to UK
Financial Year	Quantity exported (mn kg)	Value (Rs cr)	Value (mn USD)	Unit Price (Rs/kg)	Unit Price ($/kg)
2016-17 (until April)	0.48	7.64	1.15	159.17	2.40
2015-16	20.02	410.90	62.80	205.24	3.14
2014-15	17.83	338.32	55.35	189.75	3.10
2013-14	17.64	338.13	55.98	191.68	3.17
2012-13	19.21	347.91	63.91	181.11	3.33
Source: Tea Board of India

Azam Monem, vice-president of The Indian Tea Association, said tea prices could surge in Britain but it would not reflect in Indian exporters’ balance sheets because of the currency volatility.

The trade with Germany, which buys tea from India and exports to the UK after blending, would need to be monitored, Monem said. If the  Europe Union (EU) continued its trade with the UK on existing terms, Indian tea exports to Germany would remain buoyant, he added.

Tea producers in the Assam Valley and Darjeeling are confident that exports to the UK will remain stable.

“The demand for Darjeeling tea will remain stable despite Brexit. People are accustomed to its taste and price fluctuations will not disrupt trade,” said Sheo Shankar Bagaria, president of the Darjeeling Tea Association.

Of the 20.02 million kg of tea exported to the UK in 2015-16, Assam CTC comprised 90 per cent by volume and Darjeeling and Assam Orthodox tea variants made up five per cent each. The development in the UK coincides with a pricey second flush being harvested in India.