Erratic weather, poor quality keep tea auction prices subdued

Average March auction price down 14% in the north, up 6% in southern auction houses

After a healthy start to tea auctions this year, northern and southern India have two different tales to narrate.

While the average auction prices in the country’s northern auction centres fell by 14.43 per cent to Rs 108.55 a kilo in March as compared to January 2017, the prices in the southern auction centres were up 6.1 per cent to Rs 119.12 a kilo. However, in April, prices rebounded in the northern auction by 25.3 per cent at Rs 136.04 a kilo (when compared to March 2017), while prices dropped in the south by 5.1 per cent at Rs 113.04 a kg.

In January, the northern auctions kicked off at Rs 126.86 per kg while the price in south India stood at Rs 112.24 a kilo.

On a year-on-year basis, April prices in north India fell by 9.2 per cent. Industry officials said the price decline in the northern auctions is primarily on account of the inferior quality of tea from the first flush which got affected due to excessive rains. Heat wave in south India affected the production there too.

Not only did production volume fall by 25.15 per cent at 41.40 million kg (mkg) in north India last month, with the fall accounting for 4.61 per cent at 14.68 mkg in south India, the quality of tea suffered a lot.

S S Bagaria, chairman and managing director of the Bagaria Group opined that the stress is on account of the inferior quality of the leaves which resulted from excessive rains in the peak first flush season.

“The quality of tea has been affected on account of erratic weather and lower quality is bound to fetch lower prices”, he said.

Prices in the last week of April, at the Guwahati auction centre, fell by Rs 9.68 a kilo with industry officials accounting inferior quality as the primary problem.

Auction prices in the north had been on a declining trend since January till March as the carryover stock from last year’s third and fourth flush entered the auctions. However, the first flush which entered the April auctions boosted sentiments. Even then the prices remain lower than last year.

In south India, however, the situation till March was different. Auction prices rose by 6.1 per cent during January-March, peaking at Rs 119.12 a kilo as the produce, perennial in nature and mostly even in quality ruled the auction houses.

However, as the inferior quality late February-March produce entered the auctions in south India in April this year, prices fell to Rs 113.04 a kilo from March’s average price of Rs 119.12 a kilo. In February, it had hovered around Rs 116.23 a kg.

“Prices are falling as Banji tea has entered the auctions now. However, things will improve once the new produce enters the market,” Sanjay Bansal, chairman of the Ambootia Tea Group, said.

Banji tea, as it is commonly referred to, is the interim production between the first and second flush which often is of inferior quality.

Brokers from Guwahati, Siliguri and Coonoor auction centres opined that large format buyers, which includes blenders are showing less interest in higher grades in the auctions and most of their purchase is of lower-mid grades.

“For some years now, the large blenders are buying higher quality tea directly from the estates and then buy lower grades in the auctions across India”, a broker from Guwahati auction centre said.

However, as per S Mageshwaran, secretary of the Connor Tea Trade Association, this alone cannot justify the fall in southern prices and the subued demand in northern auction houses.

“We are still figuring out what led to the price drop in recent times. While Banji tea entering the auctions is a possibility, it entirely can’t be held responsible for the declining price,” he said.

The Indian Tea Association as well as the United Planters Association of Southern India, however, opined that production has started picking up since April this year as the weather conditions have been more stable.

“Ideally, optimal weather not just assures proper yield but assures quality as well and higher quality is bound to fetch higher prices in the auctions,” Bagaria added.

Ullas Menon, secretary general at United Planters Association of Southern India, however, said, “It takes more than a month to catalogue the tea and finally sell it in the auction centres.”

It will not be until early-June that the prices in the auction houses may show a positive trend as optimal volume and quality of tea starts entering the auctions.
 
Compared to the seasonal tea production in north India, tea production in south India is perennial in nature and except the winters, the quality is mostly uniform in the south Indian plants. On the contrary, the plants in Assam and West Bengal are susceptible to severe quality changes on account of weather conditions.