Heavy rain helps Assam tea industry clear stocks, but production to decline

Darjeeling bears the brunt, as higher prices will be more than offset by lower production revenues

Even as tea plantations in Assam face a production drop facing excessive rains, the situation may prove to be a boon for the tea industry, as it will help sell off 24 million kg (mkg) carryover stocks with stable prices. Had there not been any carryover stock, prices could have jumped.

Industry officials, while complaining that a production fall could potentially impact prices, said that the situation will help balance tea availability at the auctions and thus will help in fetching expected prices in the near term.

Had production been normal at 30 mkg this March, it would have severely impacted forthcoming auction sale realisations, as this produce would have gone under the hammer along with the carryover stock, which could have dampened prices.

Auction prices of the CTC (crush, tear, curl) tea variant opened at expected levels in January this year at Rs 142.07 in Kolkata and Rs 123.86 at Guwahati for a kilo but thereafter declined to Rs 105.09 in Kolkata and Rs 109.54 in Guwahati. Officials attribute the moderate prices to excessive availability of tea last year and the carryover stock which pulled down the average price realisation.

While the March production declined by about 30 per cent in Assam compared to a normal year and by 50 per cent, compared to last year, Azam Monem, chairman of the Indian Tea Association, viewed the development with optimism.

"The prices (at the auctions) are expected to remain firm in the near term as the carryover stock will be extinguished as March production will be scanty", he said.

In 2016, the Indian tea industry registered a bumper crop at 1,233 mkg with Assam registering a seven per cent volume growth. The north-east Indian state alone accounts for 52 per cent of the country's annual tea production. However, the bumper crop had resulted in little gain for tea planters, as the average auction price of CTC leaves rose meagrely by three per cent at Rs 148 a kg.

The Cachar region in Assam, which contributes around 20 per cent of the annual Assam yield of 600 mkg, is the worst hit by excessive rainfall and hailstorms.

"In April, however, there will be some recovery in prices as well as production", Monem said.

However, despite the situation proving to be a boon to clear the stocks from the last year, the net earnings by the tea plantations are likely to fall in the near term.

"Price recovery in the auctions may prove beneficial for the tea companies, but then, the investment which has already been done for this season is nearly lost", A N Singh, managing director at the Goodricke Group said.

Darjeeling bears the brunt

Although the Assam CTC producers can breathe a sigh of relief as the weather God is indirectly helping them clear the stock, yielding better price realisations, tea gardens in Darjeeling, in northern West Bengal, aren't as happy.

S S Bagaria, former chairman of the Darjeeling Tea Association, is of the view that the gardens in the West Bengal hills have already lost 65 per cent of the March production which will heavily affect the first flush -- the March-April harvest season. First flush teas are considered one the finest and fetch a premium over the other flushes.

Unlike the Assam CTC, Darjeeling tea doesn't have a carryover stock and is sold primarily in private sales -- the reason for its exorbitant prices.

"The catastrophe (heavy rainfall in Darjeeling) comes just at the time when the Darjeeling leaves had started fetching 10 per cent more prices than the previous year", Bagaria said.

Recently, tea from the Goodricke Group's Badamtam tea estate in Darjeeling fetched Rs 12,900 a kg in a private sale. Earlier, at the start of the new season, Darjeeling Impex's Namring tea estate sold its tea for Rs 11,000 a kg.

Although a price increase on account of less production in Darjeeling is likely, it will not compensate for the projected revenue which the tea producers were expecting from the prime season.

The first flush comprises 34 per cent of the eight mkg annual tea production in Darjeeling and contributes over 35 per cent to the earnings of any tea garden.