Inventory level at 10-yr low, but tea prices yet to pick up

The tea industry is facing a curious situation""while the inventory level is at its lowest in the last 10 years, prices are yet to pick up.

The stock level has touched the bottom so that auction centres in Kolkata, Guwahati and Siliguri are contemplating dropping two sales in each of the centres.

Kiran Desai, chairman Calcutta Tea Traders' Association (CTTA) said that the request to drop sales had come from the buyers' side.

Deepak Khaitan, executive vice chairman and managing director of Eveready Industries India, which is the second largest bulk tea producer, said that the company had completely sold its produce. "We have no tea" he said.

Curiously, the impact was yet to be felt on prices. The industry, which had been anticipating "no tea" in January to February had expected prices to appreciate. But, prices were much below than those prevailing in the same period, last year.

CTC prices prevailing in the industry were hovering around Rs 62 per kg as compared to Rs 72.66, in the same period, last year.

Orthodox prices were at Rs 58 as against Rs 64.99, while dust prices were at 53, down by 26 per cent from the previous year. The more optimistic in the industry claim that prices were not comparable and the scenario would change for the better in the near term.

C K Dhanuka, chairman Indian Tea Association said, tea was moving faster under the new TMCO and prices would look up in 15 days' time.

Some say that the tea being sold around this time of the year was different. Last year in January, November teas, which were of superior quality, were being sold and now December teas (the end-season) were being sold.

Moreover, there was a lot of disruption last year, due to the introduction of the new Tea Marketing Control Order (TMCO) and so demand was higher than normal.

The new TMCO also had a hand to play in the "no tea" syndrome. The operating rules changed for auction centres. "We are not holding back tea for cataloguing any more" said members of CTTA. The wait period had reduced from 72 days to 19 days.

Tea, being a fragmented industry, there is not much clarity as to whether the less of availability of tea indicated a higher consumption.

On the face of it, the production figures implied that there was a strong case for higher consumption, as, till end-December production was at 857 million as compared to 826 million kg. Exports were also lower at 165 million kg as against 210 million kg.

But, another theory doing the rounds was that more tea was reported, this year. The Tea Board of India had appointed a private agency and bought leaf factories (BLFs), which had been mushrooming over the past few years, adding to the woes of the organised tea producers, were legitimised for the first time by factoring in their production.

Lower prices and a mismatch with the cost of production took its toll on the tea companies' bottomline. The cost of production for a good Assam tea was around 62-62 per kg and Dooars at around Rs 67-70 per kg and the producers were clearly underselling.

Eveready's nine months' net sales in the current financial year were at Rs 249.47 crore as compared to Rs 218.51 crore. But, profit before tax (PBT) was lower from Rs 43.71 crore to Rs 11.56 crore, which indicated lower price realisations. The situation for Tata Tea and George Williamson Assam were not any different.

Tata Tea's net sales were at Rs 569.88 crore as compared to Rs 537.27 crore. But, PBT on marginally higher sales was almost at the same level at around Rs 105 crore.

George Williamson Assam's net sales were at Rs 170.4 crore as compared to Rs 153.2 crore. PBT was at Rs 31.4 crore as against Rs 30.4 crore.