An unprecedented dent in Assam’s tea production is likely to drive up prices in the coming months. Aditya Khaitan, managing director of McLeod Russel India Ltd, the world’s largest bulk tea producer with an output of more than 100 million kg, tells Ishita Ayan Dutt what the shortage means for the industry and his company. Edited excerpts:
What is the impact of the crop loss in Assam on prices?
Prices are running Rs 20-25 a kg higher than last year. Unfortunately, due to the very unpredictable weather in Assam, production is immensely affected. In September, some districts lost 30-35 per cent, compared with the year before. The first 10 days of October seem to be following the same pattern. As of today, it’s the worst ever hit for Assam. We don’t have numbers from outgrowers as yet. But from the organised sector feedback we have, people have lost about 25 million kg in July. August saw some good crop, but September had kind of negated it. Weather conditions are not any different for outgrowers. So, they have also been affected. I have not seen this kind of a shortage in Assam.
But it doesn’t seem to be reflecting in prices…
The reason is that there is enough spot tea available. But it’s bound to reflect in prices, sooner than later. We are coming to the tail-end of the season, when quality will also be affected. Even if there is better weather in November and December, how much difference can one-and-a-half-months make? There will be huge shortage as we enter the winter months. So, the opening levels are looking very strong. If you factor in consumption numbers, it would be the lowest in the pipeline.
What is likely to be the shortage at the end of the season?
This year, we are likely to see a shortfall of 25 million kg. If we account for the cumulative deficit and consumption, then the next season will probably open with a shortfall of 150 million kg. It seems the market is not aware of the shortage. At these levels, the market will have to start rising.
Do you think exports will be impacted?
Exports are also affected due to the Iran devaluation. Also, because there is a crop loss, some people have not been able to finish contracts. I don’t see an increase in exports.
What is the impact of the shortage on McLeod?
As of today, I think we have been able to manage crop loss with price increase. Luckily, we have a strong company, with virtually no debt. The next round of price increase is now required. So far, it’s been a jump of Rs 20. Seeing the kind of crop loss, can’t tell immediately what would be the extent of increase in the coming months. But as a company, even if we can hold on to these levels, we would be happy.
What is McLeod’s production?
We were 104 million kg last year. As a company this year, we would be 102 million kg at the end of this year.
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Are you still scouting for acquisitions?
It’s an ongoing thing. All depends on valuation. But from what we have seen in the past, the expectation in quality is much beyond realistic levels. So, our focus would be overseas than India.
But you did have problems in Rwanda. Does that not deter you from foreign acquisitions?
We had. But we managed to get what we wanted. Our acquisitions overseas have done remarkably well. And as a company, our growth overseas would give us a good hedge.
You had challenged the validity of the retrospective taxation legally. With the Shome panel recommendations out, what becomes of the case?
We are waiting for the government to act. They have said retrospective tax should be avoided. Better to wait and see what the government finally decides. As of now, we have filed a case, it’s in court. We will just wait to hear from the government.