Tea prices to remain buoyant for short to medium term: ICRA

With domestic demand growing at a steady rate and production unlikely to witness a sharp increase due to limited availability of land, tea prices are likely to remain buoyant for short to medium term, according to credit rating agency ICRA.
"Steady domestic consumption growth, which is estimated at around 3 per cent, and range bound production due to limited availability of incremental land to increase acreage under production, are expected to keep tea prices buoyant at least over the short to medium term," ICRA said in a recent report.
However, the global demand-supply position and therefore the international prices would continue to influence domestic prices since around 20 per cent of the produce is exported currently.

ICRA said input costs, primarily the employee expenses and costs of agrochemicals and power and fuel, are likely to continue to witness an increasing trend.
With tea being a fixed cost intensive business, the increasing input cost could be further aggravated in the current financial year (FY15), if adverse climatic conditions lead to a significant drop in tea production, the agency said.
Tea prices continued with their buoyant trend over the last two years, with average auction realisations increasing from Rs 106 per kg during CY11 (calender year) to Rs 131 per kg during CY13.
Over a longer horizon of five years, prices have gone up at a CAGR of 8.4 per cent and prices at both north Indian and south Indian auctions have grown at a largely similar rate.

However, the quality teas of north India continued to command a premium over south India tea.