Tea firms served much-needed profit boost as climate change bites

Some in the industry warn companies will end financial year with marginal profit

Tea companies recorded a profit boost in the September quarter, reflecting higher prices as lower production is blamed on the impact of climate change.

 

A dry spell followed by erratic rainfall led to a production loss of 76.73 million kg (mkg) compared to the same period last year. North India, which makes for more than 82 per cent of total production, suffered a loss of 63 mkg to result in higher bulk tea prices.

 

Data from the Tea Board of India showed that the average auction price for North India team up to September 2024-25 was Rs 247.33 per kg, a 23.98 per cent increase over the same period last year. The average price for South India was Rs 126.22 per kg, a 16.19 per cent increase. The average national price, of Rs 215.34 per kg, was up 22.01 per cent.

 

Sumit Jhunjhunwala, assistant vice-president at ICRA, noted that July-September is a period for quality tea production and hence a better quarter for the industry.

 

“From the beginning of the season, we have been seeing a production loss. But prices have more than offset the decline in crop.”

 

Vikash Kandoi, executive director of Jay Shree Tea, attributed improved profits to Tea Board’s policies aligning with the interests of all stakeholders, including consumers.

 

The board’s measures – ensuring quality compliant teas to an early closure of gardens in North India –sent out a strong signal in the market. Changes in Jay Shree Tea’s management resulted in efficiency, cost cutting and price realisation, he said. 

 

Sources in McLeod Russel, the country’s largest bulk tea producer, said that the improvement in profitability was much needed. “The crop loss kicked in, so there was a shortage of teas. We got the benefit of being compliant teas. And cost management played out.”

 

“For us, it was a mix of factors – loose tea prices were up 20 per cent over last year with a stable crop, export volumes had more than doubled,” said Soumen Mukherjee, director finance and chief financial officer, Goodricke Group.

 

“The various cost reduction initiatives, continued focus on quality tea production are also yielding results. But the enhanced pest attacks and erratic weather patterns are not conducive to optimal tea production and continue to create a negative impact on the financials of the company,” he said.

 

After having a good six months, Goodricke is hopeful of maintaining the trend the rest of the year.

 

Nirmal Khurana, director (finance) at tea firm Rossell India, said that the first half of the year has been significantly better than the corresponding period last year. “Realisations in the domestic and exports have been good. Also, both CTC and orthodox varieties were on an uptrend.”

 

The industry is hoping that profits will continue as rising production cost, stagnating prices and adverse weather have affected its health for a long time.

 

‘Marginal profit’

 

Tea prices grew at a compound annual growth rate of 2.88 per cent in the last decade to trail the escalating costs of inputs at 10-12 per cent CAGR, said Indian Tea Association chairman Hemant Bangur at the association’s annual general meeting recently. Wages increased by 117 per cent in Assam and 122 per cent in West Bengal in the same time.

 

C K Dhanuka, chairman of Dhunseri Tea & Industries, sounded a word of caution. “The profit that we have recorded in the second quarter will be wiped out by the losses in the fourth quarter when there is no production. So overall, we will end the financial year with only a marginal profit.”

 

“The tea industry is in a bad shape and will remain so until the government introduces a floor price,” he said.