Pound's slide may hit tea exporters next year

A N Singh, MD of Goodricke Group, which exports 100,000 kg of tea annually to the UK, says trade in pounds is likely to take a hit of 8 per cent

Indian tea companies, shielded as of now from the post-Brexit fallout of the sliding British pound, have concerns in this regard for next year.

They had converted dealings with British clients from the pound to the dollar two years back. However, those contracts are due for renewal next year.

On June 23, the UK decided to pull out of the European Union, resulting in the pound declining by 8.7 per cent in a single day against the dollar. Since then, the currency has fallen 18 per cent to a 30-year low.

UK importers have so far borne the major brunt of this, spending a larger sum for their purchases. The price for Indian exporters has remained buoyant.

 

Of the 40-45 million kg of tea that McLeod Russel (largest grower in the world with 48 estates) exported from India to the UK during 2015-16, it had contracted about 80 per cent of the sale in dollars.

“UK buyers understand the situation and they have shared a portion of the increased price, while a smaller part of it has been borne by Indian exporters,” said Azam Monem, director at McLeod Russel and chairman of the Indian Tea Association, the association of producers.

Raj Barooah, chairman of Aideobari Tea Estates in Assam, feels if the higher costs are not passed on to the consumer, the trade will feel a strain in the coming year, when the supply contracts come up for renewal. Monem agrees — if retail prices do not rise, the trade will run into stress next year, as the margins will shrink.

From January to August this year, Indian teas fetched an average price of $2.93 for every kg, as against $3.12 for every kg in the same period last year.

Sheo Shankar Bagaria, president of the Darjeeling Tea Association, said as people in the UK were used to the taste of Darjeeling and like tea variants, there wouldn’t be a sudden disruption in the trade. 

On an earlier occasion, A N Singh, managing director of the Goodricke Group said while the trade, which takes place in dollars will not feel the heat, the trade in pounds will take an immediate hit, in the likelihood of eight per cent. The group exports 100,000 kg of tea annually to the UK.

Darjeeling Impex, which owns the famed Namring Tea Estate, has 20 per cent of its dealings with bulk operators in the pound. For companies like this, the impact will be minimal in the coming months but next year could be different.

“Our boutique teas, which sell at Rs 8,000-10,000 a kilo, have been converted into the dollar,” Prateek Poddar of Darjeeling Impex told Business Standard.