A revival in fortunes at last

IN FOCUS / TEA

The troubled tea industry is getting some respite at last. Prices are moving up and inventory has been declining, while exports are rising after a lull of three years.

The prices of widely sold grades of tea have risen over 30 per cent in the past month while orthodox tea has gained 47 per cent. The trend has been witnessed over the last four to five months. Analysts feel this indicates a turnaround for tea.

Orthodox tea prices have stabilised from levels of Rs 85 per kg to around Rs 125 per kg, while common tea prices have increased from Rs 55 per kg to Rs 70 per kg.

The high cost of production especially in South India at around Rs 60 per kg would start to hurt less if prices rise. Plantation realisations would improve. High labour cost and agricultural taxes resulted in very low retention of profits in the past.

Over the last six years, year ending stocks had always been higher, peaking in 2001. This depressed prices. The last two years has seen a decline in stocks.

India, historically the largest tea producing country in the world, is likely to produce 800 million kg of tea in calendar year 2004. This year's crop will be lower by roughly 30 million kg from last year.

The decline is mainly attributed to the drought like situation in southern India as a result of the delayed monsoon this year. At the same time, floods threatened tea estates in north-eastern India, particularly in Assam and Darjeeling.

While the shortfall in production was help keep prices firm, higher exports would boost the process. Exports to west Asia and Russia had dipped over the past three to four years.

Exports were likely to rise this year. However, competition would continue to be intense from countries like Kenya and Sri Lanka that consume only 25 per cent of their production and earmark the rest for export.

Improved production and competitive costs helped these countries to eat into Indian's exports over the last two years.

This year, Indian exports are expected to rise to roughly 220 million kg, up 60 million kg from last year. In 2003. In 2003, increase in production coupled with a fall in exports had resulted in higher domestic retention. Fortunately, domestic consumption has been increasing at a steady 20 million kg per annum.

On a year on year basis, exports to Iran is estimated at 30 million kg in 2004, while shipments to Iraq is slated to go up by 10 million kg, to Russia by 15 million kg and Pakistan by 5 million kg.