Prices of quality teas fall due to global oversupply

A reliable gauge of how well or badly an industry is doing is to see the working of its representative constituents over a couple of quarters. By that yardstick, tea is faring pretty poorly.

Indian Tea Association (ITA) spokesperson Azam Monem says the industry is being worn down by production costs rising at a faster pace than beverage prices. Monem says: "In the last 10 years, input costs rose at a compound annual growth rate (CAGR) of more than 10 per cent while CAGR in tea prices was barely six per cent."

Unlike manufacturing industries, the scope for cutting costs in tea growing is limited where wages alone account for around 60 per cent of the total cost. Yet another development impinging on industry bottom lines is climate change. The weather has become adverse for tea growing, particularly in Assam, because of temperature rise, scanty rains in early parts of the season and increased precipitation during the monsoon.
 

Besides pumping up production cost, weather change could result in many tea growing areas in the northeastern state becoming unsuitable for tea cultivation. Of no less concern to planters is germination possibility of new crop damaging pests and diseases because of changing climate. Mitigation of all these problems calls for joint actions by central and state agencies, and the industry.

The traditional mantra for success in the industry has been to go on improving the quality of teas to secure premium prices at auctions or in direct sale. But this appears to be not working this season.

As Monem says "thanks to major buyers putting their auction bids very distinctly for common varieties of tea, the high quality lines are fetching anything up to Rs 40 a kg less this year, compared with last year. In normal times, premium teas will be commanding prices in the range of Rs 250 to Rs 400 a kg."

The setback in prices at the market's upper end is because of global excess production of high quality teas of around 90 million (mn) kg so far in the current season. Kenya, which is walking the quality route, is the reason for much of the surplus hanging over the market. Tea is a global commodity.

Some leading producing countries, including Kenya and Sri Lanka, will always be exporting major portions of their production, their domestic consumption being limited. Kenya, a leading producer of crush-tear-curl (CTC) tea is scaling up production to over 450 mn kg from earlier 300 mn kg, as it stays focussed on quality.

For both production volume and quality, the weather will always remain an important determinant. Retreat in prices of high quality teas seen this season on excess supply should be regarded as an aberration. Indian producers will get rewards for their investments in making good quality teas in normal times. Tea consumption here is growing at an annual rate of 2.5 to 3 per cent, which needs to be stepped up.

Vivek Goenka of Warren Tea says the immediate challenge is to "lift Indian per capita consumption of the beverage to at least 1 kg from the current low of 733 gm. Per capita tea use in some of our neighbouring countries with lower per capita income is higher than ours."

Industry officials have two major concerns and both have got to do with people in the age group of 15 to 24 years. First, coffee has caught the fancy of the young people. The burst of coffee parlours across the country from the fancied Starbucks to Costa to the home-grown Cafe Coffee Day and Cafe Mocha is proof of growing popularity of the beverage, which is offered in many alluring hot and cold forms. Second, a large number of young tea drinkers are having just one cup of the beverage a day.

Apeejay Tea Managing Director Ashok Bhargava says "Boosting tea demand will require of the industry and the government to work on many fronts from educating consumers about sustainably-produced teas and making them aware of the range of exquisite teas we make in different parts of the country. Generous promotional funding for the beverage by the Tea Board and tea growing states is urgently needed."

The industry needs to leverage through campaigns the health benefits that come with tea drinking. How many are aware that the largest single source of flavonoids with rich antioxidant properties is tea.