Reading the tea leaves

Lower production, high export demand boost tea prices

Fiscal 2018-19 has so far been a good one for tea. Average auction prices in both North and South India have moved up this year over the last. Production shortage amidst good domestic and export demand seems to be among the key reasons for the rise. This factor is expected to keep prices firm into the coming fiscal as well.

What’s driving prices?

Provisional figures up to February 2019 show that the average price of tea in North India stood at ₹152.41 a kg in 2018-19, compared with ₹144.57 for fiscal 2017-18, an increase of 5.4 per cent. In 2017-18, too, average tea prices in North India saw a 2.26 per cent rise over the previous fiscal. FY2018-19 is the third successive year in which prices have moved up in North India. A somewhat similar script is playing out on the south of the Vindhyas, too. The average tea price for April 2018-January 2019 for South India stood at ₹102.56 a kg, compared with ₹93.32 for the 2017-18 fiscal.

Lower production seems to be one of the chief reasons for the rise in prices. The North, which accounts for at least 80 per cent of the total tea production in India, began the fiscal on a low note, with April and May seeing lower production than the same period in the previous year. Production of the second flush — usually harvested around that time— in the key tea-producing States of Assam and West Bengal was affected. (Flush is the time of the year when tea leaves are plucked.) In Assam, for instance, lack of rainfall in May and excessive rainfall in June impacted production.

The peak production months of June-October did see higher production in 2018 than in 2017. However, record export demand meant local prices moved up once again. The years 2017 and 2018 have been particularly good for tea exports, with exports in both the years touching 250 million kg. The previous record was in 1981 when the total tea exports had reached 241.25 million kg.

The early closure of estates in the North last December and a more severe and prolonged winter in the South also impacted production. To bring down the quantity of substandard teas in the market, the Tea Board had directed tea gardens to pause harvest in the first half of December itself. While tea-manufacturing units in Assam, Arunachal Pradesh, Meghalaya, Mizoram, Nagaland, Tripura and Manipur were ordered not to pluck beyond December 10, those in West Bengal, Bihar, Sikkim, Himachal Pradesh and Uttarakhand were told to stop by December 15.

Thanks to a sporadic North-East Monsoon and severe frost this winter, the tea sector in South India is expected to record production losses in the January-March 2019 period. While there was a deficiency in North-East Monsoon rains in Tamil Nadu this year, the winter was also severe, impacting production in the key regions of Nilgiris and Munnar. As per reports available in the public domain, industry players estimate production losses of 10-30 per cent for the January-March quarter.

Excess buying in December before the early closure, as well as the beginning of the lean season in January have led to a drop in tea prices in both the North and the South. As of February 2019, average auction prices in North and South India stand at ₹110-115 a kg. But an anticipated lower production is expected to hike prices beginning the first flush, which has already started arriving in the market in small numbers.

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