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Sunday, October 14, 2012

Tea shortage and price increases

Tea prices set to rise on supply woes
Santanu Sanyal

 Kolkata, Oct 9: 
If the present situation is any indication, the outlook for tea globally does not appear to be terribly exciting.
The shortfall in production in Kenya, Sri Lanka and India at present exceed 43 m kgs compared to the previous year, according to  J Thomas & Company Private Ltd, the world’s largest tea auctioneers.  
The adverse weather conditions across the globe have affected the supply of tea in the world market. With the exception of China, which is the largest producer of green tea and growing crop exponentially, extreme and erratic weather has affected production in Asia and Africa.

Green leaf crop
Climatic conditions and pest attacks, particularly in North India, have ensured a deficit of 15.4 m kgs till end July, and 21 m kgs all India. While August crop in India is likely to show a small surplus, September harvest in North India is expected to be well below that of last year. The deficit in crop, therefore, is expected to get even wider by end October. Current green leaf prices are on their way up which would signal the hardening of prices at the bottom of the market, as well as a shortage of green leaf availability.

Liquoring Assams continue to hold levels in spite of normal arrivals in auction centres at present. With increased purchasing power and discerning tastes, the consumer is willing and able to pay significant premiums for good quality. Medium Assams and Dooars are, at present, irregularly easing in value, but overall averages continue to be well above last year. Demand for these categories is also expected to increase as the supply line gets squeezed.

The supply of quality Assam teas for the rest of the year will be limited as the production season gradually draws to a close. In North India, factories close down by end of December as the cold weather inhibits leaf growth, and resume operations only towards end March.

Low stocks
Most upcountry markets are low on stock and the usual winter stock buying will commence shortly. With domestic consumption growing at over 2.5 per cent annually, an additional 20 m kgs of tea would be required, further accentuating the supply shortfall.

Crop shortages traditionally impact year end prices the most. Already the year to date North India auction average is up by Rs 25 over the previous season. Continuing shortfall in production, increased demand and low stocks at buyer’s destinations all indicate that tea prices are clearly poised for a further strengthening. In spite of this, tea prices, per se, continue to remain below the commodity and inflation index.

Drop in production and increased costs have negated price increases for producers. Recent wage revisions and sharp hikes in input costs like fertiliser and fuel have added to the burden of the planter, which even the buoyant prices, have not managed to mitigate.

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