ICRA suggests emphasis on quality tea to provide support for tea producers

If the prices of quality tea stay firm it can provide support to tea producers, given that they are battling rising production costs mostly due to significant wage rate hikes, according to rating agency ICRA’s report.

As per the report, from June 2021 onwards bulk tea prices have declined as production has seen some recovery from the lows of 2020. This has resulted in the easing of the supply-demand scenario, which had supported prices in the calendar year 2020.

Apart from declining prices, the cost of production for bulk tea producers out of North India (NI) has increased substantially in the current year due to a sharp rise in wage rates and increasing energy costs.

In a recent note on the bulk tea sector, ICRA had highlighted that the dual impact of declining prices and increasing costs is likely to lead to moderation, on a year-on-year basis, in the financial performance of the NI bulk tea industry this fiscal.

Prices also remained strong in the first quarter of FY22 and then started sliding with the onset of the peak production months.

In the first half of the current fiscal, average prices at NI auction centres were down by Rs 60 per kilogram or 23 per cent on a year-on-year (y-o-y) basis. However, the decline in prices has been the most in the bought leaf segment, which was down by Rs 77 per kg or 33 per cent.

In South India (SI), the production of tea during the first nine months of this year was 23 million kg higher on a y-o-y basis. As a result, the two consecutive years of elevated production have taken a toll on the prices of SI teas, which were down by 20 per cent in H1 FY22 on a y-o-y basis. The soft trend in SI tea prices also had an impact on NI-bought leaf teas, since the two are similar in quality, the report said.

On the global front, aggregate tea production witnessed a 13 per cent increase in the first six months of 2021, primarily due to a crop recovery in India and Sri Lanka. During that period, in India, tea production increased by 28 per cent but was lower compared to the pre-COVID levels owing to unfavourable weather conditions in NI.

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