Tea output shortfall pushes up tea prices worldwide - 22/06/2015

Ceylon - Tea Country (Picture courtesy of Jane Pettigrew) Article by by Ritwik Mukherjee on June 14th 2015 and appeared originally on mydigitalfc.com

Tea production is down globally. Kenyan production was short by 3.37 million kg in January and the trend was the same in February and March. As a result, tea prices moved up in Kenya by almost Kenyan schilling (KES)25 per kg. The Indian market has not factored in the shortfall and as such, buyers are keeping a low inventory.

According to estimates, there was a shortfall of nearly 8 million kg of tea in the global market in January and that, in turn, pushed up the prices of Indian tea, according to a section of traders. Tea production in India is estimated to have fallen short by 1 million kg in January and by a much bigger margin in the January-March quarter.

India is a leading producer of black tea in the world with an approximate annual production of 1,100-1,200 million kg. India’s tea production stood at 1,185 million kg in 2014, compared with 1,200 million kg in 2013.

In the last two years, tea supply was seen higher with 2013 being a bumper crop year. The shortfall in 2015 is likely to be factored in by the market. Most of the leading tea growers in India said tea supply would be short by 6 million kg in the March quarter with North Indian output seen even lower. South Indian production would be more or less similar to last year's. On the global front too, Kenya is likely to fall short in production unless there is good rainfall.

When it comes to pricing, Indian tea prices are ruling higher than last year’s average, and are expected to move higher on short supply, analysts said. They pointed out that lower production in Kenya would help the south Indian tea industry export more CTC, thanks to its predominance in production. India exports CTC (crush, tear, curl) tea variety mostly to Egypt, Pakistan and the UK, and the premium orthodox variety to Iraq, Iran and Russia.

The export volume of Indian tea has been lower in 2014-15 compared with the level seen during 2013-14 thanks to a drop in output in Assam Orthodox tea due to delayed rains. The fall in demand in the high-value markets such as the US, Iran and Russia also contributed to the decline of tea exports from India.

The Union government is concerned about the emerging trend. As per the foreign trade policy (2015-2020) notified by the directorate general of foreign trade (DGFT), most of the teas in packaged or value-added form will receive reward at the rate of 5 per cent of free on board (FOB) value for export to various destinations, whereas tea in bulk form — including tea waste and other black tea — will be eligible for reward at the rate of 3 per cent of FOB value.

Union commerce minister Nirmala Sitharaman recently said the objective of the merchandise exports from India scheme is to promote, inter alia, export of value-added teas with a view to gaining maximum foreign exchange earnings instead of export of bulk teas, which have limited potential for branding of Indian tea.

The good news is that Iran recently expressed keenness to raise import of tea and medicines from India, as the Islamic country is looking at ways to boost bilateral trade ties between the two countries. The interest came close on the heels of the recent visit of the Union commerce secretary Rajeev Kher to Tehran. At present, Iran imports tea from India, but the volume is low. India has invited tea experts from Iran and asked them to visit domestic tea gardens and factories to study the quality and standards followed in the country.