Tea industry in doubts even as prices increase

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Financial Express - Business News, Stock Market News

Prices though are on the rise, shortfall in crop have hit net cash flow, which has kept the industry in doubts.

While tea prices are showing encouraging trends, profitability for the entire year is still not out of question since there has been tremendous crop loss due to the lockdown in the wake of Covid -19 followed by heavy rains in Assam.

The country’s overall tea production declined 54% in April alone to 39.02 million kg against 84.49 million kg during the corresponding period last year. This has created a supply constraint. Prices though are on the rise, shortfall in crop have hit net cash flow, which has kept the industry in doubts.

The Guwahati Tea Auction Centre in a recent three-day long e-auction got an average price of Rs 273.50 a kg against Rs 158.98 a kg it got last year.

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The centre auctioned 3.80 million kg of tea. This price trend has to remain stable if the industry has to see profit for the entire year even if production in June, July and August are robust and a part of the crop loss is recovered.

For every 10% drop in crop, cost of tea production shot up by around 30%. Of the 1,100-1,200 million kg of tea produced in India, 120 million kg were lost during the lockdown period. The 55 million kg of stockpile was also wiped out. The losses for March, April and May were estimated to be around 140 million kg which in value terms was estimated to be around Rs 2,200 crore based on last year’s prices.

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The Tea Board expects that in June, July and August, there will be good production and it can offset the crop loss to some extent. Industry insiders say with a good crop in June, July and August, a maximum of 40 million kg of crop loss can be offset.

This keeps the crop loss to around 100 million kg, which can be recovered by recent trend in prices.

According to Azam Monem, director, Mcloed Russels, tea prices at the retailers end have gone up by Rs 40-50 a kg and the ‘consumption story remains intact’. But with fall in production, costing for labour has gone up by 65% and other costs by another 10%, which has made overall tea production a costly affair.

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There are supply constraints both in domestic and export markets and so prices are on the upper side. But it is not clear whether the recent trend in prices will continue to stay and whether there will be some offset in crop loss post August.

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