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| Tea shortage to widen as drought in India, Kenya hurts crops |
| Bloomberg / Sep 09, 2009, 00:46 IST |
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A global tea shortage may increase by 10 per cent next year as drought in Kenya, Sri Lanka and India, the top exporters, damage crops and propel prices to a record, the world’s biggest tea plantation company said.
The deficit may widen to 110 million kg (243 million pounds) by May to June next year, compared with 100 million kg this year, Aditya Khaitan, managing director, of McLeod Russel India, said in an interview. Record tea prices in Kenya and India may gain another 15 per cent in the next 12 months, he said.
Reduced supplies will increase costs for tea marketing companies including Tata Tea, owner of Tetley brands, and Unilever, while boosting earnings at producers McLeod, Goodricke Group and Jayshree Tea & Industries. African tea prices rose to a record at auctions on August 29, while Indian prices have gained an average 25 per cent this year.
“I don’t see any relief for tea consumers for the next one year,” said Harsh Gupta, an analyst at SMC Global Securities. “The global shortage isn’t likely to be overcome anytime soon as prices will firm up further.”
Stagnant prices for almost a decade since 1999 caused some tea estates to close and forced plantation companies to cut investment in replanting old bushes and adding new machines, said McLeod Russel’s Khaitan. “Tea is playing a catch-up with other agriculture commodities, which have shot up in the past couple of years,” he said. “The tea deficit is here to stay and the prices will continue to rise.”
Kenya, Sri Lanka
India, Kenya and Sri Lanka together account for more than 50 per cent of global tea exports. India’s tea output this year may drop 20 million kg from last year’s 980.8 million kg, Khaitan said.
India’s tea production in the seven months to July dropped 3.3 per cent to 461 million kg after the weakest monsoon in at least seven years caused a drought in 278 of India’s 626 districts this year. That may create a deficit of 50 million kg next year, Khaitan said.
“Drought is only one reason for prices to take off,” he said. “Years of neglect because of stagnant prices took a toll on production over the years.”
The record prices may help companies resume investment in developing plantations and raising output, Khaitan said.
The harvest in Sri Lanka, the world’s fourth-biggest producer, declined 32 per cent in the six months to June to 130.5 million kg, according to Sri Lanka Tea Board data.
Kenyan production
Kenya’s crop this year is about 161 million kg, 21 per cent lower than a year earlier, Africa Tea Brokers said in a report on September 4. The Kenya Tea Development Agency, the country’s biggest grower and exporter, said on August 14 that a “serious” drought will cut production “heavily.”
India, the world’s largest tea consumer, won’t boost exports to benefit from record global prices as local demand has increased 1 per cent on average over the past few years, Khaitan said. Shipments in the January-July period totaled 94 million kg, 14 per cent less than the 109.3 million kg a year earlier, according to the state-run Tea Board of India.
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