Demonetisation effect: Tea auction prices suffer in Nov

While tea auction prices have grown around 10 per cent this year, the prices fell last month in the wake of demonetisation. If there was no scrapping of high-value notes, the auction prices would have been higher by 5-10 per cent in the November auctions on a year-on-year basis, says Basant Agarwala, chairman of the Siliguri Tea Auction Committee. “The auction prices were affected because traders who do mainly speculative buying were skeptical of the era after demonetisation,” he adds.

The buyers in the auction maintain a 20-35 per cent margin while billing to the retailers or in direct sales. However, with the government announcing currency rationing, this section in the tea trade became doubtful about the retail market conditions foreseeing a no-profit scenario.

In the second sale in November, which happened just after India’s Prime Minister Narendra Modi announced selective demonetisation, the average all-India tea prices fell by four per cent at Rs 145.15 a kg. However, in the third sale of the month, prices crashed by 21 per cent at Rs 104.26 a kg against Rs 131.36 a kg in similar sale in 2015. In the fourth auction though, riding on better quality of the leaves, prices picked up to barely match the 2015 levels.

“There is high uncertainty over how the market is going to react in the coming days, which is likely to affect the prices in the near term”, said S S Bagaria, president, Darjeeling Tea Association.

 

Incredulous about the forthcoming times in the era of currency rationing, the industry is not foreseeing a good future in the near term.

Retail sales have been affected as currency shortage plagues the economy and, thus, stocks are mounting with the retailers. In turn, they are projected to lift lesser volumes from wholesalers. Some of the industry officials and tea brokers are of the view that the volume as well as the auction price may be impacted in the forthcoming auctions as well.

“The main concern is during March-April when the first flush will be out. In case the retailers are not able to finish their stocks by then, sales may take a hit,” said Arun Thekedath, chairman of Assam Tea Planters Association.

The Indian Tea Association is of the view that in the coming months, when currency shortage will prevail, the consumer purchase pattern may change. Typically, a consumer buys a 250-gram packet, which is consumed in a fortnight 

or a month. “Now, people might opt for 50-gram packets, which will affect weekly offtake,” said Azam Monem, chairman of ITA.

Monem is of the view that rural sales, which is predominately cash-driven and comprises 45 per cent of the total domestic market, may take a while to adapt itself to accounted payments through banks or financial institutions which, in turn, will affect the offtake.

Brokers in the trade are of the opinion that since there is a high level of uncertainty on how retail buying will react to currency rationing, tea prices in forthcoming auctions may also remain muted.