India's tea export likely to decline in 2012

A weaker global growth outlook, the continuing high tea prices, and the recent sharp decline in coffee prices are likely to result in marginal decline in India’s tea exports, from 193 million kgs to 180 million kgs in 2012. Tea production in 2012 may decline and also the prices of the commodity may be dearer, according to an industry study conducted by IMaCS.. Factors leading to decline in tea export include faster-growing coffee market adversely affecting tea consumption in Europe and by weak economic growth

India’s exports to Iran, a major consumer of Indian tea, could also decline because of the recent US and EU sanctions. Tea exporters to Iran may face payment and settlement problems, as the sanctions will curtail Iranian banks’ access to international banking systems. The fall in tea exports could also be attributed to the expected decline in domestic production during 2012 and an increase in domestic consumption, the report said.

India’s tea production came down 11.4 per cent (yoy) in the first five months of 2012. Production has experienced a downward trend from October 2011, with the especially severe declines during March-April 2012. While production in North India fell 12.2 per cent, production in South India was down 10.2 per cent.

In North India, prolonged winter in 2011-12 has badly-affected production. In South India, production was adversely affected because of prolonged dry spell in Tamil Nadu and Kerala. Overall, domestic production is forecast to decline to around 950 million kg in 2012, the IMaCS report on Indian tea industry says. India’s tea consumption increased 2.3 per cent in 2011, with growth forecast to be marginally lower at 2.2 per cent in 2012 because of slowing economic growth and recent increase in prices of tea and milk. India’s tea production has increased at a 3-year annual average of 0.3 per cent to 988 million kg in 2011. Exports have declined at a three-year compounded average growth rate (CAGR) of 1.7 per cent during 2009-11. Globally, Growth in tea supply is expected to be low during 2012-13 following the marginal increase in surplus during 2011.

For 2012 as a whole, output is expected to decline in India and Kenya, and increase only 4-5 million kg in Sri Lanka. World tea consumption is forecast to increase at a lower rate of 2.9 per cent in 2012.

The global oversupply of tea increased from 78,000 tonnes in 2010 to 111,000 tonnes in 2011. Given estimated annual consumption of 4,300 million kg in 2012, this provides an extremely small cushion against potential supply disruption.

Based on the forecast of lower increase in supply, the market surplus could decline to around 70,000 tonnes in 2012. Although the market could return to higher surplus during 2013 in line with a slightly faster rise in production than in consumption, it may not be sufficient to reduce concerns about supply disruptions.

Having risen to an all-time record in 2011, average world tea prices are expected to increase from $2.92 per kg in 2011 to $3 per kg in 2012.