Tea prices may rise on record shortfall

The tea industry is headed for a significant production shortfall towards the end of the season, indicating higher prices.

According to the status paper released by the Indian Tea Association (ITA), consumption in 2008 is pegged at 825 million kg, exports at 200 million kg, imports at 20 million kg and production at 962 million kg.

The figures indicate a shortfall of around 43 million kg. In 2007, the cumulative deficit was around two million kg.

Aditya Khaitan, chairman, ITA said, the indications are that the opening season would be strong, something not seen before. The tea season starts late March/early April.

Also, North India could actually register lower than estimated production, which meant that the shortfall would be higher because the figures projected had factored in North India production to be at the same level as last year. Since the beginning of 2008, tea prices had firmed up due to constrained availability of tea and higher demand from the overseas markets.

Last year production was at 945 million kg, consumption 810 million kg, imports 16 million kg and exports 179 million kg, resulting in a cumulative deficit of two million kg.

Prices in the current season also hardened due to lower output from African countries particularly Kenya, registering a decline of 35 million kg.

However, for the industry to recover, the prices would have to sustain for 2-3 years, said Khaitan. Since 1999, cost of production has increased by Rs 33.41 a kg, which is a rise of almost 60 per cent since 1999. According to ITA estimates, if inflation was factored in, then the tea price should have been Rs 143.47 a kg, whereas in January-September 2008, all India price was Rs 139.9 a kg, 12.24 per cent up from last year’s average price.

ITA’s status paper said that the prevailing price trends should continue for few years to help the tea industry to not only recover but grow.