Tea prices rise as floods, Covid-19 take a toll on production, inventory

With the Assam floods adding to the woes of the tea industry, already reeling under impact of the months-long lockdown, tea production has taken a hit of at least 10 per cent bringing down inventory levels. Fall in production, coupled with impact of extreme weather on inventory, has led to tea prices rising by anywhere between Rs 100 per kg to Rs 150 per kg at farm gate and wholesale levels.

According to All India Tea Traders Association and Gujarat Tea Traders Association, prices have shot up due to a fall in production and inventory levels, along with healthy demand for tea.

"Tea manufacturers are in a bad shape due to a fall in production. Fresh and peak tea production takes place during March to June which has fallen due to lockdown by anywhere between 140 million kg to 170 million kg. As a result, tea prices have risen by an average of Rs 100 to Rs 150 rise per kg," said Dinesh Kariya, president of Gujarat Tea Traders Association. The annual tea production in India stands at roughly 1.35 billion kg.

According to Kariya, as against the Siliguri auction average price of Rs 159 per kg garden tea in 2019, the same has increased to Rs 241 per kg, while that for Assam auction average rose from Rs 175 per kg last year to Rs 278 per kg this year. Currently, West Bengaland Siliguri garden tea prices are averaging from Rs 240 per kg to Rs 350 per kg. The impact of extreme weather on the inventory lying in warehouses in Assam and West Bengal is also behind the price rise.

Industry representatives say that the recent floods in Assam have only added to the woes that began with the lockdown, announced in the country in March to curb the spread of the Covid-19 pandemic. Apparently, March to June is the period when most of the fresh tea is produced for the year. However, due to lockdown, there has been a major fall in production, which was also aggravated by unfavourable weather.

"First the lockdown, coupled with unfavourable weather, impacted tea production across the country, especially in Assam and West Bengal. Now, with the floods, there is a further impact on even inventory levels. From a normal inventory of 90-100 days and a peak of 140-150 days, current inventory levels with the industry stand at mere 40-50 days," said Viren Shah, CMD, Jivraj Tea and president of All India Tea Traders Association.

The irony is that while tea prices have gone up, the rise has not translated into an increase in revenue for manufacturers, said Arijit Raha, secretary general and chief executive officer of Indian Tea Association (ITA).

"Whatever has been the price hike, it has been offset by loss in production, thereby bringing down the overall revenue. For instance, if someone is making 100 kg of tea and selling it at a certain price, he is now selling it at a slightly higher price, but a lower quantity. Overall, there has been a 40 per cent fall in production till June due to the lockdown. Once July figures come in, one can ascertain the impact of recent floods on production as well," said Raha.

According to Raha, tea production fell after plucking came to a halt due to the prolonged lockdown, which led to leaves growing beyond a desirable size. As a result, instead of plucking, plantations had to resort to skiffing (removal of large tea leaves from the top), leading to loss of crop.

While factors like the Covid-19-induced lockdown and erratic climate have already impacted tea production, the industry now fears a further drop in production due to the recent floods.