Tea stocks on fire as production plunges

India, Sri Lanka, Kenya have already reported a shortage of 40 million kg.

The shortfall in tea production in the three major producing countries — India, Sri Lanka and Kenya — has touched more than 40 million kg, thereby pushing bulk tea prices to record levels. These three countries account for 80 per cent of the world’s black tea production.

As the stock market got wind of the shortfall, stocks of tea companies have started appreciating. The McLeod Russel India stock closed at Rs 67.15, an increase of 41.37 per cent over the last fortnight. McLeod happens to be the world’s largest bulk tea producer. Among the major packeteers, the Tata Tea stock increased 9.42 per cent to Rs 531.04.
 

PRICE SURGE
	Market price in Rs
	Mar 16	April 1	% Change
Mcleod Russel	4750	6715	41.37
Bombay Burmah	109.8	143.3	3051
Assam Co	7.12	9.07	27.39
Dhunseri Tea	59.9	75.05	25.29
Goodricke	50.5	62.4	23.56
Harrisons Malayalam	32.85	40	21.77
Jay Shree Tea	72.75	88.5	21.65
Warren Tea	68.9	80.65	17.05
CCL Products	62.35	69.34	11.21
Tata Tea	531.04	581.04	9.42

The shortfall in Sri Lanka in the first two months of the season is estimated at 30 per cent, but expected to recover some ground by the end of the season.

The country may end up with only a 6 per cent loss in production. It produced 320 million kg last year.

Last year, Kenya produced 320 million kg of tea. But it may also face a shortfall of 5 per cent by the end of the current season.

The alarming shortfall levels are over and above the deficit that India and Kenya carried forward into the new tea season. Last year, Kenya closed the season with a shortfall of 30 million kg and India six million kg.

In the first two months of the calendar year, production drop in Sri Lanka, at a 10-year low, is around 25 million kg, Kenya 5.6 million kg and India 10-12 million kg.

Tea prices have moved up by Rs 20-25 per kg, making it the highest in a decade. However, the impact on packet tea manufacturers would be known only after May, since packeteers are covered for the next two months.

Among the major packeteers, Hindustan Unilever and Tata Tea, refused to comment on prices. However, Tata Tea sources said that the company was covered and there would be no impact in near term. Tata Tea sources from auctions and the plantations in South India and North India, where it had divested stake in plantations.

The company has an offtake agreement with Amalgamated Plantations (formerly North India Plantation Operation) at auction-equivalent prices or higher. With Kanan Devan Hills Plantations Co (formerly South India Plantation Operation), the agreement has expired and Tata Tea has to buy on commercial terms.

G P Goenka, chairman, Duncan Goenka group, said that his company was covered till June and the situation was expected to be sorted out by then. “Currently, there is no question of increasing prices,” he said.

Industry representatives said that the expectations of packeteers were based on the hope that there would be normal rains in April and May. Otherwise all the calculations could go haywire.

Basudeb Banerjee, chairman, Tea Board of India, said that there was a global supply problem, but things could turn for the better if weather conditions improved.

According to projections for 2008, production is estimated at 962 million kg, exports 200 million kg, imports 20 million kg and tea consumption at 825 million kg. Last year started with a deficit of six million kg. Aditya Khaitan, chairman, Indian Tea Association, said that companies would have to factor in inflation. “If it was factored, then prices were lower than the peak levels of 1999,” he said.