Tea production from organised segment likely to fall by 45-50 mn kgs in 2020: ICRA

Tea production from the organised segment, primarily of the first flush variety, is estimated to decline by 45-50 million kgs in calender year 2020, a report said on Monday.

Rating agency Icra in a report said productivity levels are likely to be reduced drastically, since only 50 per cent of the workers are allowed in the tea gardens.

To curb the rapid spread of COVID-19 pandemic, the government has exempted the tea industry from the lockdown, with the condition that only 50 per cent of the workers can be involved in estate activities at a point in time.

"As per our estimates, 6-7 per cent of the annual production, primarily of the first flush variety, of North India (NI) based organised players and another 5-6 per cent from South India (SI) are likely to get impacted in CY2020, Icra Vice President and Sector Head, Corporate Sector Ratings, Kaushik Das said.

Consequently, production from the organised segment is estimated to decline by 45-50 million kgs and a similar impact on the small tea growers' segment would result in a further estimated decline of 45 million kgs, he added.

Till such time as the estates re-open, apart from the already impacted production, uncontrolled growth of tea bushes, coupled with proliferation of weeds, would render the estates unsuitable for immediate production.

Substantial efforts would therefore be necessary to bring the bushes back to a state conducive for growing and plucking.

Icra estimates that the earliest the tea estates could start production would be around the third week of April, given the present situation.

As tea is a fixed cost intensive industry with the cost of labour accounting for 65-70 per cent of the total cost of production, Icra expects estates to substantially reduce the number of temporary workers during the period of low production.

The report further noted that the impact of a reduction in production, because of fixed costs and loss in contribution, is estimated to increase the cost by nearly Rs 15 per kg on the balance production during the rest of the year, assuming that normal production returns by the time second flush teas become available, it said.

Any decline in production in the second flush teas would result in a substantially higher cost per kg.

For tea companies already reeling under high costs and stagnant realisations, any material decline in production of the second flush teas would lead to further hardships, unless there is a commensurate increase in the prices, he added.

Most of the premium export markets of Indian tea are suffering under the COVID-19 outbreak in addition, a substantial carry-over stock in the domestic market from the previous season, estimated to be 60 million kgs, would also have a softening impact on any shortages due to the decline in production in the current season, the report added.