Drop in India, Kenya tea output brews price rises

By Rajendra Jadhav

MUMBAI (Reuters) - The price of tea is likely to climb further this year after dry weather slashed production of the commodity in key suppliers India and Kenya, while recent deadly flooding could disrupt shipments from Sri Lanka, another key exporter.

Output in top tea shipper Kenya dropped by over a third from a year ago in the first quarter after drought ravaged parts of the country, while production was down over 16 percent during that period in India, the world's biggest black tea producer.

Flooding and landslides in Sri Lanka over the weekend that have killed over 150 people were expected to interfere with tea transportation in the major exporter, although an industry official in the country said the impact on production would be limited.

Stronger prices will help support tea companies such as India's McLeod Russel and Goodricke Group Ltd, as well as African producers like Kapchorua Tea Company Ltd and Williamson Tea Kenya Ltd.

"We are expecting prices to remain firm this year. Already globally prices are up 15 to 20 percent compared to the last year," Kamal Baheti, chief financial officer at McLeod Russel, the world's biggest tea producing company, told Reuters.

The maximum price of the highest grade of Kenyan tea rose to $3.92 per kg at auction last week, up 22.5 percent from a year ago.

"We will see a downturn in the amount (of tea) that will come to auction (in Sri Lanka)," said Rohan Pethiyagoda, chairman of Sri Lanka's state-run Tea Board. He added that transportation would be hit as roads were blocked by the flooding and landslides, which he said had killed nine plantation workers.

"Crops are already down all over the world. It will keep prices firm throughout the year," said A N Singh, managing director of Goodricke Group, a producer based in Kolkata.

India's production in 2017 is likely to be 15 to 20 million kg lower than last year's output of 1.24 billion kg despite rising consumption, said Singh.

BETTER WEATHER?

In Kenya, improved weather could lead to higher production in the second half, Alfred Busolo, director general of the state-run agriculture and food authority, said earlier this month.

"Kenya is not losing crop anymore, but they have lost already in the past few months. They can't recover that in the rest of the year," said McLeod Russel's Baheti.

A dealer based in Mombassa added that prices would be sustained at current levels and could rise further depending on "Kenya's production in the next few months". He declined to be identified as he was not authorised to speak with media.

A Kolkata-based dealer with a global trading firm added that global production needed to recover in the next few months or "prices could rise above $4.50".

India is likely to get normal monsoon rains in 2017.

(Reporting by Rajendra Jadhav; Additional reporting by Ranga Sirilal in COLOMBO; Editing by Joseph Radford)