Sluggish demand in international markets impacts orthodox tea exports

Higher output adds to industry's woes; Major buyer Iran is not operating at the level it normally does

There’s trouble in the brew for orthodox tea, given the lukewarm interest from major importing countries. Known for flavour complexity and delicate make, orthodox teas had a stellar run last year.

There was frenetic buying of Indian orthodox last year as Sri Lanka, the world’s largest supplier of the variety, faced an economic crisis. That took auction prices to a record high. But the panic has subsided this season, even though the island nation is no closer to its peak production.

And it is playing out on auction prices.

Prices of the orthodox leaf — the bulk of which is exported — at the Kolkata auctions between Sale 16 (April 18-19) and Sale 26 (last week) has seen a drop, ranging between Rs 22.46 per kilogram (kg) and Rs 160.58 a kg, compared to last year. In the latest auction, Sale No 27, (held on Tuesday and Wednesday), the average price was Rs 223.79 per kg compared to Rs 366.85 per kg last year.

The situation has been further exacerbated by higher production this season.

Arijit Raha, secretary-general, Indian Tea Association, says orthodox production from January through May, estimated at 39.69 million kg (mkg), was ahead of the same period in 2022 by 8.5 mkg.

“Orthodox tea exports, however, up to March are approximately 4.9 mkg below last year’s levels. The overall export deficit for all teas is around 3 mkg.”

“We are trailing, but the figures are until March; clearer trends will emerge by August,” says Raha.

The major problem for orthodox this season is that Iran, a major buyer, is not operating at the level it normally does. While important buyers from Iran are said to be visiting Kolkata, it remains to be seen whether the market will revive.

Russia, Iran, and the United Arab Emirates are key export markets for India.

“Iran has not been buying actively because of financial concerns and regulatory issues. Import contracts for Indian tea were not being registered in Iran,” says Anshuman Kanoria, chairman, Indian Tea Exporters Association.

In 2022, India clocked exports of 226.98 mkg, an increase of 15.49 per cent over the previous year’s 196.54 mkg. Orthodox exports increased 19.35 per cent; CTC 13.73 per cent.

Orthodox tea refers to loose-leaf tea produced using traditional or orthodox methods such as plucking, withering, rolling, oxidation, and drying.

CTC tea is processed using the crush, tear, and curl method.

Vikram Singh Gulia, managing director, Amalgamated Plantations, says India was largely dependent on Iran and the Commonwealth of Independent States for orthodox exports.

“In contrast, Sri Lanka exports to 60 countries,” he says.

“Russia is buying. But Iran, which buys higher grades of orthodox, is not operating at the same levels, leading to disastrous price points this year,” he says.

Himanshu Shah, chairman, MK Shah Exports, says, “Major buyers are not buying, anticipating further fall in prices. But we are entering the half-year mark. Very soon, they will have to decide on their requirements.”

MK Shah Exports is one of the largest producers and exporters of orthodox teas.

Shah adds that recession and political disturbances the world over, particularly the major tea-drinking nations, will “certainly” be a challenge and a major reason for lower prices and offtake.

India is predominantly a CTC-drinking nation, while more than 80 per cent of orthodox production is exported. Lower orthodox exports may have an impact on overall exports.

“I see demand improving. But India will struggle to touch even 200 mkg of exports, which is a serious decline over 2022,” says Kanoria.

“The major issues facing the industry this year are a surplus in Africa, production picking up in Sri Lanka, weak European markets, and the near-absence of Iran. In the US, we are seeing a build-up of inventory,” he adds.

The lacklustre showing is prompting some producers to consider tapering off production of orthodox tea. Amalgamated Plantations produces about 10 mkg of orthodox, of a total production of 40 mkg.

“It is going to decrease this year,” says Gulia.

Sources in Rossell India say that about 55 per cent of its total production of 5.6 mkg last year was orthodox. This year, it is likely to come down.

“We change the product mix depending on market demand and pricing. Orthodox has been severely affected this year, and we don’t know whether demand will increase,” they add.

Another significant producer also believes that many producers will switch to CTC, which has a lower cost of production.

But India has produced more orthodox so far.

There is excess orthodox production in India, observes Kaushik Das, vice-president, ICRA.

What is also impacting orthodox, according to industry sources, is the quality that has been affected by acute heatwaves, followed by heavy rainfall.

TROUBLE IN THE BREW

• Orthodox prices lower than last year on lower buying by importing countries
• Orthodox exports from January through March down by about 4.9 mkg, compared to same period last year; January through May orthodox production up 8.5 mkg
• Orthodox accounted for 9.6% of total tea production in 2022, but more than 47% of total export volume