Tea industry in hot water over financial stress and production woes

Depressed prices, coupled with a decline in production in 2023, have heightened the financial stress of tea estates, as reported by the Indian Tea Association (ITA) on Thursday.

In a statement, the tea producer body said that the Indian tea industry has been grappling with an acute financial crisis for the past few years, as tea prices have failed to keep pace with the increasing cost of production.

It highlighted that Indian tea prices have exhibited a compound annual growth rate (CAGR) of approximately 4 per cent over the past decade, while the costs of essential inputs like coal and gas, among others, have surged at a CAGR of 9-15 per cent during the same period.

While tea prices remained stagnant, wages of tea garden workers increased significantly in the past five years.

Referring to the price trend for Sales 14-39 (between April and September), the producer body stated that tea prices in 2023 had alarmingly declined compared to 2022 levels.

Orthodox teas saw a decrease of Rs 95 per kilogram (kg), and crush-tear-curl/dust prices in the organised sector dropped by Rs 12.49 per kg for Assam and Rs 11.3 per kg for West Bengal. Darjeeling auction prices continued to fall below the cost of production.

The association attributed oversupply as one of the primary reasons for the price stagnation.

“The exponential increase in production over the past decade following the emergence of small tea growers has resulted in surplus teas remaining in the system, as domestic consumption levels and exports have not matched the increase in production,” it said.

The depressed price situation, according to ITA, has made it challenging for tea garden managements to meet their financial commitments on the eve of the festival season. Most tea companies are struggling with working capital constraints.

Adverse weather conditions have also impacted production.

According to available Tea Board data for the period January to August 2023, tea production in North India was down by 1.26 per cent (8.24 million kg, or mkg) compared to 2022 levels. Assam’s crop was down by 5.42 mkg, while West Bengal was down by 4.06 mkg. Darjeeling in West Bengal saw a decline of 14.93 per cent.

There were headwinds on the export front as well. The ITA mentioned that the export scenario for 2023 appears bleak, with shipments to Iran remaining uncertain.

Iran accounts for 20 per cent of India’s total tea exports. The consistent decline in shipments to Iran since 2020, due to payment issues, has caused financial stress for tea exporters and adversely affected the demand-supply equilibrium in the Indian domestic market, the association observed.

Referring to Tea Board data, ITA stated that export volume to Iran for the period January to July was down by 10.98 mkg compared to 2022 levels.