Indian tea companies look at increasing exports as Kenyan production falls

However, strong rupee, concerns over production at home may spoil the party

With Kenyan tea prices shooting up by 25 per cent at $2.92 a kilo in last month's auction, the Indian tea industry can look ahead to increase its exports with a competitive edge, offering tea at an average price of $1.8 a kilo. However, the strong rupee and concern over production might play spoilsport.

According to data from tea trading firm, Van Rees, Kenyan prices opened at $2.59 a kilo in the beginning of this year's auctions and surged 21 per cent to touch $3.12 due to shortage of production. In the same timeframe, Indian tea opened at $2.32 a kilo but fell sharply fell by 11 per cent to $2.06 in the fifth week of this year's auction. Sixth week onwards, both Kenyan and Indian tea prices have been declining. However, Kenyan prices currently remain higher than the opening prices at $2.79 a kilo.

"Prices in the Kenyan auction are unlikely to go down below $2 a kilo which, theoretically, should boost Indian exports," Ajay Kichlu, director at Chamong Tee Exports said.

Indian tea companies have projected low production volumes in Kenya which could keep their auction prices up. In case Indian tea production remains buoyant this year, then Indian tea will be able to make inroads into Kenyan export markets such as Russia, UAE, UK, US and Egypt.

Azam Monem, chairman, Indian Tea Association, said some Indian exporters and producers have been receiving enquiries from Kenyan companies' clients for this year's procurement. "However, it is too early to clearly state if India stands to gain from the crop shortage in Kenya. There will be more clarity after the second flush (June-September harvest) starts selling in the market", he said.

In January this year, Kenyan tea production declined 34 per cent to 32,990 kg from a produce of 50,308 kg in January, 2016. In India, on the other hand, production rose by six per cent to 18,990 kg.

However, concerns remain over India's own production and the prevalent auction prices.

A N Singh, managing director at the Goodricke Group felt that the first flush harvest has been badly hit in north India as production dipped between 30-40 per cent on account of excessive rainfall.

In case there is a shortage in domestic production, India may not be able to convert the export opportunity effectively as the domestic demand will have to be first catered to. "A lot depends on the production volume in India and how Indian tea prices react in the second flush", he said.

Another concern for the industry is the rupee gaining against the Dollar in global markets. Although the Indian government may seem happy as it signals improvement in the country's economic health, tea exporters stand to lose in net earning while converting dollars into rupees. "If the rupee continues to remain strong throughout July-September, exporters may not gain much after currency conversion," Monem added.

In recent times, tea producers and exporters have been pushing for increasing exports from the country to touch 250 million kg (mkg) from the usual 200 mkg, which they hope will strengthen the earning and profitability of the sector ailing under mounting cost of production. Against a usual $2.2 price per kg in the auctions, Indian teas sell between $2.9-3.1 per kg in exports.

Last year, India exported 206.89 mkg of tea, fetching a forex earning of $628.97 million. In the first two months of the current year, the Indian tea industry has exported around 40 mkg of tea earning $114.68 million forex income.