Shortage of stock prompts HUL, Tata Consumer to boost tea procurement

Topics Tea industry | tea auction | HUL

Kandal said that although retailers lost some sales to tea stalls owing to the lockdown, consumption at home had increased as people stayed indoors.
Faced with a severe shortage in stocks, tea retailers like Hindustan Unilever (HUL) and Tata Consumer Products Ltd (TCPL) are aggressively increasing their sourcing of tea to meet the demand in the market. The move, in turn, has pushed up procurement prices at an all-time high.

Sources in Guwahati Tea Auction Buyers’ Association (GTABA) said that from sale numbers 14-25, which took place just after the lockdown, HUL bought 25 per cent of 12.66 million kg (mkg) total tea sold, while TCPL accounted for 5 per cent. In the Siliguri auctions, where 10.99 mkg of tea was sold, HUL bought 15 per cent of the tea, followed by TCPL at 6 per cent. While Assam tea is primarily sold in Guwahati auctions, in Siliguri, teas from dooars and terai make it to the auctions.

HUL has been aggressively buying in the auctions and because of their aggressiveness, prices have increased to record levels. The demand from HUL particularly has been strong and other packeteers and retailers from west and north India are also showing healthy demand”, Dinesh Bihani, secretary at GTABA said.

When contacted, HUL declined to comment on the development.
A TCPL spokesperson said that the lockdown had impacted the supply of tea to some extent and it was buying from multiple channels, including directly from plantation companies.

“TCPL is now buying aggressively and we can keep some of our produce for them in reserve to meet their requirements,” Vikram Gulia, managing director at Amalgamated Plantations Private Ltd (APPL) said.

While HUL doesn’t have any direct or indirect stake in the tea plantation business, TCPL has demerged its plantation businesses into two different associate companies – APPL and Kanan Devan Hills Plantations Company – where it owns 41 per cent and 28.5 per cent stake respectively.

Industry sources said these two associate companies are major procurement channels for TCPL, while Gulia said that TCPL was one of its major customers. HUL’s major procurement lines are the tea auctions.

Asked about its procurement strategy, a TCPL spokesperson said, “We have a number of supply sources, including various plantation companies where we source our teas from. We may lean on one more than the other from time to time as part of our strategy to optimise our supply.”

Jagjeet Kandal, former managing director of APPL, who is now associated with TCPL, said, that typically retailers kept two-month of stock with them, however, owing to the lockdown, when around 140 million kg (mkg) of crop was lost and tea procurement lines had dried up, the stock with the retailers also fell.

Although TCPL said that it had sufficient supply of tea, brokers in Guwahati estimate the pipeline with major retailers to have reduced to around 40-45 days.

Kandal said that although retailers lost some sales to tea stalls owing to the lockdown, consumption at home had increased as people stayed indoors.

Given the limited availability of stocks with the retailing firms and the resulting demand from home consumers, an imbalance has been created, which has been depleting stocks with tea retailers fast.

“It is because of this fact that we are seeing aggressiveness from tea retailing companies and procurement levels are going up. Given the shortfall in production and the estimates, I don’t think prices will drop to previous year’s levels,” Kandal said.

Tea prices set a record this year.

According to Tea Board data, in the first auction held in the month of May, prices surged by over 52 per cent to Rs 217.12 per kg at the Guwahati auctions, while in similar auctions in Siliguri, prices surged by around 39 per cent to Rs 204.25 a kilo. By mid-May, prices in Guwahati rose by 61 per cent at R. 217.12, while Siliguri maintained a 39 per cent surge.

“In sale number 25 in the Guwahati auctions, the average price increased by Rs 90.60 as compared to the similar sale last year. This is a world record in any tea auction”, Bihani said.

Given the shortage of tea in the domestic market, tea retailers are reluctant to import tea. A steep import duty of over 100 per cent on teas has also discouraged them from importing tea.

“So, procurement from tea retailers is expected to remain strong which in turn will help plantation companies register higher prices,” Gulia said.

However, higher prices at auctions and from plantation companies have increased the procurement cost of tea raising concerns of price hikes at the retail level.

“We continuously monitor both market conditions and input prices to take commensurate actions, whether this is to increase or decrease prices as the conditions merit,” the TCPL spokesperson said when asked about the possibility of price hike at the retail level.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel