Tea firms see record prices boosting profits amid Covid-induced crop losses

Topics Tea firms | Tea prices | Lockdown

The tea industry has been facing excess supply which has kept prices under pressure
Record tea prices are helping companies post profits despite crop losses caused by the nationwide lockdown to contain Covid-19 and floods. Most companies returned to the profit zone in the June quarter, and indications are that the current quarter, which is typically a good time for the industry will, be even better.

Goodricke Group recorded a net profit of Rs 16.17 crore in the June quarter even though revenues were down by more than 16 per cent on a year-on-year basis; Dhunseri Tea & Industries posted a net profit of Rs 13.07 crore while revenues were down by more than 23 per cent; Jayshree Tea & Industries made a net profit of Rs 1.42 crore, even as revenues slipped by 32 per cent.

Tea prices and a focus on quality are making up for the crop loss. “We knew, we had lost crop and hence worked to capitalise on quality,” said Atul Asthana, managing director and chief executive officer, Goodricke, Group.

Prices have been flat during the past five years, now everyone has jumped on the price bandwagon, Asthana added.

The crop loss has resulted in a supply deficit. According to the industry, for the year till now, the loss in crop is about 13 per cent compared to last year. But for the months of April, May, June, the drop was sharper; in Assam, it was about 35 per cent.

Major packet tea players that normally have tea in the pipeline, don’t have currently, what has sent prices soaring at the auctions.

According to Tea Board of India data, for the week ending September 19, average tea prices at Kolkata auctions were at Rs 281.87 a kg compared to Rs 179.93 a kg a year ago; average prices at Guwahati auctions were at Rs 274.38 a kg compared to 150.14 a kg and at Siliguri auctions Rs 251.40 a kg compared to Rs 132.41 a kg last year.

Prices were higher last month, but on the whole, it has been holding since June. C K Dhanuka, managing director, Dhunseri Tea, said, if the price trend continues losses of last five years may be taken care of.

The industry has been facing excess supply which has kept prices under pressure. Last year, production was a record 1,390.08 million kg.

Rudra Chatterjee, managing director, Luxmi Tea, owner of Makaibari estate, explained, “Ever since bought leaf tea emerged as a major force, chronic excess supply became the bane of the industry. Prices languished below operating costs.”

“The industry got a reprieve, but for lasting solution, we need to adopt a partnership model between farmers and industrial blocks such as the one existing in Kenya where revenue is shared. This will motivate a focus on good quality teas,” he added.

The industry is now looking forward to a better second quarter. Typically, for tea, the first two quarters are good. By end–September, around 65 per cent of the year’s output is produced.

D P Maheshwari, managing director and chief executive officer, Jayshree Tea, said, the second quarter will be much better than the first. “Earlier, we thought that prices would start tapering after June-July, but it’s still holding,” he said.

But the industry is also wary about the outlook for next year, once more tea comes into the system.

“This may be short-lived and next year, prices may fall by Rs 50 a kg,” expects Maheshwari.

For realisations to be at sustainable levels, the industry might have to do things differently. According to Chatterjee, building capabilities of exporting packaged and branded teas is an opportunity to move up the value chain and improve realisations.

“India is a major tea producer but we only export bulk teas,” he pointed out. In 2019, India exported 248 million kg, which is expected to be lower this year.

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