Tea Prices Plunge as Demand Dissipates

INDIA

By Dan Bolton

Depressed demand, shipping delays, and travel restrictions are driving down tea prices and adding to a global tea glut.

In the past few weeks, India's tea exporters witnessed dramatic declines in bidding at tea auctions across the country. Record amounts of tea on offer remain unsold. India’s exporters are concerned over a possible decline in purchases by Iran, which annually imports around 50 million kilos of quality full- and broken-leaf tea.

In 2019 sales to Iran surpassed Russia, growing 74% to 53.5 million kilos at prices that averaged $3.73 (INRs276) per kilo. Currently, there is an abundance of lower quality orthodox tea which increased by 135 million kilos in 2019. Iranian buyers, who purchase large orders in March through June, are concerned about falling demand.

In addition, the promising Chinese export market for milk tea blends that grew by 30% to 13.5 million kilos last year is now flat. No tea has been exported to China since January.

Prices declined 40% in Kolkata from $2.70 (INRs200) to INRs120-130 for CTC (cut, tear, curl) grades, and volume was down 65% at the Kochi tea auction the second week of March. In Kochi, bidding was vigorous only at the low end, where lower grades sell for $0.93-$1.05 (INRs69-78) per kilo. The best quality leaf teas were auctioned at $3.13 (INRs232) per kilo, well below last year’s prices for specialty grade teas.

Indian Tea Exporters’ Association chairman Anshuman Kanoria said that “Iran is a critical market for us. There is a concern about demand for new season tea from the Persian Gulf nation due to coronavirus outbreak.”

Orders from Japan are another concern. In March Japan, which buys about 1 million kilos of Darjeeling tea, unexpectedly canceled Foodex 2020 a major exposition attended by 80,000 food and beverage buyers that India attends to promote its teas.

The downward plunge in oil prices has weakened the Russian ruble and “seems likely to shift Russian demand for tea to lower-priced tea, along with potential reduction in demand,” explains Kanoria.

In the year ahead, a combination of developments could make the situation dire. These include greatly reduced exports to Pakistan, which was the fourth-largest importer of India tea before hostilities over Kashmir last year; Brexit, which has led to a 25% reduction in exports to the UK; and, lower demand in the Middle East not only in Iran but war-torn Syria, Libya, and Iraq; all complicated by a likely global recession.

Kanoria observes that “currently, the West is seeing incremental supermarket sales due to panic buying and a slowdown in out-of-home restaurant sales. We have not received panic reports of any demand loss for Indian teas, but these are early days and as the full effect of the virus is felt. The situation can change if there is any economic slowdown,” he said.

Travel and transport travails

March is when sales representatives at thousands of tea companies plan their travel to export destinations to present the new harvest to commercial buyers. Spring is also the time when specialty tea buyers travel to origin to sample and negotiate directly with growers. Supplies typically are depleted by June.

Neither buyers nor sellers are likely to be airborne through early summer. India significantly restricted the issuance of visas for travelers from Europe and Japan, two of the largest trading regions. 

First-flush buyers usually include a visit to Darjeeling, where 20% of the annual 8 million kilos command the highest prices, accounting for more than 60% of total sales for the year.

A disaster is in the making, according to the Darjeeling Tea Association: "The buyers from Japan and EU won't be able to fly down to India due to visa revocation by the government. The cancellation of flights by the airlines to affected countries means tea cannot be airlifted to importing countries. If foreign buyers cannot come, they are unable to taste, select, and buy tea of their choice."

Government subsidies

India announced it would distribute $600,000 (INRs4.5 crore) in subsidies to 1,344 tea ventures, including 1,091 small tea growers. About $285,000 (INRs2.10 crore) was to be deposited into their registered accounts with a similar amount given to 32 factories to begin producing orthodox tea. The subsidies include aid to children of tea workers who have been pending for some time.

Warehouses are holding a 50 million kilos surplus into the new harvest year. With exports likely to decline, the Tea Board of India is trying to increase domestic consumption, which has stagnated exacerbating difficulties as production increased by 4% last year to a record of 1,390 million kilos.

Additional funds were allocated to producers to increase domestic consumption in regions including Odisha, Gujarat, Rajasthan, Bihar, and Haryana, where tea consumption is lower than producing regions like Assam and West Bengal.