Photo courtesy of Doke Tea Estate, Bihar
India Tea Prices Plunge as Demand Dissipates
Tea prices are off their pandemic-induced high in May but remain higher than expected, given the huge surplus normally consumed at restaurants and cafes.
India, Sri Lanka, and Kenya all report increased prices at auction with some record-setting buys, defying on first appearance the rules of supply and demand. A spike in domestic prices prompted Indian tea traders to push for a relaxation of import taxes that add 100% to cost.
Foodservice venues typically account for 20% of global tea sales. Most of this tea is commodity CTC (crush tea, curl) chosen for convenience at volumes second only to home consumption. Lockdowns worldwide and severe local recessions triggered by the coronavirus have already led to the closure of 16,000 US restaurants. Market researchers predict as many as 2.2 million restaurants globally will close in 2020.
Kenya. Good weather and minimal impact from Covid-19 in Kenya’s rural tea-producing counties led to a significant increase in volumes for sale at the Mombasa Tea Auction, according to the East African Tea Traders Association (EATTA). The average price per kilo was KSh208 ($1.92) last week, up from a previous recent high of KSh194 ($1.79). ETTA notes that “demand for tea has been lukewarm in recent months after buyers had bulked up on their stock earlier in the year.” That surplus may be easing.
Last week, tea on offer grew by 970,000 kilos to 2.1 million kilos, according to a report in The Nation. “Anything below two dollars is not good but we are confident the prices will improve soon,” EATTA managing director Edward Mudibo told the Star, even as he noted that some grades are fetching good prices.
Tea production grew by 41% during the first six months of the year. The Kenyan Tea Directorate reported 300 million kilos processed during that period, compared to 213 million kilos in 2019. Smallholders accounted for 26.5 million kilos of the total 46.3 million kilos harvested in June, the most recent reporting period. Earnings from small scale producers declined 22% to KSh69.7 billion ($644 million) during the fiscal year ending in June, the lowest returns in the past six years.
On the onset of the Covid-19 pandemic, buyers stocked their warehouses for fear of a supply cut, EATTA notes, a move that has slowed buying of new stocks, hence the low-prices which recently fell to a 13-year low. Now CIS countries, Afghanistan, Iran, and even India are bidding.
Sri Lanka. Unlike Kenya, where prices fell to $2.18 per kilo in May, tea prices in Sri Lanka spiked at SLRs812.18 ($4.44) per kilo.
Demand remains strong for “low-grown” teas from Sri Lanka. Buyers purchased 6.7 million kilos at the latest auction of which 2.6 million kilos was low grown. Teas sold (ex-estate, or factory direct) totaled 900,000 kilos. Brokers say demand is improving for the higher quality, high-grown teas where prices averaged SLRs534.03 ($2.92) well above Kenyan prices for similar teas. The best grades brought SLRs667.82 ($3.65) per kilo, up $0.59, according to a report published by Economy Next.IndiaLockdowns and a severe spread of Covid-19 depressed yields by 35% through May, compared to 2019, leading to a spike in domestic prices.
Tea Board figures show a production of 96 million kg (mkg) against 134 mkg in May 2019 “marking a massive loss of 38 mkg or 28% in just one month,” Rajesh Gupta, compiler of annual Global Tea Digest, told BusinessLine.
Adverse weather is to blame, compounded by logistical challenges, recent floods. In the south, rains compounded the reduction in workforce during a lockdown that coincided with the peak harvest. Output in North India fell 46% to 133 million kilos, compared to 247 million kilos during the same period in 2019.
South India produced a marginally higher output with gardens in Kerala reporting a 10% gain. The region harvested 77 million kilos, up 1.3% compared to 2018.
Prices are on the rise. The tea auction at Jorhat, which increasingly offers specialty grades from small growers, reported an organic, tippy golden flowery orange pekoe (TGFOP) tea on offer by the Chenehi Tea Farm earned INRs930 ($12.42) per kilo. The buyer, Addition Nutrient of Guwahati, bid online.
"Sellers and buyers using the platform have seen a steady rise owing to low entry barriers, efficient cycle-time, and a cost-efficient sales process. Our team has successfully added a new set of small buyers across the country, who were hitherto not part of the auction system," according to mjunction, which provides the digital auction platform.
The B2B e-commerce marketplace was launched during COVID-19 crisis and is credited with reducing the amount of working capital required by sellers while facilitating logistics and offering transparency.
As domestic prices surge, India weighs the benefits of importing tea from Kenya and Vietnam. The government currently imposes a 100% tariff on tea imports.
The Federation of All India Tea Traders Association (FAITTA) said importing teas will be a one-time affair and that it will not push for imports in the coming years, according to a report in the Economic Times.
The debate is heated. Tea landed in India to this point is for re-export, not available in domestic markets where it competes with locally grown tea. Planters, represented by the India Tea Association, strongly oppose lowered tariffs.“We will move the commerce ministry with a request to stop the import of cheap teas if the traders try to do so,” said Vivek Goenka, chairman, ITA. FAITTA chairman Viren Shah said, “Prices have gone up significantly this year due to a shortage of supply. But we are not being able to pass on the price to our customers because the economic situation in the country is not conducive for increasing prices. The pandemic has created economic uncertainty everywhere.”
The price of CTC tea has increased 48% year-on-year making imports less expensive than domestic teas. Even with a 100% duty, imported Kenyan tea at $1.84 or Vietnamese tea at $1.5 per kilo would less expensive than the average INRs305 ($4.07) per kilo paid for CTC at the Kolkata Tea Auction.