Main tea corporations clock decrease income as costs fall, prices rise

Main tea corporations clocked in decrease income in Q2FY22 in comparison with the year-ago interval as they confronted the dual challenges of a pointy drop in tea costs from final yr’s file ranges and a better wage price.

Final yr, corporations reported greater income – even on decrease volumes attributable to a widespread disruption brought on by the Coronavirus (Covid-19) pandemic – as tea costs rallied. However as provide normalised from June, costs began dropping.

A report by ICRA stated that tea costs remained sturdy in Q1FY22 and began sliding with the onset of the height manufacturing months of the present yr. Common costs at north Indian public sale centres throughout H1FY22, have been down by Rs 60 a kg (23 per cent) on a Y-o-Y foundation.

Import surge

Additional, a surge in imports is threatening to compound issues for producers. “Imports elevated considerably within the final two years. That is positively a trigger for fear as there may be an oversupply state of affairs in India in the present day. Imports coming in will add to the oversupply state of affairs, which can additional depress the costs,” stated Indian Tea Affiliation Chairman, Vivek Goenka.

In accordance with figures accessible on the Indian Tea Affiliation (ITA) web site, imports throughout January- August 2021 stood at 16.97 million kg in comparison with 12.65 million kg in 2020. Imports from Kenya noticed a pointy bounce at 146 per cent.

Imports have been a trigger for concern for some time now. The 104-day closure in Darjeeling for Gorkhaland agitation in 2017 led patrons to substitute the famed Darjeeling tea with Nepal teas. Within the home market, unfastened leaf retail are its patrons and within the export market, like Germany, it’s bought as “Himalayan” mix.

However over the previous yr, imports from Nepal have dropped from 6.65 million kg to 4.77 million kg. “The imports from Nepal have been checked to an extent because the West Bengal authorities stopped smuggling by means of the porous borders. This has already resulted in a rise in Darjeeling tea costs in comparison with final yr,” defined Atul Asthana, managing director and chief govt officer, Goodricke Group.

The Tea Board has additionally taken a collection of steps to clamp down on imports. For example, it has directed that labels clearly point out on the packaging that the contents of the blended tea are imported, giving the supply of the imported tea regardless of whether or not the imported tea has been purchased instantly by the vendor or by means of an middleman. Plus, registered patrons of teas have been directed to not mix any imported tea with teas of Darjeeling, Kangra, Assam (orthodox) and Nilgiri (orthodox). The trade believes that these are steps in the best course.

High quality pays

Despite the fact that costs are decrease than final yr, high quality teas are fetching greater costs. “We as a complete group in Dooars are doing higher than final yr solely and solely due to our concentrate on high quality,” stated Asthana.

“The home market has began demanding extra high quality teas. Until consumption and exports improve, the market will concentrate on solely higher high quality teas, however the backside of the market is not going to transfer up,” stated Azam Monem, wholetime director, McLeod Russel India.

Nonetheless, the issue is that it’s a handful of estates producing high quality tea. High quality teas usually are not solely promoting at good costs but additionally promoting simply. “However that’s solely a small proportion of general amount that’s produced,” identified Goenka.

The ICRA report stated that the value decline has been most within the purchased leaf section, which was down by Rs 77 a kg (33 per cent) in H1FY2022. For teas produced from personal estates, the decline was 20 per cent, with realisations of the highest 50 CTC gardens declining by solely 8.5 per cent on this interval.

Furthermore, Monem identified that the present quarter (Q3) in comparison with the identical interval final yr, will see higher return in exports and enchancment in home costs.

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