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Reshma Krishnan

FAR from coming to a boil, the tea industry is becoming tepid. For three years now, it is almost as if the kettle was never put on the stove at all. Prices have not improved and production has risen but marginally. Exports are at the bottom. Undoubtedly, the industry is strained.

Problems seem to be mainly of quality and costs which, in turn, are affecting prices. Bad organisation of the auction markets seems to be another problem. And, most important, consumption — fewer people seem to be drinking tea. Three years ago, the only industry concerns were meeting the demand and achieving the 1,000 million-kg production target.

From an investment angle, tea seems a poor bet. Performance of the companies has depended on their product profile. Tata Tea is the only real investment candidate but its sales and margins have been shrinking. This is despite its exposure to packaged tea; companies like Tata Tea are investing heavily in packaged tea in where they believe is the future of Indian tea industry. Other companies such as Assam Company and Goodricke have also reported lower sales.

Production

The year 2001 saw production inch up 0.9 per cent, or 7.2 million kg, to 853.7 million kg from 846.5 million kg in 2000 — a far cry from the days when the industry was targeting 1000 million kg. Production has been falling steadily since 1998 when the output was 874.2 million kg. Traditionally, North India contributes about 75 per cent and the South the rest.

This has remained the pattern even though production fell in the South and rose a little in the North. Ironically, the rise in production was despite a deliberate attempt to cut production in December 2001.

In 2001, world tea production rose 69 million kg to 1,688 mkg from 1,619 mkg. Production rose in all the tea-producing countries except Sri Lanka and Malawi. In Sri Lanka, production was 10.7 mkg lower at 295.1 mkg, while in Malawi it fell 5.3 mkg to 36.8 mkg. The highest increase, by 58.3 mkg, was in Kenya; its output soared to 294.6 mkg.

Such production gains in Kenya has been upsetting India's prospects of filling the gap created by the lower supplies from that country not long ago.

Prices

Prices were the crux of the problem. In 2001 they fell marginally to Rs 61.25 per kg — Rs 1.25 more than the average cost of production. Moreover, prices had not gone up in three years prices. In fact, they fell 32 per cent, from Rs 76.43 in 1998 to Rs 52.68 in March 2001 (the average prices across auction centres). Traditionally, South Indian teas have fetched lower prices, but the difference has been increasing over the last few years. This actually led to Nilgiri growers to take to the streets demanding subsidies. Prices have fallen well below the cost of production in the South, touching such levels as Rs 41.45 in March 2002 — 21 per cent lower than Rs 52.68 in March 2001. That was a record low.

The year 2001 was actually expected to see an increase in prices after the removal of the total marketing control order and the stagnant production estimates. This however has not happened because of over supply.

Consumption

Consumption stood at 660 million kg in 2001, marginally higher than the 650 kg posted in 2000. Exports accounted for 180 million kg. About 15 million kg enters the country, often for re-exporting. According to the Tea Board, between January and November 2001, India imported 14.7 million kg of tea worth Rs 85.5 crore against 11.7 million kg (Rs 73.9 crore) in the same period of 2000. Of this at least 14.6 million kg was re-exported. Though little foreign tea entered the domestic market, even the entrepot hurts India's export volumes.

Anyway, India was left with 28 million kg over what is consumed in the domestic market and exports. Domestic consumption has been stagnant the last four years. The huge oversupply was the result of a disastrous year of exports which fell 13.1 per cent — the biggest in three years — to 179.8 million kg.

From the export angle, South India is the bigger player with 50 per cent of its production being despatched abroad. In 2001 South India produced 202.9 million kg of which it exported 100 million kg. North India exported 79.3 million kg. The North reported a sharper decline in exports than the South; in the latest year, North India recorded a 17 per cent fall in export volumes. The South was badly hit in 2000 when the Russian market collapsed. The reasons for the poor export performance are two: One, exports to one of the major markets have been on a decline. Russia's share in India's exports fell to 24,8 per cent in 2001 from over 40 per cent in January-October 1999 and 33 per cent in the same period of 2000. Exports in January - October 2001 dropped 25 per cent to 43, 867 tonnes. Russia still remains the largest importer of Indian tea. Exports to the UK fell by 11.3 per cent to 15, 638 tonnes during the January - October 2001.

Two, the stiff competition from Kenya, Sri Lanka, China, Indonesia and Vietnam. While our exports declined, that of Kenya and China rose. Good weather and favourable policies were conducive for the small growers, which is propelling growth in the country. This is a worrying sign for our market.

Export realisations have been the lowest in three years. In 1998, export realisation stood at Rs 2309.4 crore. Since then it has fallen 30.5 per cent to Rs 1604.5 crore. World auction prices have also fallen by 30 per cent from Rs 185 per kg in 1998 to Rs 130 in 2001.

North Indian teas fetch twice as much as South Indian teas because of their quality and the markets they cater to. North Indian teas cater to the American and British markets, while South Indian teas go to the CIS market, which offer lower realisations. So far in 2002, Indian teas seem to be fetching some of the lowest prices in the international market. While Sri Lankan and Kenyan teas fetch Rs 155-159 per kg, Indian teas do not cross the Rs 100 mark. Quality is a major factor and that is why India's exports are suffering.

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