Despite occasional news of rise in tea prices driving up stocks of tea companies, the industry is passing through a deep crisis and need an upward price correction of at least Rs 30-40 a kg to overcome rising cost pressure, according to McLeod Russel head Aditya Khaitan.
While continued blockade on trade in Darjeeling tea might impact its global acceptability, forcing some global buyers to permanently shift to blends using teas from other companies, there has also been a devastating flood in Assam, the country’s largest tea producing region.
“If you look at the price of tea for the past few years, it hasn’t grown factoring in inflation. From the perspective of cost increases that have happened over years and what we are expecting, if the price of tea in the auctions does not jump by Rs 30-40 a kilogramme there would be a problem,” said Khaitan, vice-chairman and managing director, McLeod Russel.
Major cost components are labour which is not in control of companies, guided partly by statutes and partly by industry-wide negotiations while the weather is turning very unpredictable, thereby increasing the cost overhang despite erratic realisations.
McLeod has reported a loss of Rs 1.66 lakh in the June quarter.
Adding to the woes are the floods in Assam, where most of McLeod’s gardens are located and socio-political upheavals in Darjeeling that produces country’s priciest and reputed teas.
“While our company doesn’t have any garden there, the worry that we have about Darjeeling is that continued non-availability of the tea might force overseas buyers to shift to blends using teas from either Sri Lanka or Kenya or Nepal,” Khaitan said.
“There was a ban in 1984 on exports (of CTC tea by the Indian government). African tea got a foothold in some of our erstwhile key markets and we still haven’t recovered from it. Hope we don’t lose the market for Darjeeling tea this time,” he added.
In Assam, McLeod is now facing devasting flood situation, a phenomenon which has become almost a routine yearly feature.
“There is an impact of floods in Assam but this year it is manageable as the severity is lesser than that of the previous year,” he said.
As per government data, 29 out of 33 districts of Assam have been impacted by heavy rains and Khaitan said central government’s announcement of relief package would help the state economy to revive.
On the positive side, the second flush season has started on a profitable note with realisation better than previous year’s levels, Khaitan said.
“It’s the key season for us and it’s always better when we can score at a better pace during the period of May-June-July which helps to sustain us when the period ends,” Khaitan said.
“Week-on week, we have been able to raise the gap (between current and year-ago period) from Rs 2 a kg last year to Rs 10 a kg now. While in last year, prices started falling from July, this year prices have remained stable,” finance director Kamal Baheti said.
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