Lower 'second flush' crop to hurt tea firms

Tea companies, particularly those based out of Assam like McLeod Russel and Jaya Shree, are now bracing for a sharp drop in tea crop during May-July, called the ‘second flush’ in industry parlance, when the gardens produce the best quality of the season.

Production by members of Indian Tea Association (ITA) during May, the first month of the ‘second flush’, is down by about 7% on-year in Assam, the largest tea producing state, at 17.1 million kg against 18.4 million kg last year.

This is a sharp contrast to production in April which was up by 16.14% in Assam at 41.87 million kg, as per the Tea Board data.

“There has been a significant crop loss in May mainly due to lack of rainfall and excess sunshine. Monsoon which was supposed to come by middle of the month, was late and has just arrived. We have seen tea bushes getting damaged and turning red due to high temperature,” said A N Singh, chairman of the ITA and MD of Goodricke Group.

Lower second flush crop has impacted tea prices positively, which are up by about Rs 25-Rs 30 a kg over an average price of about Rs 200 a kg, said Azim Monem, director of McLeod Russel.

Higher prices are, however, for better quality orthodox tea; prices of medium to lower-medium grade tea of Dooars of West Bengal and Cachar of Assam are down.

“This is reflective of the growing gap between quality teas being produced by the organised players and the poor quality churned out by the small unorganised gardens,” said Monem.

Price appreciation due to crop shortage, however, may get limited by excess first flush production in April.

“The market has been flooded with excess production of first flush which is depressing the overall prices,” said Monem.  In a recent report, ratings agency Care has predicted just 1% growth in 2013 of tea crop at 1,137 million kg.

“Average tea prices will increase by about 7-8% in 2013. Incremental growth in domestic tea consumption and sustained exports will keep tea prices elevated,” it said.