Orthodox tea
For representation only

Guwahati: Orthodox tea prices are showing a rising trend and are expected to maintain an upward trajectory, according to a report.

ICRA Limited (formerly Investment Information and Credit Rating Agency of India Limited) in its latest quarterly report said prices of new season teas have demonstrated a mixed trend in recent auctions: while prices of orthodox (ODX) teas have firmed up considerably, that of Crush, tear, curl (CTC) teas have witnessed a largely softening trend.

ICRA was set up in 1991 by leading financial/investment institutions, commercial banks and financial services companies as an independent and professional investment information and credit rating agency.

“Within the overall CTC teas also, while prices of quality teas have witnessed a firm trend, that of plain/medium category teas, particularly made from purchased green leaf, have witnessed a softening trend,” it says.

Kaushik Das, vice president and co-group head, corporate sector ratings, ICRA, said, “Notwithstanding the likely moderation, on the back of a sharp increase in wage rates, in the financial performance of bulk tea producers in financial year 2022, compared to financial year 2021, it would be substantially better than financial year 2020. Moreover, players focused on producing quality teas are estimated to have witnessed a much lower decline in operating profitability last fiscal, as the average auction prices of such players witnessed a much firmer trend than the industry average.”

As for the production trends, after the sharp decline in domestic production, by 9.7%, in 2020 on the back of Covid-related restrictions and adverse agro-climatic factors, production increased in 2021. Notwithstanding the increase in 2021, the overall production still remained lower than pre-pandemic levels as adverse weather conditions impacted production in the first few months of the last fiscal too.

During the first quarter of 2022, all India tea production remained flat at around 100 million kg on a year-on-year basis. However, North India production during the first quarter of any calendar year generally constitutes about 5% of the annual production. Although the overall production in 2022 is likely to improve, after two consecutive years of lower-than-normal production, the same will be determined by the cropping levels during the peak producing months of June to October.

Regarding domestic tea prices, the same witnessed a considerable uptick in financial year 2021 due to a significant supply-demand mismatch. While tea prices remained strong in the first year of financial year 2022 as well, it softened following an improvement in production during the peak production months of financial year 2022. The price decline has, however, been more in the bought leaf segment as teas of relatively better quality (primarily made from own estates) continued to fetch a high premium. In 2021, the price premium for the CTC teas produced by the top 50 tea estates in North India widened to Rs 122/kg from Rs 84/kg in 2020.

Export from India during 2021 fell around 7%, in volume terms, on a year-on-year basis. This follows the about 17% decline witnessed in 2020. However, while volumes declined, the improved quality of teas exported led to a higher realisation. Export realisation improved by around 8% to Rs 268/kg in 2021 on a year-on-year basis. Consequently, the overall value of exports remained flat at around Rs 52.5 billion in 2021 compared to the corresponding period of the previous year.

 “An analysis of auction prices indicates that prices of CTC teas, manufactured by the top 100 gardens of Assam and Dooars, increased by around 2.5% against a decline of around 25% for the overall auction average during 2022,” the report says.

“Going forward producers of quality CTC teas would continue to benefit from the premium pricing. In addition, orthodox tea producers are likely to gain from the expected firmer trend in ODX prices, given the drop in production in Sri Lanka. Consequently, the financial performance of quality producers is unlikely to witness any material moderation, on a Y-o-Y basis, in financial year 2023. However, any material increase in wage rate would have an adverse impact on the operating profitability,” said Sujoy Saha, vice president and sector head, corporate sector eatings, ICRA. 

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