Focus on quality can fetch good prices for tea: ICRA

Kolkata: Focus on quality is likely to provide some support to declining tea prices even as producers feel the impact of sharp increase in wage rates, says rating agency Icra. Corroborating the Icra view, Tea Board chairman P K Bezboruah told TOI that all-or-no auction of tea, increase in mandatory tea waste percentage, zero plucking in December can improve both quality and price realisation of tea in India.


In the recently released study on the ailing, labour-intensified agro industry sector, the investment information and credit rating agency has found that tea prices in the current year (2021) have declined after June as production has witnessed some recovery from the lows of last year, leading to an ease in the tightness in the supply-demand scenario, which had supported prices in 2020.
“However, tea producers who are focused on producing quality teas are likely to witness a much lower decline this year. Prices of quality teas are ruling at a much firmer level than overall auction averages; quality producers are thus likely to witness a lower moderation, on a y-o-y basis, in financial performance than earlier envisaged,” the Icra study added.
According to the Tea Board chairman, if an estate must sell 50% of its output via auction, a buyer should also be made legally bound to buy a minimum 50% of tea from the same. The buyers are weakening the benchmark price of tea in the government-run auction. “So, if the government makes it mandatory to sell 100% tea produce (except high-priced and export-quality Darjeeling tea) through auction routes, there will be little chance of any price moderation in private sales. Competition will be more,” explained Bezboruah.

For the removal of sub-standard tea from the system, he prescribed that at least 2% of the leaves produced should be declared as ‘waste’ and plucking inferior quality tea in the month of December must be banned.
The planters’ battle to make their businesses sustainable has become tougher following a considerable increase in cost of production with the hike in daily wages of the garden workers in Assam and West Bengal in the current calendar year.
Kaushik Das of Icra said, “Notwithstanding the likely moderation in financial performance of key bulk tea producers in FY2022, it would still be substantially better than what they posted in FY2020. Average auction prices of teas manufactured from own garden leaves of the top 50 estates of Assam and Dooars have witnessed a decline of only ~8.5% against ~25% for the overall auction average during H1FY2022.”
Average prices at NI auction centres, during H1FY2022, were down by ~Rs 60/kg (~23%) on a Y-o-Y basis. The price decline has however been most in the bought leaf segment, which was down by ~Rs 77/kg (~33%).