Brace for a significant rise in tea prices from the end of March, which marks the beginning of the new tea season.
Brace for a significant rise in tea prices from the end of March, which marks the beginning of the new tea season.
While tea planters would rejoice, tea lovers might have to pay up Rs 20 more on an average for every kg of tea next year over Rs 170 a kg that they paid in fiscal 2017, finance head of Mcleod Russel, world's largest integrated tea plantation company has said.
Tea prices are on an upswing since the beginning of the current fiscal with the average prices by end of December going up by Rs 12 a kg. With tea sellers disposing of stocks to take advantage of rising prices, there could be shortages in the markets by March-end, resulting in even higher prices.
"From year-on-year hike of Rs 3-4 a kg in the first quarter, tea prices appreciated by Rs 12 a kg in the third quarter over previous year's level. Looking at this trend and overall price scenario, next tea season's opening level in March would be substantially higher. Our estimate is that opening prices could be Rs 19-20 a kg higher," Kamal Baheti, finance director of McLeod Russel India, told analysts.
Tea prices are on a roll since the beginning of the year, mainly because of shortages of crop in Kenya, and also in Northeastern India, prices have been going up every quarter. Tea is set to end the fiscal 2018 with Rs 14-15 a kg, or about 8-10% higher than fiscal 2017 levels. Due to this, there has been a substantial drawdown in inventories, which will create shortage at the beginning of the year," Baheti said, explaining why prices are set to go up even higher than the current year.
This is music to the ears of tea growers as over the last 2-3 years, due to stagnant tea prices and a rise in wages, margins for companies like McLeod dropped from a peak of 20% to 4-5% last year.
Fiscal 2017 was difficult for the industry when average prices fell to Rs 163 a kg against Rs 174 a year back.
But fiscal 2018 began with Kenya, a major producer, having lost 50 million kgs resulting in 15% rise in prices at Mombasa auction.
For McLeod Russel, owned by the Khaitans of Eveready, prices have gone up during the third quarter to Rs 181.93 per kg from Rs 170.26 a year back.
Investors, however, should also consider the impact of likely finalisation of wages for tea pluckers, which might go up by around 8% after February.
"Wage hike is due for workers in Assam and West Bengal from January. Negotiations are likely to begin soon and we expect 8-10% hike in our overall costs," the official said.
Wages in this labour intensive sector account for 50% of the costs of each kg of tea prodcution.
Costly cup
- Tea prices are on an upswing since the beginning of the current fiscal with the average prices by end of December going up by Rs 12 a kg
- With tea sellers disposing of stocks to take advantage of rising prices, there could be shortages in the markets by March-end
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