India
The premium first flush Darjeeling teas offered last March earned Rs937.50/kg (US$19.60/kg), in European markets, a drop of 25% compared to 2008 when the same type of tea fetched Rs1,250/kg.
"Nearly 85% of high quality first flush tea is exported to European nations.," according to Sanjay Bansal, chairman of Darjeeling Tea Association. "Germany is one of the biggest buyers of Darjeeling tea. Since there is a liquidity crunch in the European countries, the buyers are not keen to pay last year’s prices." Premium first and second flush Darjeeling teas are historically the best opportunity Darjeeling estates have to earn a profit. Around 10 million kg of tea is produced in Darjeeling, but about 50% of this is low-earning, lower quality rains tea that mostly ends up in the domestic market.
Q1 tea exports down
India suffered a 24% drop in tea exports to 38.90 million kg and saw production decrease by 9% to 81.88 million kg in the first quarter of 2009, thanks to strong domestic demand and the effects of the global economic crisis, according to the Tea Board of India.
"One main reason is that there is no supply. Production in India in the last three months, because of drought and related weather problems, has gone down and there is demand in the domestic market also," Tea Board deputy chairman Roshni Sen was quoted as saying by Reuters. "A reduction in export demand due to the global economic downturn also hurt," she said.
In the longer term, there is an expectation that exports will rise as domestic and environmental problems in Sri Lanka and Kenya are expected to shore u demand for Indian tea.
"The tea industry has been under recession for the last seven to eight years," said Ravi Agarwal, an exporter and former chairman of Siliguri Tea Auction Committee. "Last year, there was a boom. This year, we see another boom which would be very good and healthy for the tea industry."
"Prices of tea has already gone up by Rp30 to Rp35 (US$0.62 to US$0.73) as compared to last year," added tea exporter Komal Kumar. "I think there will be a very good market for the Indian tea industry,"
Inquiries from Russia, Iran, Egypt and Pakistan are being reported as the effects of a global shortfall in tea of around 55 million kg in the first quarter of 2009 are beginning to be felt.
"According to reports trickling in from the global markets, the shortage till April is likely to be in the region of 90-100 million kg," according to Aditya Khaitan, managing director of McLeod Russel. "Leading tea producing nations in the world India, Kenya and Sri Lanka’ have suffered major crop loss due to adverse weather conditions. This shortage has pushed up prices of tea across the globe."
Khaitan, who is also the chairman of Indian Tea Association (ITA), added that: "there is a lot of hue and cry over rising tea prices. It’s only after a seven-year period that the tea prices are showing some sort of recovery. From 1999-2000 onwards, cost of production has gone up by Rs35/kg whereas drop in prices has been Rs40/kg. Nearly 70% of our cost of production is fixed. None of the buyers had raised their voice when tea prices slid abnormally year after year."
Khaitan believes tea prices will settle between July and October if production picks up in these months.
"We are expecting the crop situation to improve in the July-October period, which may soften tea prices by Rs5/kg, he said. "Improvement in prices will help tea companies to recover losses that they had faced in the last seven years. The companies can reinvest in the estates to produce better quality teas"
