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Can you imagine an industry where the fortunes rise when the production goes down. Seems paradoxical, doesn't it? But that is exactly what is happening in the Tea industry. After the dismal last year, things may be looking up for the tea industry finally.

The year 2000 was quite a turbulent year for tea as it saw an unabated fall in prices, prompting growers in the Nilgiris taking to the streets for fear of losing their livelihood. Prices touched all-time lows on account of fears of imports entering the markets, a fall in exports and a general recession in the industry. Analysing the depressed domestic CTC market, J Thomas & Co, in its latest tea market annual report, has said from the all-time high of 870.4 million kg (mkg), tea production declined sharply to 805.61 mkg in 1999. The share of CTC tea, which was 758 mkg in 1998, dropped to 726 mkg in 1999. The report observed that the cause for depressed CTC markets in 2000 could be traced to the last quarter of 1999, when it was anticipated that there would be a short supply situation as the Indian crop was substantially lower than the previous year. Prices were expected to reach buoyant levels by December 1999. In anticipation of this, a large number of traders and wholesalers had purchased and overstocked teas at high prices. However as from start of the 2000 season, the industry made efforts to raise CTC production, supplies did not shrink. Consequently, traders and wholesalers who had bought heavily earlier, were saddled with high-priced inventories, which they could not liquidate easily as markets continued to slide well into the second quarter of 2000. The stock carrying cost restricted buying of new season teas up to June 2000, when old stocks were sold at sizeable discounts.

Nevertheless, now there is a glimmer of hope. One of the major reasons for the price depression in 2000 was the high production levels. This, coupled with falling demand and falling export values, caused the widespread price depression last year. Tea production for the southern States went up two per cent in 2000 to 198.08 mkg from 194.02 mkg in the previous year. Global output was also up in 2000 by 2.9 per cent to 1,526 mkg from 1,482 mkg in 1999. India was the biggest contributor with a production of 824 mkg in 2000 against 806 mkg in 1999. However, CTC production did not increase significantly in 2000, there is virtually no carry-forward in this category. Further, with a view to upgrading quality, most estates have increased their pruning percentage. This may result in a slower start to the 2001 season. Therefore, opening levels for CTC teas may be expected to be buoyant.

Prices on the rise are another positive occurrence for the tea industry. December saw a small recovery in prices with tea prices going up by an average of Rs 3-5 around the country. Prices have been up in both January and February compared to the corresponding periods last year. The average price in February 2001 was Rs 68.97 per kg, 11.98 per cent more than Rs 51.73 in February last year. Prices in the Nilgiris are also up, to levels of Rs 55, a large improvement from the abysmal levels of Rs 38, when growers were actually selling tea below cost price.

The industry is expecting good enquiries for bright liquoring CTC teas from the domestic and international trade at "healthy premiums''. Prices of plain and medium varieties are likely to remain satisfactory up to mid-season, but are expected thereafter to depend on the progress of crop and the quantum of orthodox production, apart from CIS enquiries. The single-most important factor which has contributed to the resurgence in the CTC markets in 2000 is the industry's effort in normalising orthodox production. Traditionally, Indian orthodox production has been about 13 per cent of its crop. Any change in the ratio of orthodox can easily shift the price balance. Adequate orthodox production reduces the pressure on CTC availability and assists in exports. Also in face of the quantitative restrictions being lifted, the import duty on Tea has been raised from 35 per cent to 70 per cent giving the industry the much needed respite.

With things looking up for the industry, majors like Tata Tea, Lipton (now a part of HLL) can be looked at, for investment at the current prices, from the medium term perspective.

Aru Srivastava

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