Guwahati: Good news seems to be coming for tea, with prices moving up.

Orthodox tea prices are showing a rising trend and are expected to maintain an upward trend.

The ICRA, in its latest quarterly report, says that prices of new season teas have demonstrated a mixed trend in recent auctions – while prices of orthodox (ODX) teas have firmed up considerably, those of crush, tear, and curl (CTC) teas have witnessed a largely softening trend.

ICRA Limited (formerly Investment Information and Credit Rating Agency of India Limited) 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, those of plain/medium category teas, particularly made from the purchased green leaf, have witnessed a softening trend," it says.

Mr. 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 FY2022, compared to FY2021, it would be substantially better than FY2020." Moreover, players focused on producing quality tea are estimated to have witnessed a much lower decline in operating profit 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 Calendar Year (CY) 2020 on the back of COVID-related restrictions and adverse agro-climatic factors, production increased in CY2021. Notwithstanding the increase in CY2021, the overall production still remained lower than pre-pandemic levels as adverse weather continued to impact production in the first few months of the last fiscal too.

During Q1 CY2022 all India tea production remained flat at ~100 Mkg on a Y-o-Y basis. However, North India production during Q1 of any calendar year generally constitutes ~5% of the annual production. Although the overall production in CY2022 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, they have witnessed a considerable uptick in FY2021 due to a significant supply-demand mismatch. While tea prices remained strong in Q1 FY2022 as well, they softened following an improvement in production during the peak production months of FY2022. The price decline has, however, been more in the bought leaf segment as teas of relatively better quality (primarily made from their own estates) continued to fetch a high premium. In CY2021, the price premium for the CTC teas produced by the top 50 tea estates in NI widened to Rs. 122/kg from Rs. 84/kg in CY2020.

Exports from India during CY2021 fell by ~7%, in volume terms, on a Y-o-Y basis. This follows the ~17% decline witnessed in CY2020. However, while volumes declined, improvements in the quality of teas exported led to a higher realisation. Export realisation improved by ~8% to Rs. 268/kg in CY2021 on Y-o-Y basis. Consequently, the overall value of exports remained flat at ~Rs. 52.5 billion in CY2021 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 estates in Assam and Dooars, increased by 2.5% against a decline of 25% for the overall auction average during FY2022,” the report says.

“Going forward, producers of quality CTC teas will 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 FY2023. However, any material increase in the wage rate would have an adverse impact on the ICRA's operating profitability, "said Mr. Sujoy Saha, Vice President, and Sector Head, Corporate Sector Ratings, ICRA.

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