Tea prices to remain buoyant for short to medium term: ICRA.

With domestic demand growing at a steady rate and production unlikely to witness a sharp increase due to limited availability of land, tea prices are likely to remain buoyant for short to medium term, according to credit rating agency ICRA.

"Steady domestic consumption growth, which is estimated at around 3 percent, and range bound production due to limited availability of incremental land to increase acreage under production, are expected to keep tea prices buoyant at least over the short to medium term," ICRA said in a recent report.

However, the global demand-supply position and therefore the international prices would continue to influence domestic prices since around 20 percent of the produce is exported currently.

ICRA said input costs, primarily the employee expenses and costs of agrochemicals and power and fuel, are likely to continue to witness an increasing trend.

With tea being a fixed cost intensive business, the increasing input cost could be further aggravated in the current financial year (FY15), if adverse climatic conditions lead to a significant drop in tea production, the agency said.

Tea prices continued with their buoyant trend over the last two years, with average auction realisations increasing from Rs 106 per kg during CY11 (calender year) to Rs 131 per kg during CY13.

Over a longer horizon of five years, prices have gone up at a CAGR of 8.4 percent and prices at both north Indian and south Indian auctions have grown at a largely similar rate.

However, the quality teas of north India continued to command a premium over south India tea.

Tea production during CY13 witnessed an increase of around 73.7 million kg (MKg) reflecting an increase of 6.5 percent over the previous year, the ICRA report said.

While production from north India was up by around 70.5 MKg (year-on-year increase of 7.9 percent), that from south India (SI) witnessed a marginal increase of around 3.2 Mkg (year-on-year increase of 1.3 percent).

During CY13, total exports of tea, in volume terms, remained almost flat, with a small increase of around 1.7 percent to reach 211.9 Mkg, however, a sharp depreciation of the rupee resulted in the value of exports increasing by 12 percent, it said.

In CY13, global tea production was up by around 153 Mkg (around 7.4 percent).

Besides India, countries Kenya (y-o-y increase of 17 percent) and Sri Lanka (y-o-y increase of 3.6 percent) contributed around 50 percent to the increase in production, the two other major producers of black tea.

Kenya entirely produces CTC (crush tear curl) while Sri Lanka is into orthodox variety production.

India primarily manufactures the CTC variety of tea, which has accounted for around 90 percent of its production, on an average, with the balance being the orthodox variety of teas, the report added.

Source : moneycontrol.com