With the lockdown-driven suspension of production and panic buying helping clear stocks, tea plantation companies are expecting a major price surge in May once the second flush season begins.
Industry officials noted that there has already been a shortfall of around 90 million kg (mkg) during March and April, and most of the 50 mkg of tea inventory has been sold as packaging companies bought whatever was available in anticipation of an extension of the lockdown and the resultant surge in consumer demand.
“There is practically no tea in the system now and only small quantities being produced by the south Indian companies. Given this situation and the current loss of production, prices should be healthy once tea starts hitting the market again,” Atul Asthana, managing director, the Goodricke Group told Business Standard.
Though major producing states such as Assam and West Bengal have allowed plantation to commence in a move that should ideally help production and bring tea back into the eco-system, major companies are of the view that there will be no production this month. Assam produces over 50 per cent of the tea in the country while West Bengal accounts for 27 per cent of the total.
“The production loss has already been incurred and even if plantations resume operations, there will be practically no tea available”, D P Maheshwari, managing director at Jay Shree Tea and Industries told Business Standard.
Vivek Goenka, executive director, Warren Tea explained that owing to estate closures before, the bushes are already overgrown and skiffing needs to be done first before any production can take place. This skiffing acitivity usually takes 7-10 days but may stretch longer given the limited manpower availability.
While Assam has sanctioned a maximum of 50 per cent of the total workforce in an estate at a time, the allowed limit in West Bengal is even lower at 25 per cent.
“Usually during this time, we need to deploy all the manpower available with us but now I don’t know how production and skiffing activities will progress given the cap,” Maheshwari added.
Rating agency Icra said that it expects tea estates to substantially reduce the number of temporary workers during the period of low production.
“Nonetheless, the impact of a reduction in production, because of fixed costs and loss in contribution, is estimated to increase the cost by nearly Rs 15 per kg on the balance production during the rest of the year, assuming that normal production returns by the time second flush teas become available. Any decline in production in the second flush teas would result in a substantially higher cost per kg,” Icra said.
Companies are optimistic that the lockdown situation will improve May onwards and by the time the second flush season begins in the third week of May, skiffing and pruning activities will be over and manpower deployment conditions will improve as well.
“I think by the time the second flush production begins, things will normalise to a large extent”, Asthana added.
Tea buyers, however, cautioned that given the uncertainty in the economy owing to the pandemic, there is still some doubt about price movements.
“We have noticed that consumers are already stocking up essential as well as non-essential items and there exists much doubt in consumers’ mind about the future as companies may resort to retrenchment or salary cuts. As a result, discretionary spends like tea may get affected,” a buyer said.
Icra has also cautioned that while ideally prices should improve sizably under a normal demand-and-supply scenario, but the current scenario is that of uncertainty.
“The trend in export as well as domestic demand would be the main factors determining the trend in tea prices. Most of the premium export markets of Indian teas are suffering under the Covid-19 outbreak. Apart from any decline in demand, logistical issues could also have an impact on the volume of exports to those countries,” the agency noted.
No comments:
Post a Comment