Tea profit likely to contract 140-150 bps: Crisil

Kolkata: The overall tea output in India has increased from 1,207 million kg in 2014 to 1,339 million kg in 2018. Tea production in July jumped 8.3 per cent from a year ago to 176.07 million kg, helped by higher plucking in the top producing northeastern state of Assam, going by Tea Board of India statistics and corroborated by Consultative Committee of Planters' Associations (CCPA). On the pricing front, the average tea auction price in Assam was Rs 150 per kg and all India price was Rs 130.90 per kg in 2014. The price marginally increased to Rs 156.43 in Assam and Rs 138.83 in India in 2018.

Coupled with price stagnation issue, tea industry has been severely stressed with a rise in production costs, threatening the long-term viability of the sector. The country's tea production in the first seven months of 2019 rose 5.9 per cent from a year earlier to 649.75 million, Tea Board said.

These statistics will have to be seen in light of the fact that per capita domestic consumption of tea at 786 gm per year is low, compared to some other tea consuming countries. And the cost is so high that the production cost has also surged beyond expectations.

The major problems, according to sector analysts, are low price realization and escalating cost of production. The cost of production, which includes fuel, coal, gas and fertilizer costs are becoming very expensive. As far as the realisation of cost is concerned, it has not improved in last five years or so. Significantly, while production of tea has increased substantially, demand has not.

In the last seven years, that is between 2013 and 2019, prices of tea moved up by an average of Rs 11 per kilogram with average realisation ranging between Rs 136 and Rs 147 a kilogram, tea prices in real terms have dropped in the last five years with the rupee allowed for a free fall. The gardens have seen a spree of closures leaving workers helpless.

Then there are apprehensions that the way this entire industry is facing a slowdown, tea industry may face serious trouble in the near future as well. Presently, Assam tea contributes 52 per cent of total tea production in the country. And Assam tea industry has also come under severe stress with a rise in production costs and tea price stagnation, which threaten the long-term viability of the sector. The 170-year-old Assam tea industry is now gasping for survival, analysts pointed out.