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The contraction in consumer spending has touched even the morning cup of tea of an average Indian, pulling down the overall tea consumption in the country. This has put pressure on prices and made the tea industry’s finances vulnerable as it was already struggling with the problem of oversupply. India produced an estimated 1,389.70 million kg of tea in 2019 compared with 1,338.63 million kg in 2018 – a rise of about 4% or 51 million kg.

On the other hand, tea consumption in the country has increased by about 25 million kg or by 2.3% last year - from 1,084 million kg in 2018 to 1,109 million kg in 2019 - leaving a huge amount of unsold stocks. The global economic slowdown, at the other end, did not allow India to increase its export sales volume. In fact, India’s export volume declined by 7.79 million kg or about 3% in 2019 from 256.08 million kg in 2018 to an estimated 248.29 million kg last year. Thanks to the lucrative market in Iran for the whole-leaf variety of tea that fetched better prices, export earnings increased somewhat - despite a decline in volume.

In 2019, Iran picked up a record quantity of tea from India at prices generally higher than those in the previous year. Exports to Iran increased by 84% in January-November 2019 to 50.43 million kg as compared to the same period in 2018. Iran buys orthodox tea from India. Unit price realisation of tea in the Iranian market has also gone up by about 12% during this period to Rs 275.50 compared to Rs 246.41 per kg in the same period of 2018. Following better unit price realisation, India’s overall export earnings from tea increased by 2% from $780.34 million in 2018 to $796.36 million in 2019 - despite a fall in volume.

India could do better but export is suffering due to global uncertainty. Exporters argued that owing to the uncertainty around Brexit, shipment to UK fell by over 25% while the geopolitical situation in West Asia brought down Indian exports to the UAE by 40% and to Egypt by 70%. Both of these are re-export markets for Indian tea.

Back home, prices generally remained subdued and witnessed only a marginal rise. The average price in the south Indian auctions in 2019 in fact, dropped marginally to Rs 100.57 a kg from Rs 101.19 in 2018.

This was due to inadequate demand in the second half of 2019. Since July, the average prices ruled at `2 lower per kg over the corresponding month of 2018. Traders reportedly expressed their inability to bid more on high price tea varieties due to less cash disposal.

North Indian auctions, however, managed to fetch an average price of Rs 152.71 a kg against Rs 150 in 2018, marking a gain of Rs 2.71 a kg or 1.81%. This helped the overall prices of Indian tea varieties to rise to Rs 140.85 a kg from Rs 138.57 in 2018, in a gain of Rs 2.28 a kg or 1.65%.

Rising stocks, indifferent consumption growth and the failure to raise export have affected the finances of tea companies. A survey of 10 large and medium tea companies finds that their overall sales turnover has increased by 7.2% during the nine months (April-December 2019) compared to the same period a year ago. But despite the rise in sales, the combined net profit of the sample companies has declined by 4.6% following inadequate price realisation and rise in production cost.

May be, the tea industry will see a better year in 2020, for, if the large carry over stock is feared to keep domestic tea prices under pressure, the global prices are forecasted to rise. Tea, coffee and cocoa prices are estimated to revive in 2020 after a protracted decline in 2019 due to oversupply, according to the World Bank Commodity Markets Outlook for October 2019. The World Bank’s Beverage Price Index which includes tea, coffee and cocoa is expected to increase by 2% in 2020, following a projected 5% decline in 2019. India, being a major player in the world tea market, the rise in global tea prices may prove to be succour for the ailing tea companies.