BOMBAY, 4 October 2004 — The world around has changed drastically. Even the newspaper that we read in the morning everyday must have changed over the few years. Yet, in this ever changing world, one thing has remained constant and that is our morning cup of hot piping tea. The tea brands might have also changed but the habit remains unchanged.
Just as the morning cuppa brings cheer, over the past few days, it has been seen that tea stocks have been bringing cheer on the Indian bourses. So why have tea scrips turned hot on the bourses? The answer is that tea prices have risen at tea auctions. There is also news that there could arise a possible shortage of production while exports are expected to shoot up. All are pointers to firm prices and this in itself is a big booster for bringing about an improvement in the financial performance of tea companies. Tea auction prices in India have been racing ahead from March 2004 onward mainly due to the fall in production and rise in exports. Heavy rains and the low temperature in Assam this year have severely stunted growth of the crop and it is estimated that the loss in tea production would turn out between 20-25 percent this year.
At the same time, lifting of a ban by Iran on tea exports has regenerated export prospects for tea. Pakistan’s cutting customs duty on tea to 10 percent from 20 percent is another incentive. Tea export during January-May was 60.6 million kg compared with 48.2 million kg same period last year. In fact, the increasing trend in tea exports was noted since October 2003. Importantly, the performance of south India on the export front has been remarkable. Tea export from the region was higher by 12.3 million kg compared with north India, where the quantum of tea exported was higher only by 0.15 million kg. Turnaround in export performance could partly be attributed to improvement in exports to the UK and Iraq, though export to CIS was lower. Another important factor for better export performance has been the increase in exports to markets such as Pakistan, Kenya, Australia, etc. Despite this, it is imperative to note that even though exports have risen sharply in terms of volumes, export realizations have declined. What is good news is that domestic consumption, too, is on the rise, which in turn will support tea prices.
Market sentiment in tea stocks have also been boosted by talks of a huge order from Iraq, estimated to be between 50-100 million kg. Exports to Iraq from India were 44 million kg in 2002. However, exports dipped to 12.7 million kg in 2003 due to the war in Iraq. Exports to Iraq in the first 3 months of 2004 have risen by 0.9 million kg from 0.7 million kg in Q1 2003 to 1.6 million kg in 2004. Going by actual Iraqi imports so far, estimates of a 50 million kg order from Iraq appears too ambitious.
Incidentally, Iraq had saved the Indian tea sector in 2002 by importing a record 43.2 million kg tea. The loss of the Iraqi market was blamed for the marked fall in exports in 2003.
India is the largest producer and consumer of tea in the world. India has emerged to be the world leader, accounting for 31 percent of global production in all aspects of tea production, consumption and export. India produces some of the world’s finest teas, as also the largest variety. Among the famous speciality flavors are Darjeeling tea and Assam tea from the north and Nilgiri tea from the south. Total turnover is approximately $2.25 billion and the total net foreign exchange earned is approximately is $413 million per annum. Tea production, since independence in 1947 has grown over 250 percent. The Indian tea industry generates income and livelihood for nearly 20 million people in the country wherein women constitute 50 percent of the work force.
For the calendar year 2003, tea production in north India increased by 5 percent to 664 million kg though production in south India declined marginally by 0.5 percent. India’s total tea production grew by 3.7 percent to 857 million kg as against 826 million kg in 2002 but tea exports for the year declined by 14 percent to 173 million kg from 201 million kg last year. Excess production and low exports led to a higher surplus stock, restricting tea prices.
Talking about financial performance of tea companies, based on the first quarter ended June 30, 2004, the combined net profit of 24 major tea companies rose 118 percent to Rs.24 million, on the back of a 10 percent growth in sales to Rs.5.51 billion.
