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Internal and export tea demand outstripping supply in India.

Internal and export tea demand outstripping supply in India

The year 1988 proved to be a difficult one for the tea pandits as the crystal ball remained hazy all through. Virtually all forecasts were belied as the situation changed frequently and quite unexpectedly.

At the beginning of the year, the weather gods were not kind to the North Eastern region, particularly in the Dooars. The early forecasts, estimated by the majority, were that the Indian crop would be around 1987 harvest of 673 million kilograms. There was skepticism about exports also and some pessimists were quite certain that the level of exports would not go beyond 190 million kgs.

However, by the middle of the year, it became clear that there would be an unexpected increase in the South Indian tea crop. Up to the month of May, the South Indian crop was 25.7 million kgs ahead of 1987, representing an increase of 50.6 percent an unusual phenomenon. North Indian conditions continued to be generally unfavorable and the crop harvested till the month of June was 4.3 million kgs lower. Assam started picking up from July/August onwards, but Dooars continued to lose crop continually.

It was only in November that the North Indian crop shortfall was closed and there was a marginal increase of 1.9 million kgs at the end. South India closed at 170.97 million kgs, with a gain of 24 million kgs against last year's figure of 204 million.

There were uncertainties on the market front as well. Prices remained depressed up to the middle of October, especially for below best CTC teas. South India and Cachar were the worst sufferers. Buyers continued to live from hand to mouth in view of the larger crop and sluggish market. The North Indian dust market in particular, except in the initial months, maintained disappointing levels.

The main reason for low prices of dusts is in the name itself. Over the years, consumers have come to believe that dusts are inferior to other grades as in their minds they equate tea dust with dust or sweepings. Despite the fact that the dust grades produce a higher cuppage and a stronger brew, there is a considerable consumer resistance to them. Since dusts originate from the same bulk as leaf grades like BP, BOP, and fannings, there is need to educate the consumer. If not, it would be worthwhile changing the momenclature of these grades to say fines or tea powder, like coffee powder. Otherwise, the South Indian dusts may also start to suffer, due to this anomaly and psychological disadvantage.

Estimates of home consumption also proved to be wrong. Many calculated the internal demand at 440 million kgs, taking 0.55 kg as the maximum per capita requirement. The low rate of consumption in the preceding drought years colored their judgment.

As things turned out, in the end, the home requirement is a minimum of 0.6 kgs per capita, making the Indian internal requirement 480 million kgs plus.

The pipeline today is completely dry. The internal demand is rising at between 15 and 20 million kgs each year and production increase has to be at least 30 million kgs to satiate both export and internal demand. The consumption in the low consuming states of India is picking up, particularly in eastern Uttar Pradesh (the highest populated state in India) along with adjoining areas of Bihar, which were, in the past, marginal tea drinking regions.

Phenomenal Consumption

There has been a phenomenal growth in tea consumption in cities like Hyderabad, Bangalore, and Vijayanagaram, generally associated with strong coffee following. Another factor which is adding to internal tea requirement is the fact that the states of Gujarat and Punjab, which are large consumers of tea, are showing a steady growth. In these states, tea is boiled with milk. Furthermore, when tea is boiled with milk, the tea leaves, after one use, are generally thrown away and therefore more tea leaves are required.

Again, while the crystal ball predicted a much lower price average in 1988, all of a sudden, in November, the market started moving up and it became evident that there were miscalculations on demand and supply.

Both the exporters and the internal buyers were caught short and in the end bought more than they had expected to buy in the beginning.

The cost of production continued to rise at a faster rate than price escalation, which over a period is virtually negligible in real terms. As opposed to this, in commodities like pulses, oil, wheat, rice, and several others there has been a steady rise in prices almost every month. Again, vegetable and meat prices have more than doubled themselves in a span of a few years. Tea prices must, at least, increase in line with cost rise, if the industry is to maintain a steady growth.

The growing conditions in 1989 in the North East, which contributes 75 percent to the Indian crop, have been, by and large, satisfactory. The rainfall has been adequate in all tea growing regions of the North East. However, South India is experiencing unfavorable weather conditions. The crop position generally becomes clear in August, but the current estimated suggest that the all-India crop in 1989 will be again around 700 million kgs. There could be approximately 15 million kgs increase in the North East tea crop, which is likely to be neutralized by the decline in the South India production.

On the export front, the expectancy, at present, is at least 240 million kgs. The main factors are the Soviet Union's requirement, which is pegged at 135 million kgs, plus 10 million or marginally more for Pakistan. It would seem that a higher trade with Pakistan may not be all that easy. It is true that for this market, price is a constraint but another problem will be taste. Over the years, Pakistanis have got used to the thin and bright liquors of Kenya and the gutty thick liquoring teas from India are not meeting their taste. After the removal of restrictions on tea trade recently, Pakistan tea buyers started operating strongly in the Mombaza auctions and have practically withdrawn their support to Bangladesh teas, which are of a different variety.

Although in the closing months the gap between plainer and good varieties has narrowed considerably--which is an indicator of good times ahead--it must be the motto of all producers to stick to the path of quality, as quality pays handsdown, particularly in depressed market conditions. Another fact which must be remembered is that the international levels are today considerably lower than Indian prices at home. The world supply and demand equation can affect India in a year of plenty. Exports which are putting pressure on Indian supply can have a depressing effect if even 10 million kgs of exports are lost in price-sensitive areas.

All in all, 1989 is likely to be a good year for tea trade and industry with the balance titled somewhat towards the producers.
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Author:Dudeja, Vijay
Publication:Tea & Coffee Trade Journal
Date:Sep 1, 1989
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