By Ruma Dubey

At a time when a notion is afloat, of making our humble cup of chai into a ‘national drink’ as though protesting against such petty labels, chai seems to be unhappy.

According to the data released by the Tea Board, in the first three months of 2012, tea production has declined by 13% to 82.29 million kg compared to 94.39 million kg in first three months of 2011. In March, tea output fell 16%, down 4% in Feb and 11% in Jan.  Tea production from North India fell 17%, that from Assam fell 27%, that from South India fell 8% and that from West Bengal fell 5% in Q1 of 2012.

 And as per North Eastern Tea Association , production from Assam in April is expected to decline 20%. Usually, these are not the ‘peak’ seasons and hence these tea production figures might not necessarily signal a year of shortage of supply. Last year too, the year had begun on a shortage. But if the same trend continues, which is a mounting worry now, then probably we are looking at a year of shortfall. The North Eastern Tea Association has stated that if the same trend continues, there could be a3% shortage in production from Assam.  The shortage is due to lack of rains.  A 20% decline in rains has been experienced  in all the tea producing districts of Brahmaputra Valley. The Food and Agricultural Organization has stated that tea prices will remain firm in 2012 as black tea demand is much more than the supply.

Opening price of tea has been much higher and it rose at an average of around Rs.40-50 but those on the industry warn that this price is not indicative of the peak season. If rain comes on time and in the right quantity, price is still expected to be Rs.20-25 more than last year.

This anticipation of higher tea prices has kept the stock prices of most tea companies in the green. Though this is good news for companies with their own plantations but for those in the packet tea, this is not very good news as they will have to pay higher procurement prices and how of that cost they will be able to pass on to the consumers, in India and abroad will be questionable.

But before stocking up on all plantation tea stocks, it is pertinent to keep in mind two facts. Firstly, a shortfall in production will mean a higher price but it might  not necessarily result in as much spike in topline when volumes go down.  And secondly, in plantation companies a very important issue to be considered is the mounting wage costs. Though this cost has been frozen for the next three years, till Dec 2014. Effective 1st Jan 2012, the agreement is that there will be an increase of around 15-16% in the first year and then 5-7% for the next year. McLeod Russel, the largest tea company in the world, in Q3FY12 posted a labour outgo of Rs.104 crore , which is 38% of its operating costs and 26% of its net sales.  But once again, those in the industry say that the price hike would be more than enough to overcome the wage costs.

The first flush, or the first moths of the year are not exactly the best indicator of the sector ahead but there is no denying the fact that tea prices do look buoyant as of now. 2012 for tea does look promising.

And tea becoming a national drink? There are voices from all over India – why not lassi, or chaas, or kanji or coffee? Now that’s a debate for another day…..