CHAI – THE SIP WILL ONLY GET TASTIER!

At a time when it is a persistent endeavor to make our humble cup of chai into a ‘national drink’, chai itself seems to be on a high!

One man’s misery is an opportunity for the other. There is a drought in Kenya, which has severely impacted its tea production but this automatically spells good news for the Indian tea producers. Rains in April were expected to peak in Kenya but it was more sporadic, leaving most of the tea plantation areas parched.

Just the second flush of India tea have started arriving into the market, Kenyan tea prices have surged 15%. This in turn means, Indian tea which is in the market currently will automatically command a much higher price.

So on one hand, there could be a much higher price realization and on the other, in terms of volumes too, we could see a rise. The shortfall in Kenyan tea exports will present an opportunity for Indian exports to Egypt, UK, Pakistan, Russia and Afghanistan.

This comes as a blessing because last year, Kenyan tea prices had slumped, forcing down tea prices too as production in 2018 was at a record high.

The fall in production in Kenya is so much that tea growers there have sent 50% of their workers on leave or assigned them to other non-core jobs.

India exported 1% less in 2018 at 249 million kg of tea compared to 2017 and in the first two months of 2018, exports had shown a drop of 7% in terms of volume but rose 9% when it came to realization.

So in the coming months, we could see a spike up in volumes as well as price as we are sure to see this showing up in the two weeks beginning now as the second flush CTC tea has already started arriving at the auctions.

McLeod Russel, the largest tea grower of the world has said that tea prices are expected to rise and hence new higher prices could be seen from second quarter.

This anticipation of higher tea prices, in the coming days could keep tea stocks 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.

Q2FY20 looks much better in terms of higher price realization for tea companies and that’s something to look forward to. 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…..