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January 04, 2010

Indian tea company buys estates in Uganda

by James Lamont

McLeod Russel, the world’s largest tea producer, has hit the acquisition trail in Africa, buying estates in Uganda to boost its production beyond India.

The Kolkata-based company bought James Finlay (Uganda) and its six tea estates for $30m at the end of a year in which tea prices have reached record levels as poor weather affected crops. The FAO tea composite, an indicative world price for black tea, reached a high of $3.18 a kilo in September compared with an average price of $2.38 in 2008.

The purchase of Rwenzori Tea Investments, the company owned by James Finlay, is expected to be completed by mid-January. The Ugandan company has a turnover of about $30m and produces 15m kg of tea a year. Aditya Khaitan, managing director of McLeod Russel, has ambitious plans to expand his company’s tea production outside of India to 20-30 per cent of total production in the next five years.

African tea companies trade at a considerable discount to their Indian counterparts. The Ugandan acquisition brings the company’s output to about 95m kg of tea a year, of which almost half is exported.

McLeod Russel, listed on the Bombay Stock Exchange, has been growing tea in India since 1869 and manages 47 tea estates in Assam, India’s north- east, and six tea estates in West Bengal.

Droughts in India, Sri Lanka and Kenya pushed tea prices up to record levels in 2009. The United Nations Food and Agriculture Organisation predicts that tight global supplies should be eased by normal weather patterns in leading producer regions in 2010. But it fears that producers might respond to high prices by planting more crops and triggering an oversupply of tea.

Tea drinkers in the developing world have seen substantial price increases.

Retail tea prices in India were up 15 per cent in September compared with the same month last year while tea prices in Pakistan increased by 12 per cent over the same period.

Financial Times

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