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January 18, 2010

Tea shortage to widen as rising demand exceeds supply

by Thomas Kutty Abraham

A global tea shortage may widen this year and extend into 2011 as a rebound in production in Africa, Sri Lanka and India trails demand growth, the world’s biggest tea-plantation company said.

The deficit may reach as much as 130 million kilograms (287 million pounds) by April, compared with the 110 million kilograms forecast in September, and prices may rise to a record again this year as shortages persist, Aditya Khaitan, managing director, of McLeod Russel India Ltd., said in an interview. The deficit was estimated at 100 million kilograms last year.

Tight supplies will increase costs for tea marketing companies including Tata Tea Ltd., owner of Tetley brands, and Unilever Plc, while boosting earnings at producers McLeod, and Jayshree Tea & Industries Ltd. Prices reached a record at the world’s biggest auction centers last year after dry weather in Kenya, Sri Lanka and India cut output.

“I don’t think any of the three big producers have the wherewithal to make up for the shortfall,” Khaitan said yesterday. “We are seeing consumption growth taking place not only in India, but also in the Middle East, Pakistan, Egypt and mature markets like the United Kingdom and Ireland.”

India’s biggest tea-growing states of Assam and West Bengal won’t produce tea until early April as the plantations enter the so-called “cold period,” Khaitan said. The nation will need an additional 35 million kilograms to meet a 3.5 percent growth in demand this year, he said.

India’s output in the 10 months through Oct. 31 dropped to 830.4 million kilograms from 832.5 million a year ago, according to the state-run Tea Board. Exports declined 12 percent to 150 million kilograms in the January-October period.

“Most tea packers are currently operating on a hand-to- mouth level of inventory,” Azam Monem, McLeod’s sales director said. “Tea packers are able to pass on the increased cost of leaf prices to consumers, without much of a problem,” he said.

Mcleod’s shares rose as much as 6.2 percent to 291 rupees in Mumbai today.
African tea prices rose to a record $3.12 a kilogram at the world’s largest auction of the leaves in Mombasa, Kenya, Africa Tea Brokers Ltd. said on Dec. 23. Kenyan tea output dropped 9 percent to 278 million kilograms in the first 11 months of the year, the Tea Board of Kenya said on Dec. 23.

Sri Lanka, the world’s fourth-biggest grower, produced 263.8 million kilograms in the 11 months to November, 12 percent less than a year earlier, according to the Sri Lanka Tea Board.

“The buoyancy related to prices will remain,” Khaitan said. “There will be a few aberrations, depending on supply- side developments, but the base of prices will remain strong.”

Prices of top-quality Assam tea have gained almost 50 percent in the past year to around 130 rupees ($2.81) per kilogram and may advance further, Khaitan said.

“My expectation is that we will open the month of April on a very strong note and build up over that,” Khaitan said. “International prices are still strong and Indian prices are much lower than international prices.”

To be sure, tea prices should decline this year amid more “normal” weather patterns in the main producing regions of Asia and Africa, the United Nations’ Food and Agriculture Organization said in a report on Dec. 22.

India, the world’s largest tea consumer, won’t boost exports to benefit from record global prices as local demand rises, Khaitan said.


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