April 29, 2020
Hardworking growers across tea plantation in India had increased production of tea to 4% in 2019 but prices are falling steadily as domestic consumption stagnates and exports fall continuously in wake of COVID-19. Global low demands, shipping delays and travel restrictions at this time are driving down prices and adding problems to a global tea surplus.
At the outbreak and in lockdown situation, India’s tea exporters experienced drastic declines in bidding at tea auctions across the country. The total amounts of tea for export remain unsold due to a viral shutdown in trade by Iran, which annually imports around 50 million kilos (m.kg) of Indian CTC black tea (cut, tear, curl).
By data analysis, in 2019, exports to Iran exceeded Russia, rising 74% to 53.5 m.kg at prices that averaged US$3.73 (INR 276) per kilo. The promising Chinese export market for milk tea blends that grew by 30% to 13.5 m.kg last year now stands flat. January month did not see any exports to China. Prices declined by 40% in Kolkata to US$2.70 (INR 200 to INR120-130), and volume was down 65% at the Kochi tea auction in the second week of March. In Kochi, tea auction bidding was vigorous only at the lower end, where plain grades sell for $0.93-$1.05 per kilo. The best-quality leaf teas were auctioned at $3.13 per kilo, plunging well below last year’s prices for specialty grade of tea varieties.
Indian Tea Exporters’ Association chair Anshuman Kanoria said, “Iran is a critical market for us. There is a concern about demand for new-season tea from the Persian Gulf nation due to the coronavirus outbreak.”
In the overall global view, to have a look into the tea market; Japan buys about 5 million kg of Darjeeling tea, unexpectedly withdrew from the scheduled exhibition of Indian teas. The future post lockdown is perceived with a combination of developments could make the situation terrible. These include: greatly reduced exports to Pakistan, which was the fourth-largest importer of Indian tea before hostilities over Kashmir last year; Brexit, which has led to a 25% reduction in exports to the UK; demand going lower in the Middle East, the scene is not only visible in Iran but also in battle-damaged countries like Iraq, Syria and Libya all facing a very complicated likely global recession.
Travel and transport struggles
Spring is the time when specialty tea buyers travel miles to place of origin to sample and negotiate directly with tea growers. And March is that season when sales representatives plan their travel to visit thousand tea companies to export destinations for presenting the new harvest sample to international commercial buyers. By the onset of June the supplies gets depleted.
With COVID-19 making an entry in India, neither the buyers nor sellers are likely to be meeting till situation comes under control. India has restricted the issuance of all visas for global travelers especially for Europe and Japan, who are the two largest trading regions. First-flush buyers usually have a visit to Darjeeling, where 20% of the annual 8 m.kg attracts the highest prices, accounting for more than 60% of total sales for the year.
A catastrophe is in the making, according to the Darjeeling Tea Association: “The buyers from Japan and EU won’t be able to fly down to India due to visa revocation by the government. The cancellation of flights by the airlines to affected countries means tea cannot be airlifted to importing countries. If foreign buyers cannot come, they are unable to taste, select, and buy tea of their choice.”
Government offered subsidies
Indian government announced it would distribute $600,000 as subsidies to 1,344 tea undertakings, including that of 1,091 small tea growers. About $285,000 was to be deposited into their registered accounts with a similar amount given to 32 factories to begin producing orthodox tea. The subsidies also includes aid for children of tea workers that has been pending for quite some time.
Currently, the tea warehouses are holding around 50 million kg surplus into the new harvest year. Predicting that the exports will definitely decline, the Tea Board of India is pushing domestic consumption, which has been stagnant, worsening as production increased by 4% last year to a record of 1,390 m.kg.
Additional funds were allotted to tea producers to boost domestic consumption in regions like Bihar, Gujarat, Odisha, Rajasthan and Haryana, where tea consumption is lower than in producing regions like West Bengal and Assam.