Rising costs, muted realisations likely to hit profitability of tea firms; share of exports to stay at 18-20%: Report

Mumbai: Rising costs and muted realisations are expected to dent the profitability of tea companies, says a report. It expects prices at tea auctions across the country to close calendar year 2018 at Rs 145-146 per kg on average, 3-4 percent higher on-year, compared with a compound annual growth rate of 1.4 percent logged over calendar 2012-2017. In March 2018, tea estate workers’ wages increased significantly by 22-25 percent in north India, which accounts for approximately 80 percent of the country’s total tea production, CRISIL noted, adding that labourers in Assam have demanded a further hike of Rs 17 per day, which is being discussed and, if implemented, would add to the burden of planters. The rating agency observed that the domestic market is saturated, with penetration as high as 99 percent among the tea-drinking population, which has limited growth potential and increased the players’ dependence on exports to maintain the overall demand-supply balance in the domestic market and thereby prices. Both Kenya and Sri Lanka accounted for only 13 percent of global tea production, but cornered 39 percent exports share during the year.