Darjeeling tea trade turns cold on strong rupee

Even as prices of the first flush Darjeeling tea have surged by 15-25 per cent in the international market, primarily on account of less availability of this variety, tea producers might fail to convert the price increase into higher margins owing to currency volatility.

Tea producers from Darjeeling say the price increase has happened majorly in the mid-range bracket, where the tea is sold between ~1,300 and ~1,500 a kilogram (kg), while it’s ~3,000-3,300 a kg for the upper bracket. However, prices have remained stagnant at ~500-700 a kg for lower grades.

S S Bagaria, former chairman of the Darjeeling Tea Association, says on average, the international prices have shot up to $22 a kg (~1,410, at current exchange rate) from last season’s $20 (~1281).

“Production was severely affected on account of erratic weather. Thus, while the net available tea in the international market was low, the demand increased by five per cent, which led to a price rise,” he said. Demand, particularly, increased from Japan, the US, and the UK, while it fell by 20 per cent for top grades from German blenders.

“Although the prices are up, a strong rupee might bring down the actual earnings once the US dollar or the British pound or the euro is converted into the Indian rupee,” said C P Krishnan, director, Geofin Comtrade.

Krishnan, along with a section of tea exporters, is of the view that the rupee is poised to remain strong in the near term. On May 16, led by increased economic upswing, the rupee shot up at a 21month high of 64.05 against the US dollar.

Prateek Poddar, owner of the Namring Tea Estate, which fetched record international prices for a limited quantity of select tea, said, “The effects of the price increase will be balanced by the strong rupee. The (tea) gardens aren’t going to gain much.”

Although the rising rupee has become a bane for most Darjeeling tea producers who rely on export income (80 per cent of this tea variant is exported), some have been able to maintain a margin of ~40-50 a kg for the best grades.

The producers also say an estimated 0.2 million kg (mkg) crop loss in the 1.2 mkg first flush is going to strain their balance sheets further.

Ashok Kumar, managing partner at Goomtee Tea Estate, says tea producers will lose revenue due to low volume. “The cost of production in Darjeeling is 2.5 times higher than Assam, while the yield per hectare is nearly one fifth compared to Assam. Thus, lower volume of production is bound to impact tea producers,” he said.

According to industry estimates, the average yield for the 18155.23 hectare under tea cultivation in the Darjeeling hills is 400 kg per hectare, while it is 2,000 kg per hectare in Assam. Further, the cost of production for average varieties in Darjeeling is ~400-600 a kg, against ~150-200 a kg for Assam tea.