Business Standard

Wage costs, low prices add to tea firms’ woes

Both West Bengal and Assam raised wage rates from June and October 2023, respective­ly

- ISHITA AYAN DUTT Kolkata, 21 February

Higher wage cost and lower price realisatio­n weighed on the performanc­e of tea companies in the three and nine-month periods ended December 31.

Both West Bengal and Assam hiked wage rates from June and October 2023, respective­ly.

Moreover, tea prices took a hit in 2023. This showed up on the financial performanc­e of tea players. For the nine months of FY24, most companies reported a sharp drop in profitabil­ity.

In Q3FY24, at least two listed tea producers, Goodricke Group and Dhunseri Tea reported losses. For Mcleod Russel, the loss widened in Q3FY24 compared to Q3FY23.

ICRA senior vicepresid­ent Jayanta Roy said wage is the primary cost driver for the tea industry.

He added, “The impact of wage hike by Assam and West Bengal government­s last year is to the tune of ~9 per kg of production. Moreover, the price of CTC tea was down by almost ~9 per kg and orthodox tea by ~55 per kg in 2023. That has had a negative impact on all tea companies.”

“Given that there is no production in North India during winter, we believe that FY24 is going to be a weak year for the tea industry,” he said. According to an ICRA report dated December 2023, the cumulative North India orthodox price in 10 months of 2023 declined sharply by 25 per cent year-on-year (Y-O-Y). Prices of South India orthodox fell 5 per cent during the period. The cumulative North India CTC auction price declined in 10 months of 2023 by 5 per cent.

The stress

Chandra Kumar Dhanuka, chairman, Dhunseri Tea, said that five estates were added during the year. “They were acquired towards the end of January and we couldn’t do the core season work. So, there was a significan­t loss in crop. But this has now been taken care of and hopefully the coming year will be good,” said Dhanuka.

However, he also said that only a floor price for tea would ensure good times for the industry.

Goodricke Group managing director (MD) and chief executive officer (CEO) Atul Asthana attributed the drop in profitabil­ity to the drop in tea prices and higher cost.

“During the nine-month period, the company’s own crop was higher by 7.5 per cent over the correspond­ing period of the previous year. But sale prices were lower and wage cost increased, impacting profitabil­ity.”

Vikash Kandoi, executive director, Jay Shree Tea & Industries, said tea had been very badly hit, especially Darjeeling.

He said, “Our revenue from Darjeeling is small, but the losses are significan­t at ~100-200 per kg. This has been a challengin­g year for the industry with geopolitic­al issues impacting exports.

But we hope that next year will be better.”

Jay Shree Tea’s numbers are showing an improvemen­t in performanc­e, but it’s on the back of income from related activities.

Rossell India’s performanc­e in nine months of FY24 shows a sharp drop in profitabil­ity on the back of a drag in the performanc­e of its tea division. Nirmal Khurana, director (finance), said this was one of the bad years for the tea industry. He said, “The crop is down, realisatio­n is less and wages are up.”

According to an ICRA report dated December 2023, the cumulative North India orthodox price in 10 months of 2023 declined sharply by 25% year-on-year. Prices of South India orthodox fell 5% during the period. The cumulative North India CTC auction price declined in 10 months of 2023 by 5%

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