17 September 2009

Global Tea Shortage to Increase by 10% as Drought hits Kenya, Sri Lanka and India

08th September 2009, www.bloomberg.com

A global tea shortage may increase by 10 percent next year as droughts in Kenya, Sri Lanka and India, the top exporters, damage crops and propel prices to a record, the world’s biggest tea plantation company said.

The deficit may widen to 110 million kilograms (243 million pounds) by May to June next year, compared with 100 million kilograms this year, Aditya Khaitan, managing director, of McLeod Russel India Ltd., said in an interview. Record tea prices in Kenya and India may gain by another 15 percent in the next 12 months, he said.

Reduced 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, Goodricke Group Ltd. and Jayshree Tea & Industries Ltd. African tea prices rose to a record at auctions on Aug. 29, while Indian prices have gained an average 25 percent this year.

“I don’t see any relief for tea consumers for the next one year,” said Harsh Gupta, an analyst at SMC Global Securities Ltd. “The global shortage isn’t likely to be overcome anytime soon as prices will firm up further.”

Stagnant prices for almost a decade since 1999 caused some tea estates to close and forced plantation companies to cut investment in replanting old bushes and adding new machines, McLeod Russel’s Khaitan said by phone from Kolkata yesterday.

“Tea is playing a catch-up with other agriculture commodities, which have shot up in the past couple of years,” he said. “The tea deficit is here to stay and the prices will continue to rise.”

Kenya, Sri Lanka
India, Kenya and Sri Lanka together account for more than 50 percent of global tea exports. India’s tea output this year may drop 20 million kilograms from last year’s 980.8 million kilograms, Khaitan said.

India’s tea production in the seven months to July dropped 3.3 percent to 461 million kilograms after the weakest monsoon in at least seven years caused a drought in 278 of India’s 626 districts this year. That may create a deficit of 50 million kilograms next year, Khaitan said.

“Drought is only one reason for prices to take off,” he said. “Years of neglect because of stagnant prices took a toll on production over the years.”

The record prices may help companies resume investment in developing plantations and raising output, Khaitan said.

The harvest in Sri Lanka, the world’s fourth-biggest producer, declined 32 percent in the six months to June to 130.5 million kilograms, according to Sri Lanka Tea Board data.

Kenyan Production

Kenya’s crop this year is about 161 million kilograms, 21 percent lower than a year earlier, Africa Tea Brokers Ltd. said in a report on Sept. 4. The Kenya Tea Development Agency, the country’s biggest grower and exporter, said on Aug. 14 that a “serious” drought will cut production “heavily.”

India, the world’s largest tea consumer, won’t boost exports to benefit from record global prices as local demand has increased 1 percent on average over the past few years, Khaitan said. Shipments in the January-July period totaled 94 million kilograms, 14 percent less than the 109.3 million kilograms a year earlier, according to the state-run Tea Board of India.

To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net

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