India, the world’s fourth largest tea exporter, is losing ground to China as its domestic market grows.
While it is the second largest tea grower, domestic demand has steadily increased leading to less and less tea for export. Exports reached a recent high of 222 million kilos in 2010 but have since dropped to 201 million kilos (2014). Total production was 1,201 million kilos or about 10 times exports.
A 28 million kilo decline between April 2014 and January 2015 led the India Tea Board to encourage growers to strengthen their exports. However, suppliers are experiencing softening pricing in regions like North America, Pakistan and Europe while prices are firming within the country due to lower yields, according to reports in The Business Standard newspaper.
Dry weather during the early months of 2015 already has lowered yields in Assam, which is India’s largest tea growing region, making it unlikely the country’s output will exceed last year’s totals. Production declined by nearly 12 million kilos in March. A May heat wave that has brought temperatures as high as 118-degrees has shocked tea plants into no longer producing leaves. Sustained heat waves of a few weeks can lower yields for the entire year.
Volatility in the export markets is another cause with Russia and the CIS countries ordering less tea in the past year due to the falling price of the ruble. Several Middle Eastern export destinations such as Egypt and Libya, Syria and Iraq are dealing with social and political upheaval. In the past Iran purchased 20 to 25 million kilos of Indian tea but last year exports fell to 15 million kilos. Neighboring Bangladesh imposed an import duty to boost its domestic tea industry and generate badly needed cash. As a result, India’s exports to Bangladesh declined 4.6 million kilos.
Exports have also been impacted by a recent change in foreign trade policy.
“Under the MEIS (foreign trade subsidy) the benefit was reduced from 5% to 3% for bulk teas which will adversely impact the competitiveness of tea in global markets,” the India Tea Association said in a statement published in the Economic Times.
Source: The Business Standard, Economic Times