A cup of regular tea has never been this expensive in India, thanks to kooky weather

A cup of regular tea has never been this expensive in India, thanks to kooky weather
A plantation worker busy plucking tea leaves at a tea garden in Assam's Nagaon on June 10, 2019. IANS
  • Erratic weather, coupled with a pandemic, has curbed tea production in Assam, which makes for more than half of India’s total tea output.
  • The price of tea had hit a record high in 2020 and the average price has risen further this year.
  • Branded players like Tata Consumer Products and HUL are giving profit margin to stay competitive and to grab market share from smaller players.
  • There are over a million people, mostly women, working in tea gardens losing productive days and wages due to the pandemic and inclement weather.
  • India is the second largest tea producer after China, and ranks fourth among tea exporting nations after Kenya, Sri Lanka.
The price of tea was already at a record high before the weather in Assam got a bit kooky. And that could make tea even more expensive in the days to come. Companies like Tata Consumer Products and Hindustan Unilever (HUL) may pass on the rising cost or chai (Indian tea) lovers may have to curb enthusiasm for their favourite beverage.

The average price of tea sold at the auctions in Guwahati (Assam) in 2021 has crossed ₹211 per kilogram and in Coonoor (Tamil Nadu), the average price for the year was more than ₹125 in mid-May.

It was the COVID-19 lockdown last year that scuttled tea production and, this year, it’s the worst drought in decades.
Auction marketAvg price for 2021Avg price for 2020
Source: Government data

Manoj Jallan, former chairman of the North Eastern Tea Association (NETA), described the current drought as the worst in 30 years.

"Temperature drop from 34 to 19 degrees Centigrade coupled with hardly any sunshine for the last one week, preceded by temperatures above 34 degree Centigrade is playing havoc with the crop," Mrigendra Jalan, advisor to yet another producers’ lobby, Bharatiya Cha Parishad, told IANS, a news agency.

All in all, the cup of tea is likely to get more expensive in the near future. This is because Assam and West Bengal produce more than 80% of all the tea in India (the world’s second largest producer after China).

A cup of regular tea has never been this expensive in India, thanks to kooky weather
Graphics by Business Insider India.

Business is not entirely bad for the companies. Tata Consumer Products, which sells Tata Tea among other brands, saw the beverage segment (including coffee) grow 59.6% by revenue, and 23% by volume, in Jan-March 2021. Tea consumption in India was already on the rise before work-from-home, forced by the pandemic, allowed people to have more cuppas each day.

A cup of regular tea has never been this expensive in India, thanks to kooky weather
This a picture of the rising tea demand in India before the pandemic struck. The pace of growth has been better in the last year. Business Insider India

However, overall operating profit margin for the company shrank nearly 10% and the primary contributor was the rising cost of buying tea from the estates. Hiking retail prices, cutting employee cost and marketing spends was not enough to protect the bottom line from shrinking.

But that’s just the story of the three months ending March 2021. The business has been booming for Tata Consumer Products, whose revenue has grown 1.6 times and net profit is up nearly two and a half times over the last three financial years.

A cup of regular tea has never been this expensive in India, thanks to kooky weather
The compounded annual growth rate for Tata Consumer Products in the last three financial years is 10.9% for revenue, and 19.7% for profit, according to ICICI Securities report dated May 10. Business Insider India

The tea sellers at Tata Group and HUL are using this period to remain competitive and capture as much of the market as possible. There are many Indians who still prefer cheaper unbranded suppliers. The unorganised market is estimated at ₹9,000 crore a year, by ICICI Securities, compared to the ₹16,500 crore organised segment where Tata Tea has steadily maintained a market share of 20%.

So, the current inflation in tea prices could be a bigger jolt for smaller players as well as the million-plus people working in the tea gardens. Several hundred workers in many tea gardens under at least 15 districts have been infected by the Coronavirus, IANS reported. The Indian summer is the peak harvest and loss of production may also mean loss of wages along with a rise in cost of healthcare.

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