Tea industry may continue to face challenges in 2021-22: ICRA

25 Jan 2021 Evaluate

Rating agency ICRA in its latest report has said that the tea industry may continue to face challenges in the next financial year (FY 2021-22) with hike in wages and its impact on prices, as production returns to normal. It also expects the challenges for the tea industry to remain in 2021-22, after considerable improvement in performance during 2020-21. It said that the impact on bulk tea prices once the production returns to normal in the new season would be a critical factor determining the profitability in the next financial year. it added that West Bengal has recently announced a 15 per cent increase in wage rates, on an interim basis, which would increase the cost of production for bulk tea companies.

The report stated domestic tea prices have witnessed a significant increase in the current financial year, with the North India (NI) auction average increasing by 46 per cent y-o-y during April-December 2020 and the South India (SI) auction average up by 41 per cent during the same period. Tea prices witnessed a sharp increase on the back of a 10 per cent fall in domestic production, while consumption remained firm. While tea prices moderated during November-mid December 2020, following a seasonal quality decline amid normal production levels in September and October 2020, the prices rebounded in the recent auctions in the domestic market in the calender year 2020. Thus, the profitability of NI-based bulk tea players is expected to witness a significant improvement in 2020-21, on the back of a sharp improvement already witnessed in the first half of 2020-21 and significantly lower losses expected in the second half of 2020-21.

However, the rating agency stated the sustainability of the same in 2021-22 will depend on the price and input costs. ICRA Vice-President and Sector Head (Corporate Sector Ratings) Kaushik Das said, 'While it would be premature to comment on the exact level of tea prices, nonetheless, overall prices are likely to witness a negative bias, once the production returns to normal in the new season.' He added that trend in prices apart, another challenge facing the industry is the increase in wage rates. 'West Bengal has already announced an interim wage increase, Assam is also likely to follow along similar lines.' Das also said the sustenance of the healthy profitability would be critical to ensure the long-term financial health of the bulk tea industry.

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Tea industry may continue to face challenges in 2021-22: ICRA

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