India's tea obsession not enough to save 80 mn kg decline in output

India’s tea output may decline by 80 million kg in 2020, resulting in a loss of ₹2,000 crore, due to the lockdown, according to an industry body.

Tea prices at farm gates have increased by ₹60-70 per kg as the nationwide lockdown to control COVID-19 outbreak has severely affected work at tea plantations, the Federation of All India Tea Traders Association (FAITTA) said in a statement.

However, retail prices have not increased, it said.

“The annual tea production in India is around 1,300 million kg. However, because of restrictions imposed during the lockdown, fewer workers were deployed in tea plantations, affecting production in March and April,” FAITTA Chairman Viren Shah said in the statement.

“We expect tea production in 2020 to decline by around 80 million kg as a result, which would translate into a loss of ₹2,000 crore to the tea industry,” he added.

Tea consumption in India is estimated at around 1,080 million kg per year, that is around 90 million kg in a month.

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The out-of-home tea consumption, which is driven by roadside tea stalls, restaurants, cafes, and hotels, offices, and industries, is around 40 per cent, that is 36 million kg per month.

However, since all of these were closed for nearly two months, tea consumption would have declined by over 70 million kg.

“Sales data of tea packers operating in the retail market confirms the significant decline in out-of-home tea consumption,” Shah said.

Consumption of tea at home would have increased during the lockdown, but it would not be adequate to compensate for the fall in out-of-home consumption.

The federation said that the average increase of ₹60-70 per kg in farm gate prices does not reflect the real demand-supply scenario.

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“The irrational scramble for tea is unwarranted in our view as the market dynamics do not reflect any significant supply-demand mismatch. Demand and supply are broadly in balance,” he added.

While tea cost has gone up, there are serious constraints for tea packers and retailers to hike prices, it said.

“Tea is a staple drink of most households in India, but its consumption has been affected by declining disposable incomes.

“The lockdown has led to severe economic hardships among a large number of people, and a hike in retail prices to offset increased tea costs can further impact demand for tea. This has put tea packers and retailers in an extremely difficult situation,” Shah said.