Tea Estate Margins to Shrink in 2023-24: Report

Mumbai, Dec 20 (PTI) Margins of tea estates of north India, West Bengal, and Assam are likely to be impacted in 2023-24, following rise in input costs due to wage hikes and drop in realisation, a report said on Wednesday.

The Operating Profit Margin (OPM) of bulk tea players in these parts is expected to be significantly impacted in FY24, and, given the current operating environment in the tea industry, both domestic and international, any improvement in profitability during FY25 appears unlikely, the report by ratings agency Icra said.

The margin for these tea estates will be significantly impacted in FY24 due to the double whammy of increase in the cost of production, following wage rate hikes in West Bengal and Assam, and the drop in realisation due to low export demand and a sluggish rural consumption, it said.

Owing to these factors, the rating agency revised the sector outlook to negative from stable.

The all-India Auction Prices of Orthodox (ODX) tea in the January-October period in 2023 witnessed a decline of Rs 51 per kg on a year-on-year (YoY) basis.

The price fall witnessed in south India ODX tea was, however, limited to Rs 7 per kg during the same period mainly due to lower export demand, primarily from Iran.

"A sharp decline in exports to Iran, Russia, and the UAE has impacted tea prices at auction centres in India in the current year," Icra Vice President and Sector Head, Corporate Sector Ratings, Sujoy Saha said.

"Direct exports to Iran, which is primarily an ODX market, have decreased by 80 per cent during the January-September period. Consequently, prices of ODX teas, mostly exported from India, have declined more than Rs 50 per kg," he said.

Tea output in Kenya is likely to increase in 2023 over the previous year, given that their production in the first eight months is already up 7 per cent on a YoY basis.

Although production in Sri Lanka has risen in the January-October period, full-year production will still remain materially lower than the pre-pandemic level in 2019, it added.