Domestic tea prices had witnessed a considerable uptick in FY2021 due to a significant supply-demand mismatch.
The possibility of a sharp increase in wages threatens the prospects of tea companies having estates in Assam in FY22 after a good FY21, according to rating agency ICRA.
As per the notification issued by the Assam government on February 23, the state government had notified an interim enhancement of wages for tea plantation workers by Rs. 50 per day with effect from February 22, 2021, till finalisation of the revised minimum wages proposed earlier. However, the wage rate hike was stayed by the Gauhati High Court on March 16, 2021, while hearing a petition filed by the Indian Tea Association and several other bulk tea companies. The court also allowed the tea companies to set the enhancement until the final hearing is concluded. Based on these instructions, the Indian Tea Association, by end-March 2021, decided to increase the daily wages in Assam by Rs 26 per day, which is in line with the wage rate increase announced in West Bengal in January 2021.
Commenting on the same, Mr. Kaushik Das, vice president and sector head, corporate sector ratings, ICRA, said: “While the matter is sub judice, the increase in wage rates, as notified by the GoA, would increase the cost of production by Rs 25 per kg for Assam gardens, as per ICRA’s estimates. Such a large increase has the potential to reverse the material improvement in financial performance that the industry had witnessed in FY2021. While the current price trends are firm, any significant reversal in prices may lead to a deterioration in the financial health of the NI- based bulk tea companies”
Domestic tea prices had witnessed a considerable uptick in FY2021 due to a significant supply-demand mismatch. While the domestic production declined by almost 135 million kg, the consumption continued to remain firm, thus supporting bulk tea prices. Although, the increase in prices was witnessed in both the crush-tear-curl (CTC) and the orthodox varieties of tea, the improvement had been the sharpest for the CTC variety from Assam, average prices of which were up by Rs 70 per kg in FY2021, while that of orthodox teas were up by Rs 50 per kg.