India tea prices Climb 20 percent consumption growth Drops

India's tea consumption registered a marginal 0.70 percent growth in 2009-2010 due to the rising prices of commodities, a sharp drop from the 3-3.5 percent rise in the previous years. Rising prices may boost profits at growers including McLeod and Jayshree Tea & Industries Ltd., and raise costs for Unilever Plc, Tata Global Beverages Ltd., the owner of Tetley Brands, and other companies that buy leaves from India. Output in Kenya, the biggest exporter, and Sri Lanka, the fourth-biggest grower, may stagnate in 2011 after rebounding this year, said Monem.

"We have seen a steep rise in commodity cost during the last two years. This, combined with inflationary pressure on sugar and milk, has actually resulted in a drop in consumption per household for the category as a whole," Tata Global Beverages Vice President Susanth Dash told reporters.

He said tea production this year will slump to 957 million kg from 979 million kg last year. When asked whether the low production will affect his company, Dash answered in the negative.

The official was here for the relaunch of its flagship brand Tata Tea Premium that first hit the market in 1985. Key elements of the relaunch includes a new younger brand logo and pack face designed to create a stronger identity for the brand.

The company has also come out with a new TV commercial devised for the brand that will be aired from Thursday.

Following the relaunch, the company expects to record a eight-nine percent volume growth in the next 12 months. Its present growth rate is two-three percent.

Tata Global Beverages, formerly known as Tata Tea, is the world's second largest tea company with a turnover of USD 1.5 billion and a presence in over 40 countries.

Tea prices in India, the top grower after China, may climb 20 percent in the next five months as lower output and rising demand worsens a shortage, according to McLeod Russel India Ltd., the largest tea-plantation owner.

Average prices in Assam, which accounts for more than half of production, may reach 180 rupees ($4) per kilogram by April from 150 rupees, Azam Monem, marketing director at McLeod, said in a telephone interview. Pest attacks may reduce the crop by as much as 25 million kilograms to 955 million kilograms, he said.

?We?re at the thin edge where any inconsistency in weather or cropping pattern has an immediate spiking effect on prices,? Monem said in a phone interview. ?The ripples will be felt from January as you?ll be living off inventory.?

McLeod may get an average 147 rupees to 150 rupees on every kilogram sold, compared with 137 rupees to 138 rupees last year, he said. Production may decline to about 4.5 million kilograms, he said. Output totaled 77.2 million kilograms in the year ended March 31, according to the company?s annual report.

Countrywide production slipped 9.6 percent to 120.7 million kilograms in October from a year earlier, the Tea Board of India said Dec. 6. The supply deficit may more than double to 100 million kilograms in the year starting April 1, Monem said.

Exports in the January-to-October period gained to 163.1 million kilograms from 157.6 million a year earlier, the board said. An increase in exports amid a drop in supplies may drain inventory and support prices, said Monem.

?As we approach the close of the season and once factories stop production and supply lines dry up in the north, a lot of people live on stocks,? he said. ?Stocks will be drastically reduced as we get into the new crop year? starting on April 1.