Tea Shortage to Worsen as Pests Damage Crop in India

By Thomas Kutty Abraham

June 22 (Bloomberg) -- A tea shortage in India may worsen as pest attacks damage plantations, lowering output and boosting prices, according to the world’s biggest tea-growing company.

Output in India, the top grower after China, may be less than last year’s 979 million kilograms after excess rain hurt tea shrubs in northeast states, which account for more than 70 percent of production, Aditya Khaitan, managing director, of McLeod Russel India Ltd., said in an interview today.

Reduced supplies may increase costs for companies including Unilever Plc and Tata Tea Ltd., owner of Tetley brands, and lift earnings at producers McLeod and Jayshree Tea & Industries Ltd. Prices reached a record at the world’s biggest auction centers last year after dry weather in Kenya and Sri Lanka cut output.

“It may be a good time to get into tea stocks for short- term gains as prices of good quality tea will start to inch up now,” said Anup Ranadive, an analyst with Tower Capital & Securities Ltd. “Last year it was drought that pushed up prices and this year its rain.”

Mcleod’s shares rose 2.6 percent to 194.75 rupees in Mumbai, the highest price since May 31. The stock has slumped 27 percent this year, after surging more than five times in 2009. Jayshree shares jumped 10.9 percent to 274.75 rupees, the biggest one-day gain since Aug. 21. Harrisons Malayalam Ltd. gained 4.4 percent to 123.1 rupees, a one-month high.

A smaller harvest may increase the domestic shortage by 25 percent to as much as 75 million kilograms by the end of 2010, Khaitan said. A 100 percent tax on imports curbs supplies to the market where demand is growing at 3.5 percent annually, he said.

‘Positive Trend’

“The market will feel the shortage in the coming months and the trend is looking positive for prices,” he said. “We’ve seen the high point of production and low point of prices.”

The average tea price was $2.43 per kilogram at the weekly auction held in Kenya’s port city of Mombasa on June 14 and 15, 18 percent more than the $2.06 per kilogram a week earlier, African Tea Brokers Ltd. said June 18.

In India, prices have risen by 15 rupees to 20 rupees a kilogram from a year ago as producers cover their future needs by purchasing at auctions, Khaitan said. Overseas sales may fall by 10 million kilograms to 15 million kilograms from last year’s 191 million kilograms as local demand and prices gain, he said.

Production in the four months through April has risen 12 percent to 162.3 million kilograms and the trend will reverse in the coming months, Khaitan said.

“Whatever increase we had until the end of April has been nullified because of the rain and pest attacks,” he said. “We are in fact going to be way down.”

Northeast India, including Assam and Darjeeling, got rain for 78 of 90 days, causing so-called tea mosquitoes to destroy the leaves, Khaitan said.

Production from Kenya and Sri Lanka, the biggest exporters, may decline in the coming months after a surge in the first five months of the year, he said.

--Editors: Ravil Shirodkar, Richard Dobson