Indian tea prices have dropped by 20% in a month as arrivals increased in auctions amid subdued demand.

Price of the Orthodox tea variety has seen a pick-up in the wake of slackening Sri Lankan shipments following economic turmoil in the country. But Orthodox tea constitutes only around 10% of the total tea produced in India.

The CTC (crush, tear, curl) tea production that accounts for a major chunk of Indian tea output has risen helped by good rains.

“The production of tea has increased from April from both corporates and bought leaf sector (BLS). The availability of cheap teas especially from the latter has suppressed demand for higher grades teas. However, the rise in the natural gas prices has raised the cost of production in the estates in Assam,’’ said A Bhattacharya, deputy secretary of the Indian Tea Association, Assam.

The average yearly tea price in 2021 was pegged at Rs 173.63 per kg, down from Rs 184.68 per kg in the previous year. But 2020 is regarded as an abnormal year by the industry because of the pandemic, which created a supply shortage, leading to escalation in prices. Tea prices in 2022 have remained below the average price of 2021 except for a brief period.

Production in South India was normal until April but it is feared that surplus rain this month will spoil the prospects of a good crop in June- July.

“We haven’t got a dry period this month, which has seen excess rains. The production will be affected in the next couple of months,’’ said Mathew Abraham, managing director f Kanan Devan Hill Plantations (KDHP), the largest tea company in South India.

While domestic demand has remained flat, exports too have not gone the way the industry wanted. Russia is the largest buyer of Indian tea followed by Iran. India is encountering difficulties in shipping tea to both these countries.

“There are payment issues for shipments to both these countries and hence exports are not smooth. We hope to get some clarity on these matters soon,’’ said Deepak Shah, chairman of the South India Tea Exporters Association.

Sri Lanka is a major supplier of Orthodox tea in the world market. Its exports have dropped with its economy in a shambles.

“In Sri Lanka, the situation is bad with a fall in tea production. Power cuts have affected the quality of tea produced. But the Orthodox tea prices did not pick up as we expected in the global markets. Of late, the prices are moving up,” Shah said.

Freight rate increases have also pulled back the exports.

“The market has not moved up because of high freight rates. But with shortage in the world market, a lot of enquiries are coming and in the next two months we may see exports increasing," said Anil George Joseph, vice president, Tea, Harrisons Malayalam.

Another factor affecting export is a container shortage. Sumit Shah, executive director of Madhu Jayanti International Ltd. which has a tea manufacturing facility in Vladivostok in Russia, said the non-availability of containers is affecting shipments.

“There is significant demand for tea in Russia with the exit of MNCs in the country. The consumption has increased and prices have gone up. which has put pressure on the sales of higher-grade teas,” he said.

He reckons that depreciation of rouble against the dollar is one factor that has driven prices up as imports became costly. “But the rouble has started appreciating and we expect the prices to ome down. We expect to export more tea to Russia,’’ Shah said.

The company buys green tea at auctions in India and sends them to Russia for making tea bags and other varieties.