Tea Prices to Climb as India Output Drops on Pests

Tea prices in India, the biggest grower after China, may climb after pests damaged crops in the main growing region, according to McLeod Russel India Ltd., the world’s biggest tea plantation company.

The supply deficit may widen to as much as 100 million kilograms by March and April from 60 million kilograms this year, Managing Director Aditya Khaitan said in an interview yesterday. Output in the northern region, which accounts for more than 70 percent of the harvest, may plunge by 20 million to 22 million kilograms, he said from Kolkata, where the company is based.

Reduced supplies may raise costs for companies including Unilever Plc and Tata Global Beverages Ltd., owner of Tetley brands, and boost profit at growers McLeod and Jayshree Tea & Industries Ltd. Prices of some premium varieties in Assam have surpassed 200 rupees ($4.3) a kilogram, compared with an average 114.86 rupees last year, Khaitan said.

“We’re expecting that the market, which was waiting on the sidelines hoping that crop will come in, will now start jumping to stock up for the winter season,” Khaitan said. “The third and fourth quarter this year should be much better than last year on the price front.”

McLeod Russel’s shares jumped as much as 2.8 percent to 260 rupees and traded at 251 rupees at 2:32 p.m. local time. The stock has lost 3.7 percent of its value this year after surging fivefold in 2009. Jayshree Tea climbed for a second day, adding as much as 3.5 percent to 165 rupees. The stock jumped almost four times last year.

Assam Gardens

Production in Assam, which accounts for half of India’s production, fell 7 percent to 204.5 million kilograms in the seven months ended July because of pest attacks, according to the Tea Board. Output in the northeastern state likely dropped by 8 million to 9 million kilograms in August as incessant rain made hindered picking, Khaitan said.

“The biggest factor is that in spite of African volume being higher, the average price is higher than last year and demand is building up,” said Khaitan. McLeod’s output may decline by 6 percent to 7 percent this year, he said.

Production in Kenya, the largest exporter of black tea, rose 13 percent in July from a year earlier after rains ended two years of drought, according to trader James Finlay Mombasa Ltd. The harvest in Sri Lanka, the second-biggest supplier, is up 23 percent to 195.1 million kilograms in the seven months ended July 31, according to the nation’s Tea Board.

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